Car Repossessions by Lenders & the Legal Process
One of the common consequences of falling behind in your finances is having your car repossessed by the lender. This will happen if a consumer does not make payments on their car loan or does not have car insurance. Repossession is based on the security interest that the lender holds in the vehicle. The lender usually does not need to provide notice in advance of repossession, although it needs to provide information after repossession about how you can get your vehicle back. (Some states do require a lender to provide notice in advance and give the debtor a chance to fix the issue.) The lender also needs to inform you if it plans to sell the car in the event that you do not reinstate the loan or redeem the car. If the lender sells your car, it must inform you about the proceeds of the sale and provide you with any surplus proceeds beyond the amount used to pay off your debt.
What Happens in Repossession
The lender will tell the repossession company how to find your car, giving them the locations where the car is likely to be found. The repossessor then will check those locations and their surrounding areas. If you deliberately hide your vehicle from the repossessor, you may face criminal penalties and other negative consequences. Once the repossessor finds the car, they will drive it away unless the debtor or someone else objects to the repossession. The repossessor is not allowed to breach the peace in the process of repossessing a vehicle, and they can be liable for damages to the debtor if they do. However, objecting to repossession will not permanently solve the problem. The repossessor likely will return when you are not there or get a court order supporting the repossession. No matter how frustrated or anxious you feel, you should not try to harm the repossessor or get into a physical confrontation with them. This could lead to serious criminal charges, such as assault and battery.
If the lender sells the car, it does not need to get the best possible price, but it does need to act in a commercially reasonable manner. A lender that fails to meet this standard may be liable to a consumer for damages or an offset against any deficiency balance.
Dealing with a Deficiency Balance
If the sale of the car does not fully pay off your debt on the loan, you will have a deficiency balance. This is the remaining amount that you still owe the lender, which can sue you to collect that amount. You may be able to get this amount reduced or eliminated if the repossessor breached the peace during the repossession process or, as mentioned above, if the lender failed to sell the car in a commercially reasonable manner. A consumer also may have procedural defenses similar to those that they might have in other collections lawsuits, such as the statute of limitations.
Getting Your Car Back
Redemption and reinstatement are two common options for getting a car back after repossession. Redemption involves buying back your car by paying off the loan and any repossession costs, although this is not usually possible for people who have defaulted on a loan. Reinstatement involves paying back the arrears on the loan and repossession costs, which will reinstate the loan as long as you can keep up with payments. You can also try to buy your car when the lender sells it, although you still will be liable to the lender for any deficiency balance. Finally, filing for bankruptcy can help shield your car from sale by the lender by triggering the automatic stay.
