This article provides an overview of the auto repossession process. It includes information about what a lender will do after they repossess your car, what legal rights you have, and the options you have available to get your car back.
Written by Attorney Curtis Lee.
Updated October 24, 2021
If you stop making monthly payments on your car loan, this turn of events can result in more than just a ding on your credit report — your auto lender could repossess your car. As a result, it is important to understand your rights and obligations as an auto loan borrower, especially if you are already behind on your payments or you’re at risk of falling behind. This article provides an overview of the auto repossession process. It includes information about what a lender will do after they repossess your car, what legal rights you have, and the options you have available to get your car back.
What Happens When the Bank Repossesses Your Car?
Like many other types of loans, such as a mortgage, an auto loan is a type of secured debt. This means that lenders, such as banks, will secure the car loan by attaching a security interest to the motor vehicle. This gives the lender the legal right to repossess the car if the borrower defaults on the loan. In the majority of situations, the default will consist of missing one or more car payments.
The lender may have the right to repossess your car, but they must follow strict rules governing how they can go about doing so. State laws differ about how car repo professionals may take back a vehicle. However, in most states, you will have the following rights as an auto loan borrower.
Your Rights as the Borrower in the Event of a Repossession
First, after they repossess your vehicle, the lender must tell you where the car is being kept and how much you must pay to get it back.
Second, you have the right to get your personal property back from inside the car. This right refers to items like a seat cover, smartphone, external GPS unit, or sunglasses. It does not include upgrades or additions you’ve made to the vehicle, like new rims or a rear-view camera.
In some states, you’ll have to ask for these items back. In other states, the repo agency or bank will take an inventory of your personal belongings and explain how you can get them back.
Third, the individual sent by the bank to repossess your car can’t “breach the peace” to take possession of your vehicle. So, while the repo man can enter private property to repo the vehicle, they aren’t allowed to break down a garage door or use (or threaten to use) physical force to take your car.
After repossessing your vehicle, the lender will not keep it. They will either find a way to give it back to you (we’ll discuss a few ways they might do this later in this article) or sell it. One of the most popular ways to sell a repossessed vehicle is to place it up for public auction. If the lender decides to do this, they must provide reasonable notice of the auction. What constitutes “reasonable notice” will vary among states, but it’s often no more than publishing a notice at least 10 days before the public auction.
The lender has a legal duty to sell your motor vehicle for a reasonable price. This doesn’t require them to get the highest price possible, but they can’t sell the vehicle well below fair market value either. If they sell your car for an unreasonably low price, you can use that as a defense if you are sued for a deficiency balance.
A deficiency balance is the money you’ll still owe for the car loan after the lender repossesses and sells your vehicle. Besides the remaining loan balance, the total owed may include interest, penalties, storage fees, and vehicle repossession costs. If your car were to sell at auction for a price that exceeds what you owed, then you would be entitled to keep the extra money. This rarely happens, though.
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Your Options When the Bank Repossesses Your Car
If your bank or lender repossesses your car, truck, or van, there are several options you can explore. Depending on your financial situation, it might make sense to get your vehicle back. But in some cases, you might want to surrender your car. Regardless of which decision you make, you’ll need to make sure it aligns with your financial goals and economic situation.
Redeeming the Car
If you want your car back, your primary option is to redeem your car. The redemption process allows you to make a lump sum payment to take repossession of your vehicle. Depending on your financial resources, redemption may involve paying off your entire car loan. Sometimes, you can redeem your car for an amount that’s less than what you owe. But most borrowers who find themselves in a financial situation wherein their vehicle gets repossessed do not have this amount of cash available.
Most cases of vehicle redemption involve making a large enough lump sum payment to become current with an overdue car loan balance. This includes paying all missed payments, as well as any interest, penalties, and costs incurred by the lender during the repossession process.Costs from the repossession process will, at a minimum, include paying the repo company and storage fees.
If you can’t redeem your car with a lump sum payment, you can choose to reaffirm the car loan. By reaffirming the loan, you’re essentially promising the bank that you’ll continue to make payments on the loan, on time and in-full.
The disadvantages of reaffirming your car loan are that you’ll have to bring the loan current (including paying any late fees, penalties, or interest) and you must continue making car payments. If you miss another payment down the road, your car could get repossessed again. So, before going through the effort and expense of reaffirming your car loan, you’ll want to make sure that you can afford to resume making your car loan payments and that your budget can accommodate making monthly payments moving forward.
Surrendering the Car
If you don’t have the money to redeem or reaffirm your car loan, you have the option of surrendering your car to the lender. This process is often referred to as “voluntary repossession.” Depending on your circumstances, you may choose to navigate either of two voluntary repossession scenarios:
First,if you surrender your car in a bankruptcy proceeding, you don’t have to pay any of the remaining balance as the car loan borrower. In other words, if you owe more than the value of the car, you cannot be held responsible for any deficiency loan balance that may be outstanding.
Second, if you surrender your car without filing for bankruptcy, then you may still have a deficiency balance if the lender sells the car for less than the value of the vehicle plus any additional penalties, interest, and fees. You will be liable for this deficiency balance.
Buying the Car Back at Auction
Most of the time, buying back your vehicle at the public auction is not economically possible. If it was, you’d probably benefit from redeeming your car instead. But, you might be hoping you can win back your car at a lower price than what you owe on it.
Before you bid on your car at a public auction, consider that you are already responsible for the difference between what you owe and what price your car sells for at the auction. So, if you owed $10,000 on your car at the time of repossession, then win it at the public auction for $7,000, you still have to pay the $3,000 difference as the deficiency balance.
Another thing to consider is that you cannot bid on your car at the public auction unless you are making a good faith attempt to buy it back. If you don’t want your car back, but place a bid with the intent to drive up the price (and reduce any deficiency balance you might owe), this is known as “shill bidding” and could be illegal in your state.
A shill bid is a type of auction bid made in an attempt to have an item sell at a price that’s higher than if only legitimate buyers placed bids on the item.
The lender of an auto loan can repossess your car if you don’t make all of your monthly car loan payments. After this happens, you have several options, including redeeming the vehicle, reaffirming the car loan agreement, surrendering the car, or trying to buy it back at a public auction.
Depending on your financial situation, some options will be better than others. Working with a bankruptcy lawyer may be a good idea as this can help you fully understand which route will work best for you when a bank repossesses your vehicle. They can also discuss whether filing for bankruptcy is a good idea for managing your debts generally, including your car loan.
But, filing bankruptcy doesn’t always require getting legal advice from a lawyer. At Upsolve, we offer a free web tool to help eligible borrowers to file simple Chapter 7 bankruptcy without an attorney.