See the results of our 2022 Personal Finance Study!
Know Your Car Repossession Rights
Getting behind on your car loan is bad for both your credit score and for the car itself. Since the vehicle is serving as collateral, falling behind on your payments means that the car can get repossessed. While defaulting on a personal loan or even certain kinds of bad credit loans will hurt your credit score, defaulting on a car loan will hurt your everyday life immediately.
And while we have quite a few articles explaining how you can improve your credit score, we haven’t spent as much time telling you how you should handle the threat of repossession. Until now.
Repossession occurs when you can’t pay back a loan that you used collateral to acquire. Technically, the term can refer to any kind of loan, but it is almost always used to refer to auto loans. That’s why you need to know your rights and the steps you can take when facing repossession.
Look back at that contract.
Before you take action, it’s important to make sure you know exactly what you’re up against. That’s why you need to go back to where this all began: the contract. At least, that’s what Justin Lovely, an attorney in Myrtle Beach, told us. His experience comes from representing creditors in repossession cases, but he gave us his perspective on what someone facing repossession from the other side should do.
“First, a consumer needs to look to his contract and read what they signed,” Lovely explained. It may seem obvious, but it’ll allow you to see what options you have. Although it may be too late now, it’s also important to make sure that any updates you might make to the contract are put down in writing.
As the Federal Trade Commission’s website states: “if your creditor agrees to change your payment date, the terms of your original contract may not apply any longer. If your creditor agrees to such a change, make sure you have it in writing. Oral agreements are difficult to prove.”
So make sure you have everything down in writing, and check that writing when the specter of repossession comes up.
Let’s make a deal.
Even if there isn’t anything in the contract you signed that seems like it can help you, that doesn’t mean all hope is lost. You can still work something out with the lender, and odds are they would prefer that route.
“In my jurisdiction, the debtor gets a right to cure [pay the debt before the default occurs],” said Lovely. “When clients send me a repossession file, we send a right to cure notice to the consumer/debtor. Consumers need to understand that companies don't want to repossess the item in question, they always prefer to work out a payment arrangement. Often the arrangement may be better than the current situation he or she is in now.”
The FTC also suggests trying to work out a deal before your car (or house or other collateral) is seized: “It’s easier to try to prevent a vehicle repossession from taking place than to dispute it after the fact. Contact your creditor as soon as you realize you will be late with a payment. Many creditors work with consumers they believe will be able to pay soon, even if slightly late. You may be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract, get it in writing to avoid questions later.”
If you’re not in a state with a right to cure, however, the FTC warns that your lender may not be willing to compromise: “However, your creditor or lessor may refuse to accept late payments or make other changes in your contract — and may demand that you return the car. If you agree to a ‘voluntary repossession,’ you may reduce your creditor’s expenses, which you would be responsible for paying. But even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report.”
You’ll have to deal with it.
As great as it would be to just ignore the looming threat of repossession, that’s a very bad idea. You can close your eyes and hope it all goes away, but realistically, the only thing that’ll be going away is whatever is being repossessed.
“Debtors stay silent and don't call and just let the court date come without showing up,” Lovely warned. “Then it is out of our hands and the Sheriff picks up the collateral. If you are facing difficult financial times and miss payments resulting in a default in your contract, the best thing to do is simply be honest and try to negotiate before the file gets to a lawyer like myself.”
But don’t forget your rights.
Though it will likely benefit you to go out of your way to try and make a deal with your lender, it’s important that you remember your rights so you aren’t taken advantage of. Those rights will vary by state, so you’ll need to look up your specific situation, but here are a few possibilities the FTC outlines:
“Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a ‘deficiency judgment’ — that is, the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.
“Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
“Some states have consumer protection laws that allow you to ‘reinstate’ your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a ‘commercially reasonable manner.’ Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. ‘Commercially reasonable’ may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.
“Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can’t account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.”
In the end...
Facing repossession is never going to be fun.
While we can't promise some kind of magic cure-all for having your car repossessed, we can tell you this: If you face repossession head-on, remember your rights, and deal with the issue as soon as possible, you can make it as painless as possible. And if your lender doesn't follow the rules, you might even stand a chance at getting your car back.
Mr. Justin Lovely (@myrtleinjurylaw) is admitted to practice in all South Carolina Courts and the U.S. District Court for the District of South Carolina. Mr. Lovely is a Certified Guardian ad Litem in South Carolina for Family Law Cases. Mr. Lovely is also a member of the South Carolina Association for Justice, the State’s Trial Lawyers Association. More bio information can be found on his firm’s website.