If you have fallen behind on your car loan, you may be wondering what happens next. How will you get to work with no car? Is it possible to get it back after it's been repossessed? In this article, you will learn how repossession works, what you can do after it has occurred, and how to avoid it in the first place.
The possibility of losing your car is stressful, especially if you need your vehicle in order to commute to work or to remain employed. But, avoidance of car-related debt is not a solution. If you have fallen behind on your car loan, knowing what to expect and understanding your options can make all the difference. Here’s what you need to know about repossession:
When your car is at risk of repossession
How you may be able to avoid repossession
What the repo man can and can’t do to take possession of your car
How you may be able to get your car back after repossession
What a deficiency balance is and how you may be able to avoid it
How Does Repossession Work?
You probably know that repossession occurs when your lender takes back your vehicle because you’ve fallen behind on car payments. But, most people don’t know that your car could be repossessed as soon as the day after you miss a payment. Most lenders won’t send the repo man out that quickly. Repossession is a hassle for them, and they’d rather you pay your outstanding balance than have to take back your property. But, it’s important to know what your loan agreement says. Some agreements contain a short grace period. Others allow repossession right after the first missed payment.
Redemption And Reinstatement After Repossession
If a repo agent picks up your car, you may be able to get your car back. But, you’ll need money. The first option that you can exercise when trying to get your car back is called “redemption.” You may be able to redeem your car by paying the full balance you owe. But, the balance will be higher than the amount left on your auto loan. Why? You will likely also have to pay fees for the repossession, storage, and other costs.
You may also try to get your car loan reinstated. That usually means paying the past-due balance, plus the repossession fees, towing, and storage costs. Reinstatement typically requires significantly less cash up front, since you’ll only be paying the past-due balance and not the full outstanding balance. If you catch up on payments and get your car loan reinstated, make sure that you make your payments on time moving forward. If you fall behind again, the vehicle could be repossessed again.
Your right to redeem a vehicle that’s been repossessed is different from state to state. And, the timeline available to you may be very short. If you want to reclaim a repossessed vehicle, get more information about the rules in your state right away.
Sale Of Repossessed Vehicles
If you don’t redeem the vehicle or get your loan reinstated, the lender can sell your car. Usually, repossessed cars are sold at public auction. Some states allow lenders to sell these vehicles privately. The money they get from selling a car goes toward the outstanding loan balance. But, if your car is sold at auction, you will be responsible for costs of the repossession and sale. You’ll still owe the lender any remaining balance.
Imagine, for example, that you owed $10,000 when your car was repossessed. Then, the lender spent $2,000 picking up and selling your car. The full balance of the loan plus costs would be $12,000. If the car sold for $8,000, that amount would be subtracted from the full $12,000 balance owed. You would then still owe $4,000.
How Long Will The Repo Man Look For A Car?
How diligent the lender will be when trying to repossess your car will depend on what’s most profitable for them. If the value of the car and the outstanding loan balance are high, it will make sense to work a little harder to recover your car. If they’re not going to get much money by repossessing your car, they may give up and write off the loan.
But, it’s never safe to assume that you can just wait your lender out. If they really want to reclaim your car and can’t find it, they may file a replevin action. An action for replevin is a legal process in which the court can order someone to turn over property. And, in some states, it’s a crime to actively hide your car from repossession agents.
Delaying repossession may end up costing you more, too. The more costly it is to repossess your car, the greater the repossession fees will be that will be passed along to you. As described above, repossession costs get added to your debt. If the auction doesn’t bring in enough money to cover the outstanding balance plus costs, you will owe the difference. The lender may file a lawsuit against you to collect the remaining balance. This is called a deficiency balance.
Note that since the lender has already taken your car at this point, the loan is no longer secured. That means that you can likely eliminate the debt in Chapter 7 bankruptcy, even if the lender has a judgment against you. If you’ve lost your car and the lender is still pursuing you for payment, consider speaking with a bankruptcy attorney
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What The Repo Man Can And Can’t Do To Find Your Car
If you’re behind on your car loan and facing possible repossession, you may be worried about your car all the time. It’s helpful to know what repossession agents can and can’t do when looking for your car. The exact rules vary a bit from state to state, but there are some general limits.
A repo man can’t enter a locked space to take your car. That includes your garage, a storage space, or even a fenced lot. But, if your car is parked out in the open, it’s fair game. A repossession agent can pick up your car from your driveway or the street in front of your house. The unsecured lot at your apartment complex, your workplace, or the grocery store parking lot are also vulnerable places to park your car.
If the repossession agent doesn't follow the rules, you can file a complaint with the state licensing board. For example, in California you would file a complaint with the Department of Consumer Affairs. You can find the appropriate agency in your state with a quick online search.
You should also know the rules about personal property in your vehicle. The repo man can’t keep your car seat or the iPhone you left plugged in when you went into the store. In general, they can’t keep any personal property. If these kinds of items are in your car when it is towed away, you can demand their return. They also have to return your license plate or plates. They’re legally required to preserve your property and to return it to you but you’ll want to connect with them right away to make arrangements to get your property back. It is also important to understand what is and isn’t considered personal property.
Unlike portable personal property, the repossession agent can typically hold on to anything that’s been incorporated into the car. That means upgraded rims, stereo equipment you’ve had installed, and other improvements you paid for separately.
If possible, you’ll want to avoid repossession. That’s partly because you probably need your car. But, repossession also has a negative impact on your credit score. A poor credit score can make it tough to replace your car. You might not be able to get another loan, or you might pay a higher interest rate because the lender thinks it’s risky to loan you money.
Your best chance for avoiding repossession is to take control of the situation early. Hoping for the best and dodging calls from your lender is the worst way to manage loan delinquency. Instead, take an honest look at your situation, crunch the numbers, and then talk to your lender.
Your lender probably wants to avoid repossession almost as much as you do. They get paid if they can work out a payment plan with you, move a payment or two to the end of the loan, or keep you on track some other way. And, they can avoid the hassle and expense of repossession, auctioning your car, and trying to collect a deficiency balance.
But, if you wait too long, dodge their calls, or make promises you don’t keep, the equation changes. If you want to work something out with your lender, it’s important to act early. It’s also important to be completely honest with yourself and the lender about what you can afford.
Even if you do everything right, your lender might not agree. Maybe you can’t offer the minimum they require. Maybe they check your credit report or credit score and decide that negotiating with you is not a good risk. Maybe they’ve made special arrangements with you in the past, so you’ve used up your options. Whatever the reason, you might not be able to reach an agreement with the lender.
Bankruptcy And Repossession
If you reach that point, filing for bankruptcy may offer a solution. There are two different types of bankruptcy for consumers: Chapter 7 and Chapter 13. In both types, the bankruptcy court typically enters an automatic stay as soon as the case is filed. The automatic stay is a court order that tells creditors to stop collection action. The automatic stay can even freeze the auto repossession process.
Chapter 13 involves a repayment plan that protects property, like your vehicle, while you catch up on your outstanding balances. Chapter 7 eliminates a lot of unsecured debt, such as credit card debt, medical bills, and payday loans. It also offers tools to help resolve delinquent auto loans.
If you want to keep your car, you may be able to reaffirm your loan in bankruptcy and resume making loan payments. You may have to pay some or all of your past-due balance before the lender will sign a reaffirmation agreement. But, the automatic stay in bankruptcy can buy you time to get those funds together. You may also be able to redeem the vehicle in Chapter 7, which means that you can buy back the car. You’ll have to make a lump sum payment, but you may pay less than the outstanding balance.
If it turns out that you can’t or don’t want to keep the car, you may still want to consider Chapter 7 bankruptcy. A successful Chapter 7 case can eliminate the obligation to pay any deficiency balance.
If you’re in trouble with your car loan, your best bet is to try to work with your lender as soon as you know there’s a problem. If that fails, you could still have options. If your car is repossessed, you might be able to get it back. But, you’ll have to act quickly. Bankruptcy may help you keep your car, or it can give you a clean slate by eliminating a deficiency balance. Whether you are trying to avoid repossession or trying to get out from under debt after a repo, a bankruptcy attorney can explain your options in more detail.