Automobile Repossession: Laws & Rights when Repossessing a Car

When the repayments aren't made on a car, truck or motorbike loan, lenders can proceed with automobile repossession. What vehicle repo rights are available?

A car isn't legally owned until the final repayment has been made. Should the borrower default on a secured loan or make a late payment, this is likely to lead to automobile repossession. Some states have a very strict legal process that must be adhered to when repossessing a car. Other states give the borrower minimal rights in the event of even the most minor credit transgression so an understanding of state law is fundamentally important.

Car Repossession Laws Vary Between U.S. States

• In some states vehicle repo can be achieved without going through the courts or without as much as a verbal or written warning to the customer.
• In others, paying a week or two late will enable the creditor to repossess a car. Always check the small print of the agreement to clarify matters.
• Lenders are not normally permitted to commit a 'breach of the peace' to recover a vehicle. For example, forcing entry into a locked garage or storage facility. However, repossessing an automobile that is parked outside a house or place of work is normally permitted. According to the Federal Trade Commission (FTC): "Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property."
• Consider any subsequent amendments to the contractual terms - written or verbal - that are agreed by both parties as they could be legally binding on the creditor. Verbal agreements are notoriously difficult to prove.

The over-riding rule is that auto repossession is permitted in virtually all American states when the borrower has defaulted on the loan.

Automobile Repossession and Dealing with Deficiencies

• The creditor is legally entitled to keep the auto or sell it at a public auction to achieve a fair market price. Should the sale of the vehicle leave a deficiency - the difference between the outstanding debt and the final sale price - the borrower is legally responsible for this.
• Although a repossession deficiency is now unsecured, homeowners still have a reason to be concerned. It is not uncommon for a lender to go through the courts to secure a lien on a property. This would entitle them to a share of any home equity when the property is eventually sold. Filing for chapter 7 bankruptcy before a judgment can stop this from happening without costing that person their home.
• There are other debt free solutions, such as a debt management plan or debt settlement program, that can be used to tackle unsecured debts. However, they are purely voluntary arrangements and don't afford the borrower with any legal protection from creditors.
• In certain states, failure by the creditor to sell the car in a 'commercially reasonable manner ' could result in a potential defence against a repossession deficiency judgment.
• Any personal property found inside the vehicle cannot be legally sold-on to clear the deficiency.

How to Avoid Vehicle Repossession

Preventing something from happening is always easier so it's important to talk to the lender to see if they are prepared to work with the customer to reach a mutually agreeable resolution. It may be possible to extend the repayment term or agree to a repayment holiday. If a solution cannot be agreed, it is still possible to avoid many of the additional legal expenses that come from vehicle repo by voluntarily handing back the automobile. Always seek guidance and help from a free credit counseling service as it may be possible to come up with a workable repayment plan.

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