What Happens If Your Car Is Repossessed? 

It’s every car owner’s nightmare.  One day while you are at work, you helplessly watch as a tow truck hooks up your car and drives it away.  Not only is it embarrassing, but it puts you in an uncomfortable position—you no longer have a car to get you to the places you need to go.  Maybe you had some major medical expense that caused you to be late with your payments, or perhaps it was just bad money management, but either way, you need to understand what rights you now have.  Read the following information to help you better understand what steps you need to take now. 

Prevention 

It’s much easier to prevent repossession than it is to reverse one.  It seems that once the repossession is in process, it begins to take on a life of its own and it’s almost impossible to stop.  On the other hand, most lenders will be willing to work with you for a short amount of time if you are having problems making your payments.  If you find yourself in this situation, call your lender and explain the circumstances that are preventing you from making your payments on time.  They may allow you a short grace period, or may even create a new payment schedule that you can stick to.  (If they do this, be sure to get it in writing!)  However, always talk to the bank when they call.  Do not hide behind caller ID or use voice mail.  A bank that thinks you are working with them will bend their rules on repossession much more willingly if you are communicating with them on a regular basis.  Generally, the bank will be looking to repo the car sometimes between when you are 30 to 60 days late on you payment. 

If the lender simply won’t work for you, and you know that repossession is just around the corner, then you may consider turning in the car on your own.  Why?  Because if your car is repossessed, you will not only be responsible for the balance due after it’s sold, (more on this in a moment), but also the costs involved in the repossession, such as towing and manpower. 

Don't think you can hide your car from the repo man forever.  Repossession agencies handle hundreds to thousands of repossessions a year and are experts.  They know all the tricks that borrowers use to keep their cars from being towed.   

Repossession 

If you default on your loan, the lender will have the right to come and take your car away.  Depending on the state you live in, they may or may not be able to come on your property to do so, without advanced notice.  They are not allowed to create a “breach of peace,” while repossessing your car.  In other words, they can’t make a big scene and let everyone around you know that they’re taking your car because you didn’t make the payments!  If you have personal belongings in the car, the lender will have to return them to you in good shape, or reimburse you for them should they disappear.  (Again, the laws vary per state, so be sure to find out what they are in your state.) 

Sell 

Once the lender has your car, they will likely try to sell it in order to recoup at least some of the loan balance.  By law, they will have to inform you when and where your car will be sold, and allow you the opportunity to buy it back.  To do so, you will have to pay the entire balance due, plus any expenses associated with the repossession process. 

If you feel that the car wasn’t sold responsibly, you have a right to dispute it.  In other words, if you feel that the lender didn’t try to get an honest price for the car, you should talk to an attorney about your options. 

Deficiency 

When the lender sells your car, you will be responsible for the difference between the loan balance and what the car was sold for.  For example, if your loan balance (plus the fees and unpaid interest) was $10,000 and the car sold for $6,000, you would still owe $4,000 to the lender.   

The key here is to keep careful record of the entire repossession process.  When you are in front of a judge being sued for the deficiency amount, it will be your only chance to dispute the lender’s claim that you still owe them money.  If you can prove that they acted wrongly in either the act of repossession, or while selling your car, the judge may dismiss that balance.  You can also sometimes dismiss the balance with a bankruptcy filing.