Car Repossession 101

Having your car repossessed can feel very sudden, like a slap in the face. Many states don’t require any notice of repossession before a car is towed, and it can be done without a court order. In some cases, it can be repossessed after only 30 days of no car payments on the loan.

This article will answer some common questions about vehicle repossession, including why it happens, what the process is like, and how you can get your car back after it’s been repossessed.

Why Does Repossession Happen?

There are two types of loans: secured loans and unsecured loans. Secured loans are loans taken out to buy a particular thing. Car loans are a typical example of a secured loan on personal property. Unsecured loans, like credit cards, medical bills, and student loans, aren’t secured by any property.

Repossession happens when somebody stops paying their secured loans. When that happens, the creditor can take back the property securing the loan. The process of taking back this property is called repossession.

Every state has its own laws about this process, including how quickly a company can repossess a car once you’re behind on the auto loan. Some states, like California, let lenders reclaim a car after even one missed payment. If you’re even 30 days late, your car might be in danger of being repossessed.

What Happens With a Repossession

There are several steps in the process. First, you need to miss at least one monthly payment. Remember, state law varies. Some states have more protections, and make creditors wait before they can hire a repo company to come tow a car, while some let the creditor repossess your car after the first missed payment.

After a missed payment or even a very late payment, the lender might be required to send you a letter saying that you are in default. This also depends on your state’s laws – with some states, you might not get any notice until you see a tow truck in your driveway.

The Repo Man

Once the lender has the right to take back your car, they can send the repo man, or repossession agent, out with a tow truck. States have rules outlining what these people can and can’t do while they’re trying to take your car. They can’t do anything that would be considered a breach of the peace. This would include breaking into your locked garage. But they can come onto your property to take a car from your driveway. If your car has personal belongings in it, you have a right to get them back without paying a fee.

Tow truck drivers can’t make threats about being arrested, and they’re usually supposed to let the police know before they repossess a car. They also can’t use physical force to remove you from a car, or even touch you to take back the car.

Repossession costs, including the fees for the tow truck driver, will be added into your debt for the car. This means that it’s probably not a great idea to play games with the repo man — you’ll only be adding additional expenses to his bill, which will eventually get passed on to you.

Notice of Repossession

After repossessing your car, the loan company is usually required to send you some sort of notice of repossession form. This paperwork lets you know that your car was repossessed, the full amount of money you owe on the car loan balance, late fees, towing costs, and storage fees. They’ll also have to give you a deadline to pay the amount in full if you want to keep your car.

Some states also let borrowers reinstate their car loans by paying everything you owe to date, including car repossession costs.

Public Auction

After your car is repossessed, the loan company will sell it at a public auction. They’ll need to let you know when and where the auction will be, if you want to attend. Generally, states require companies to hold these auctions in a reasonable manner. It’s possible that your car may not sell for a fair market value, and that what your car sells for won’t cover everything you owe.

Debt Collection Lawsuit

Unfortunately, even after they take your car and sell it, you can still owe money to the lender. Anything that isn’t covered by the public auction is called a deficiency balance and becomes unsecured debt. The collection agency can try to get this money by suing you. If you get notice of a lawsuit, don’t ignore the papers! 

If you don’t file something, the collection agency can get a default judgment against you. With this court order, they have additional tools to collect this debt. They can garnish your wages, or even put a levy to take money directly from your bank account.

How a Repossession Can Affect Your Other Finances

Car repossession can affect other areas of your financial life. If your car is repossessed, this will show up on your credit report, and your credit score could drop. The next time you take out a loan or mortgage or open a new credit card, you could be looking at a higher interest rate than before. You might even be denied some loans entirely.

How Can You Get a Car Back After It’s Been Repossessed?

If you believe your car is about to be repossessed, or it has already been repossessed, you have some options. You can try to pay off the rest of your loan, along with any late fees and repossession costs. This might be a bit more expensive than you expect — repossession costs, including towing and storage fees, could be a few hundred dollars. This is known as redeeming the loan.

Depending on your state’s laws, you might also be able to reinstate the loan. With reinstatement, you’d be paying everything that’s past due, again including late fees and repossession costs. However, you wouldn’t need to pay the full amount of the loan, you’d only need to make the loan current.

You could try to buy the car at the public auction after you receive notice of the sale. However, you’d still need to pay the difference between the total costs and the sale price for your car. You’ll also be responsible for the costs of the auction.

If you’re considering bankruptcy, you can try to get your car back through either redemption or reinstatement as part of your bankruptcy case after you file. You can work with a local bankruptcy attorney to figure out if this is the right option for you.

What Are Some Alternatives to Involuntary Repossession?

If you’re having trouble making payments on your auto loan, it might be time to give up your car. You can sell your car to another person in a private sale. This might give you more money to pay off the loan (which you must do before you can transfer the car’s title). You also won’t have to deal with repossession costs, which could be a few hundred dollars, or the public auction costs.

You can also talk to your lender about a voluntary repossession, where you return the car and stop paying the loan balance. The lender will sell your car and credit your account with the sale price. You won’t have to pay the repossession fees, but you’ll still be responsible for any deficiency balance.

Finally, filing for bankruptcy can give you some breathing space to sort out how and when you’ll pay your auto loan. Both Chapter 7 and Chapter 13 create an automatic stay, so creditors, including the lender on your car, can’t do anything to take your car back while you sort out your finances. 

Let's Summarize...

Vehicle repossession doesn’t need to be a mystery. By arming yourself with details about this process, you’ll be able to make informed decisions that will affect your financial future.