Vehicle Repossession
When you finance or lease a car, truck
or other vehicle, your creditor or lessor holds important
rights on the vehicle until you’ve made the last
loan payment or fully paid off your leasing obligation.
These rights are established by the signed contract
and by state law. For example, if your payments are
late or you default on your contract in any way, your
creditor or lessor may have the right to repossess your
car. In many states, creditors or lessors can do this
legally without going to court or warning you in advance,
as long as they do not breach the peace. In addition,
your creditor or lessor may be able to sell your contract
to a third party, called an assignee, who may have the
same rights and responsibilities as the original creditor
or lessor.
However, some state laws limit the
ways a creditor or lessor can repossess and sell a vehicle
to reduce or eliminate your debt. If any rules are violated,
the creditor or lessor may be required to pay you damages.
Seizing the
Car
In many states, your creditor or lessor has legal authority
to seize your vehicle as soon as you default on your
loan or lease. Because state laws differ, read your
contract to find out what constitutes a default. In
some states, failure to make a payment on time or to
meet your other contractual responsibilities are considered
defaults.
If your creditor or lessor has agreed
to change your payment date or any other contractual
obligations, it’s possible that the terms of your
original contract may no longer apply. Such a change
may be made orally or in writing. It’s best to
get any changes in writing because oral agreements are
difficult to prove.
If you default on your loan, the law
in most states allows the creditor or lessor to repossess
your car. In some states, creditors or lessors are allowed
on your property to seize your car without letting you
know in advance.
At the same time, the law usually
doesn’t allow your creditor or lessor to commit
a breach of the peace in connection with repossession.
In some states, removing your car from a closed garage
without your permission may constitute a breach of the
peace.
Creditors or lessors who breach the
peace in seizing your car may be required to compensate
you if they harm you or your property.
Selling the
Car
Once your car has been repossessed, your creditor or
lessor may decide to keep the car as compensation for
your debt or sell it in either a public or private sale.
In some states, your creditor or lessor must let you
know what will happen to the car. For example, if a
creditor or lessor chooses to sell the car at public
auction, state law may require that the creditor or
lessor tell you the date of the sale so that you can
attend and participate in the bidding. If the vehicle
is to be sold privately, you may have a right to know
the date it will be sold.
In either of these circumstances,
you may be entitled to buy back the vehicle by paying
the full amount you owe, plus any expenses connected
with its repossession, such as storage and preparation
for sale. In some states, the law allows you to reinstate
your contract—reclaim your car by paying the amount
you owe, as well as repossession and related expenses
(such as attorney fees). If you reclaim your car, you
must make your payments on time and meet the terms of
your reinstated or renegotiated contract to avoid another
repossession.
The sale of a repossessed car must
be conducted in a commercially reasonable manner—according
to standard custom in a particular business or an established
market. For example, the sale price might not be the
highest possible price—or even what you may consider
a good price—but a sale price far below fair market
value may indicate that the sale was not commercially
reasonable. Depending on state law, failure to sell
the car in a commercially reasonable manner may give
you either a claim against your creditor or lessor for
damages or a defense against a deficiency judgment—a
court order mandating you to pay the debt you owe.
Regardless of the method used to dispose
of a repossessed car, a creditor or lessor usually may
not keep or sell any personal property found inside.
Since state laws vary, check to see if this applies
in your state. State laws also may require your creditor
or lessor to use reasonable care to prevent others from
removing your property from the repossessed car. If
you find that your creditor or lessor cannot account
for articles left in your car, talk to an attorney about
whether your state offers a right to compensation.
Paying the
Deficiency
A deficiency is any amount you still owe on your contract
after your creditor or lessor sells the vehicle and
applies the amount received to your unpaid obligation.
For example, if you owe $2,500 on the car and your creditor
or lessor sells the car for $1,500, the deficiency is
$1,000 plus any other fees you owe under the contract,
such as those related to the repossession and early
termination of your lease or early payoff of your financing.
In most states, a creditor or lessor who has followed
the proper procedures for repossession and sale is allowed
to sue you for a deficiency judgment to collect the
remaining amount owed on your credit or lease contract.
Depending on your state’s law
and other factors, if you are sued for a deficiency
judgment, you should be notified of the date of the
court hearing. This may be your only opportunity to
present any legal defense. If your creditor or lessor
breached the peace when seizing the vehicle or failed
to sell the car in a commercially reasonable manner,
you may have a legal defense against a deficiency judgment.
An attorney will be able to tell you whether you have
grounds to contest a deficiency judgment.
Talking with
Your Creditor or Lessor
It’s easier to try to prevent a vehicle repossession
from taking place than to dispute it afterward. Contact
your creditor or lessor when you realize you will be
late with a payment. Many creditors or lessors will
work with you if they believe you will be able to pay
soon, even if slightly late.
Sometimes you may be able to negotiate
a delay in your payment or a revised schedule of payments.
If you reach an agreement to modify your original contract,
get it in writing to avoid questions later.
Still, 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. By voluntarily agreeing to a repossession, you
may reduce your creditor or lessor’s expenses,
which you would be responsible for paying. Remember
that even if you return the car voluntarily, you are
responsible for paying any deficiency on your credit
or lease contract, and your creditor or lessor still
may enter the late payments and/or repossession on your
credit report.
If you need help in dealing with your
credit or lease contract, consider using a credit counseling
service. There are nonprofit organizations in every
state that advise consumers on debt management. Counselors
often try to arrange a repayment plan that is acceptable
to you and your creditors. They also can help you set
up a realistic budget and plan expenditures. These counseling
services are offered at little or no cost to consumers.
Check your telephone directory for the office nearest
you.
In addition, universities, military
bases, credit unions, and housing authorities often
operate nonprofit counseling programs. They also are
likely to charge little or nothing for their assistance.
Or check with your local bank or consumer protection
office to see if it has a list of reputable, low-cost
financial counseling services.
Where to Find More Information
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