Simply put, repossession is the process in which the creditor reclaims the property from the debtor when they have failed to keep up with their payments, or otherwise break the contract.
When a vehicle is purchased on credit, the creditor retains connected rights to the property until the final payment towards the amount owed has been paid. This is referred to as “security interest,” and the extent of the creditor’s security interest is determined by the contract the debtor signed with the creditor, as well as state laws.
Repossession is a form of reclamation and is most commonly utilized in conjunction with automobile loans. If the debtor defaults on their loan, generally meaning that they are behind on their payments, the creditor can legally repossess the property outlined in the loan agreement. In the instance of vehicle repossession, repossession can occur up until the final payment is made. Not obtaining or maintaining proper car insurance is another reason why a vehicle may be repossessed.
Generally speaking, the creditor has a legal right to seize your vehicle immediately. This means as soon as you fail to make your agreed upon payment. Most states allow for repossession at any time of the day, at any location. This remains true even if the vehicle in question is located on certain parts of your property, and without any prior warning.
Further, repossessing your vehicle is typically the only remedy available to creditors when debtors default on their loans. However, there are some exceptions, depending on the contract signed between the creditor and debtor. One exception is if the creditor has agreed, in the contract, to accept late payments. They would not be able to immediately seize the vehicle without first giving the debtor the chance to make the late payment that they agreed to accept.
The main exception to repossession at any time is that creditor is not allowed to “breach the peace” in an effort to repossess the vehicle. In general, breaching the peace refers to intentionally disrupting the public in a specific way, such as inconveniencing, annoying, or alarming another person, or recklessly creating a risk.
Breaching the peace in terms of vehicle repossession could include threatening to use physical force or violence as a means to take the vehicle back, or breaking and entering into the debtor’s home in order to repossess the vehicle. Repossessing the vehicle from a closed garage is another specific example of breaching the peace in order to repossess a vehicle.
It is important to note that creditors do not have any legal obligation to inform the vehicle’s owner, the debtor, of its intention to repossess the vehicle.
Once the property has been repossessed, the creditor will usually keep the property, or sell it in order to pay the remaining debt. Every state has their own regulations as to how the sale of repossessed property can proceed. However, the debtor retains some rights even after their property has been repossessed.
These rights can include:
- The right to be notified when and where the sale will take place;
- The right to be notified about what will happen to the property once it has been repossessed;
- The right to demand the sale of the property, even if the creditor wants to keep it; or
- The right to buy back (or “redeem”) the property before it is sold, by paying the unpaid balance as well as repossession costs.
If the vehicle is worth more than the amount you have previously paid off, it could be in your best interest to have the vehicle sold. You could gain a profit from the sale and avoid repossession. This is important because a car repossession can remain on your credit report seven years after the original date of delinquency, and can negatively impact your credit score in that time.
If the sale of the vehicle does not satisfy the debt, the remaining balance, or deficiency balance, is still your responsibility. The lender is allowed to sue you in order to collect the deficiency balance. Most states will allow for this as long as the creditor did not breach the peace in order to repossess the property, and sold the property in a commonly accepted way.
Some states do not allow creditors to sue for deficiency, so it is important to be informed of your state’s laws. It is also important to address immediately because a judgment in court could leave your other assets vulnerable to creditors in order to pay off the deficiency.
Your first step should be speaking with your creditor. Creditors have an incentive to allow you to make more payments, and they could agree to take late payments or modify the contract, both of which would avoid costly court processes. If this is not possible, you should consult with an experienced and qualified bankruptcy attorney.
They will be able to inform your of your state’s laws regarding repossession and your rights, as well as outline your available options and help you proceed accordingly. Additionally, they will represent you in court, if necessary.