Vehicle Repossession

If you use credit to purchase a vehicle, the creditor or lessor has rights over the vehicle until you have paid off the last installments on the loan. State law and the credit agreement you sign will contain state these rights. For example, the creditor may have a right to repossess the vehicle if you are late on repayments or default on the loan. Some States require a court order to do this, many do not. The creditor may also have the option of selling their contract on to a third party, called an assignee, who will then hold all their original rights and responsibilities under the contract. Most States will have laws which limit the circumstances in which a vehicle can be repossessed however, and if these are breached, the creditor may be liable to you in damages. Seizing the Car In many states, the right to seize your vehicle arises as soon as you default on a loan or lease. You must read your contract to see what will be regarded as a default. It may be that failure to meet a repayment on time will constitute a default. If you have renegotiated your payment dates or other obligations, the original terms of the contract will no longer be valid. Such changes can be made orally or in writing but it is wise to get all agreements in writing as it is difficult to prove them otherwise. If the creditor or lessor is allowed to repossess your car, they may be allowed to enter your property without giving you advance notice. This varies from state to state. However the creditor will not be allowed to cause a breach of the peace in order to make a repossession, so if the car is in a closed garage or otherwise difficult to obtain, they may not be able to get at it without your cooperation. Selling the Car Once repossessed, your car may be sold in a public or private sale by the creditor. In some states, they must inform you of their intention. You will then have the chance to attend auction and bid for the car yourself. In such circumstances, you may have the right to buy back the vehicle by paying the balance owed in full, as well as the creditor’s recovery expenses. In some states you may be able to reinstate your credit agreement by paying what you owe as well as the creditors associated expenses. If your vehicle is being sold by the creditor, it must take place in a reasonable commercial manner. This means the creditor must seek a reasonable market price for the vehicle. This does not mean the price has to be very good, but it shouldn’t be too far below market price. Depending on your state, their failure to secure a reasonable price may give you a claim in damages, or a defense against a court deficiency judgment, which would require you to pay the balance owed under the credit agreement if sale of the vehicle did not make it up. Usually, the creditor is not entitled to keep or sell any of your personal property found inside the vehicle. You should check to see how the law stands in your state. They may also be required to take reasonable care of your property while in their custody so if they cannot account for it, you may have a right to compensation. Paying the Deficiency After the creditor has sold your car, if there is still a balance unpaid, this is called the deficiency. For example, if you owe $3000 and the creditor sells your car for $2500, the deficiency is $500, plus any fees and charges you owe for defaulting, such as an early termination fee or repossession fee. In most states, if the creditor has followed the correct procedure for repossession and sale, he will be able to sue you for a deficiency judgment to collect the remaining amount owed. You will be notified of the date of the court hearing if this is the case. You will have the chance to present a legal defense and you should use it if the creditor has for example, created a breach of the peace during repossession or failed to get a reasonable price for your vehicle. An attorney will be able to advise you in such instances. Negotiating with your Creditor or Lessor It is always advisable to contact your creditor if you are in danger of defaulting on a loan. In many instances they will prefer to renegotiate a payment plan rather than go through the process of repossession and sale. Many creditors will work with you in cases of late payment. If you reach an agreement to modify your credit contract, get it in writing. If the creditor refuses to budge on late payments and insists on repossession, you have the option of voluntarily agreeing to it. This will reduce the expenses and charges associated with repossession. It will not mean however that you won’t be liable for any deficiency, or that your credit rating won’t be harmed. You can always use a credit counseling service if you need help understanding your credit contract. Every state has organizations that provide such services free of charge. They can also try to negotiate a repayment plan with the creditor on your behalf or help you with budgeting. You can find a service near you in the telephone directory or online. Banks may have a consumer protection office that will advise you on reputable, low cost services. Alternatively, universities, credit unions, military bases and housing authorities may also have cheap or free debt counseling services available.

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