Your Repossession Rights:
Seizing the car | Dealing with the creditor|
Repo laws
(At
right, short video explaining repossession laws and state
laws for car repo rights)
When your car is seized by the creditor
Dealing with the creditor after (reselling
the car)
Your credit reports affected
Repossession laws by state
It's a bad day when
your car gets repoed. Ending your work day by discovering
the repo man has come and gone is a terrible
situation. We dont always have enough money to pay our
credit cards, but not making our car payment carries a
whole separate set of circumstances. One being, your transportation
can vanish!
When you buy a car, truck, or
other vehicle on credit, you should be aware that, until
you have made the last payment your creditor retains important
rights in the vehicle. These rights are established by
the contract you signed and by the laws
of your state.
Your failure to make timely
payments on the vehicle carries serious consequences.
Your creditor has the right to "repossess"
-- take back your car without going to court or,
in many states, without warning you in advance. It's completely
legal to take back a car that's behind on payments.
However, your
creditor's right to repossess your car is subject to
some limitations. In particular, state
law places limits on how your creditor may repossess the
vehicle and resell it to reduce or eliminate your debt. If
any rules are violated, your creditor may lose other rights
against you, or even be required to pay you damages.
For further information about the rights discussed generally
below, and about your state's specific repossession requirements,
contact your state consumer
protection agency or your private
attorney.
Seizing
the car
Normally, your
creditor has legal authority to seize your vehicle as soon
as you "default" on your loan. What constitutes
default will be stated in your contract, but failure to make
a payment on time would certainly be an example. However,
if your creditor has agreed to accept your late payments or
to change your payment date, the terms of your original contract
may no longer apply. Such a change in your credit contract
may be made orally, in writing, or, sometimes, simply by your
creditor's repeated acceptance of late payments without complaint.
Once you are in default, the laws of most states permit
the creditor to repossess your car at any hour of the day
or night, without prior notice, and to come onto your property
to do so.
However, when seizing
the vehicle, your creditor may not commit a "breach of
the peace" by, for example, using physical force or threats
of force. Taking your car over your protest or removing it
from a closed garage without your permission also may constitute
a breach of the peace, depending on the law in your state.
Should there be a breach of the peace in seizing your car,
your creditor may be required to pay a penalty or, if any
harm is done to you or your property, to compensate you.
Also, because of a breach of peace, your creditor may lose
the right to collect a "deficiency judgment."
A deficiency judgment is the difference between what you owe
on your loan and what your creditor receives when reselling
your vehicle. A private attorney
or your local legal aid society can give you guidance about
how your state courts have dealt with these matters.
Reselling
the car
Once your car has
been repossessed, your creditor may decide to keep the car
as compensation for your debt or to resell it in either a
public or private sale. In any case, generally your creditor
must notify you about what will happen to the car. Under most
state laws, your creditor must tell you if it wants to keep
the car because you have the right to demand that the car
be sold instead. You may want to exercise this right if the
car is worth more than what you owe on it. Most creditors
prefer to sell the car however, rather than keep it.
If your creditor chooses to resell the car at public auction,
state law usually requires you to be notified of the date
so that if you wish, you can attend and participate in the
bidding.
If the vehicle
is to be sold privately you are usually entitled to a notice
of the date after which it will be sold. In any of these
circumstances you may be entitled to "redeem" or
buyback the vehicle by paying the full amount owed on it plus
the expenses connected with its repossession, such as storage
and preparation for sale. Some states have consumer protection
laws that also allow you to "reinstate" your loan.
This means that you can reclaim your car by paying the amount
you are behind on your loan together with your creditor's
repossession expenses. Check with your state
consumer protection office to learn what the laws
are in your state.
Any resale of
a repossessed car must be conducted in a "commercially
reasonable manner." This does not mean that your
creditor must get the highest possible price (or even a good
price) for the vehicle. A resale price that is below fair
market value, however, may indicate that the sale was not
commercially reasonable. A sale made according to standard
custom in a particular business or in an established market
will be considered commercially reasonable in almost all cases.
Failure to resell your car in a commercially reasonable manner
may give you either a claim against your creditor for damages
or a defense against a deficiency judgment.
(For an explanation,
see the next section.) Whatever method is used to dispose
of a repossessed car, a creditor may not keep or sell any
personal property found inside. (This doesn't include most
improvements made to the car itself, such as the addition
of a stereo player or luggage rack.) Your creditor also may
be required to use reasonable care to prevent others from
removing your property from the repossessed car. If you find
that your creditor cannot account for valuable articles left
in your car, you may wish to speak with an attorney
about your right to compensation.
Paying
the deficiency balance
Any difference
between what you owe on your loan and what your creditor gets
for reselling the vehicle is a "deficiency." For
example, if you owed $2,500 on the car and your creditor sells
it for $1,500, the deficiency is $1,000. In most states,
a creditor who has followed the proper procedures for repossession
and sale is allowed to sue you for a "deficiency judgment"
to collect the loan balance. Several states however, have
consumer protection laws that restrict creditors from suing
for a deficiency when vehicles or other similar consumer goods
are involved. Your state consumer protection agency
will be able to tell you whether this is true in the state
where you live.
If you are sued
for a deficiency judgment, you will be notified about the
date of the court hearing. It may be important for you to
appear at this hearing, because it may be your only opportunity
to use any legal defenses you may have. If your creditor breached
the peace when seizing the vehicle or failed to resell the
car in a commercially reasonable manner, these may be defenses
against a deficiency judgment. An
attorney will be able to tell you whether you have grounds
to contest a deficiency judgment.
Talking with
your creditor
Because it is difficult to dispute a repossession once it
has occurred you should contact your creditor when you first
realize you will be late with a payment. Many creditors will
agree to a delay, if they believe you will be able to pay
later. Sometimes it may be possible to negotiate
with your creditor to improve your position. If you do reach
an agreement to modify your original contract be sure it is
in writing so that it cannot be questioned later. You may
wish to hire an attorney or contact your local attorney referral
service for low-cost legal help.
However, your creditor
may refuse to accept late payments and may demand that you
return the car. By agreeing to a "voluntary repossession,"
you may reduce your creditor's expenses in retaking the car,
which you otherwise would be responsible for paying. But remember,
even if you return the car voluntarily, you still are responsible
for paying any deficiency on your loan, and your creditor
still may enter the repossession on your credit report. This
portion brought to you by FTC.gov
Can I get my
property back? You can "redeem" the property by offering the
creditor the entire unpaid balance on the debt, plus any expenses
reasonably caused by the repossession. You must do this before
the creditor has disposed of or sold the property or has signed
an agreement to do so. Usually you cannot redeem just
by paying the amount in arrears unless the creditor approves
it. Many credit unions will allow this but generally speaking,
once a creditor has the car in their grips, they will not
give it back unless you pay it off. Why would they want to
chance it again?
Can I go to
jail?
Concealing the car can be a crime. Concealment of a vehicle
with intent to hinder a creditor is a felony in some states.
You need to read your state
statute and see specifically what the rule is. It is probably
listed under business or commercial fraud.
Does a bankruptcy
stop a repossession?
A bankruptcy has an automatic
stay to protect debtors so any collection efforts would
violate the stay. Many times this is how people protect their
assets rather than just ceasing payments. A bankruptcy gives
you protection rights that just not paying does not.
Where to find
more information
The Federal Trade Commission does not resolve individual problems
between creditors or lessors and consumers, but it can act
against a company if it sees a pattern of possible federal
law violations. If you have a complaint
that may involve a violation of consumer protection laws administered
by the Commission, write to: Consumer Response Center, Federal
Trade Commission, Washington, D.C. 20580. You may also complaint
to your state attorney
general or retain a lawyer
and file suit.
What about a
"Repo" on my credit history?
Luckily for you, a Repo must be verified as 100% accurate
on your credit
reports. When a Repo occurs, there are many things that
take place like picking up the car, storage fees, tow fees,
sale fee etc. The odds that you can find a little inconsistencies
in the information being reporting are pretty good. Credit
repair simply means to remove that , that is inaccurate,
obsolete or outdated. The creditor has to be diligent in their
record keeping if they want to stand up against your inquiry
to the legitimacy of the Repo being reported.
A Repo on your
credit is very bad and remains for
7 years so it's in your best interest to conduct
an investigation of the details. A sloppy record
by the creditor may just result in a deletion for you!
You should check
your credit FIRST before you decide to dispute it to see
exactly how the Repo is being reported. Consumers DO remove
repos from their credit reports everyday. It's really just
a matter of record keeping combined with using the fair
credit laws to dispute it.
