Know Your Car Repossession Rights

Getting behind on your car loan is bad for both your credit score and the car itself. Since the vehicle serves as collateral, falling behind on your payments means that the car can be 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. Repossession occurs when you can’t pay back a loan that you used collateral to acquire. Technically, the term can apply 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 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 will 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 in writing.

As the Federal Trade Commission’s website states: “if you reach an agreement to change your original contract, get it in writing to avoid questions later.”

Let’s make a deal.

Even if there isn’t anything in the contract you signed that seems like it can help you, it doesn’t mean all hope is lost. You can still work something out with the lender, and the 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: “If you’re having trouble making car payments, contact your lender as soon as possible. Don’t wait for the company to repossess your car. Many lenders will work with customers if they think you’ll be able to pay soon, even if the payments are slightly late. You might be able to negotiate a delay in your payment or a revised schedule of payments. If you’ve experienced a natural disaster, like an earthquake, hurricane, or tornado, your lender might be willing to defer your payments, offer extended repayment plans, give grace periods, waive late fees, or postpone repossession.”

If you’re not in a state with a right to cure, the FTC warns that your lender may not be willing to compromise: “If you don’t reach an agreement, your lender may demand that you return the car. If you agree to a “voluntary repossession,” you might pay less in fees. But even if you return the car voluntarily, you’re still responsible for paying the difference between what you owe on your contract and what your lender gets for selling the car. The lender might call that the “deficiency”. And, even with a voluntary repossession, your creditor still may put 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:

“Once you’re in default, the lender might be able to repossess your car at any time, without notice, and come onto your property to take it. But the lender can’t “breach the peace” when they take it. In some states, breaching the peace means using physical force, threatening to use force, or even removing your car from a closed garage without your permission.

“After your vehicle is repossessed, your lender can either keep it to cover your debt or sell it. In some states, your lender has to let you know what will happen. For example, if the car will be sold at a public auction, your state’s laws might require the lender to tell you when and where the auction will happen so you can be there and bid. If the lender sells the car privately, you might have a right to know the date of the sale.

“Some states have laws that let you “reinstate” your loan by paying the past-due amount plus your lender’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. However, 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.

“Your lender can’t keep or sell personal property found inside your repossessed vehicle at least until a certain amount of time has passed, which will depend on your state’s laws. In some states, your lender has to tell you what personal items were found in your car and how to get them back.”

In the end...

Facing repossession is never fun.

While we can't promise a 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 less painful. And if your lender doesn't follow the rules, you might even stand a chance at getting your car back.

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, and a member of the South Carolina Association for Justice, the State’s Trial Lawyers Association.