Most customers do not pay attention to the importance of keeping up to date with the monthly payments of the car till such time they have actually managed to miss a few. All of a sudden the phone begins to ring as the lender or his representative gets impatient. If you do not regularize the payment immediately, then it may be possible that you walk out one day only to find your car missing from the spot from where it had been parked. In most cases, the vehicle would not have been stolen but repossessed by the lender – the agreement that you had entered into authorizes him to do just that, subject to certain restrictions.
How Do You Get To Know Your Rights?
Even before you actually miss out on making a monthly payment; it is vital that you know what your rights are. The security document that you had signed while taking on the loan specifies all the rights and obligations of both the parties. This document is given by the lender to the Department of Motor Vehicles to enable putting a lien on the vehicle. Usually you will have a copy but if you are missing it then you can request the lender to give you a copy from his records. Be sure to read it thoroughly though you will discover that these documents are legally watertight and there’s nothing much you can do as they are prepared by topflight lawyers appointed by the finance companies to protect their very large financial exposure.
How Can the Lender Repossess the Vehicle?
All automobile loans are secured loans, which basically mean that the vehicle acts as the collateral to secure the loan against default. In a situation when you consistently miss out on making the monthly payments, the lender can take back or repossess your car. According to the terms of the loan agreement, it is also not necessary for the lender to also inform you that the act of repossession has been initiated.
What Happens After Repossession?
After the lender has taken possession of your car, he will send you a notice asking for the payment of the full loan amount outstanding by a certain date else he would sell the vehicle off for the maximum amount he can get and set it off against the loan. If the sale proceeds are more than the loan, you will get something back. However, in case you are upside down, i.e. the value of the vehicle is less than the outstanding loan, and applicable recovery and legal fees, and then there will be amount remaining called a “deficiency balance”. You, along with your co-signor, are legally obligated to pay that amount. Unless this is paid, the lender can file a lawsuit to recover the amount from you and the co-signor. This may happen even in cases the car has been returned voluntarily by you to the lender.
Debt Relief: Act Now Before Car Repossession
If your financial status has been damaged extensively due to your changed circumstances or gross financial imprudence then it is likely that you would have been defaulting on your other monthly dues as well on your other loans and credit card outstanding. If the situation is really grave and there is no way you can personally work out a way of getting out of the mess then you could approach a professional debt relief company. They will evaluate your financial records, how much you owe and how much you earn so that they can chalk out a proper financial strategy for you.
The expertise of these agencies extends to negotiating with your creditors to bring down the debt level as well as the rate of interest. If there are too many creditors and you are finding it difficult to keep track of the monthly dues, they can also arrange for a consolidation of debt and leave you with a single amount outstanding and a single monthly payment to make. Considering your individual cash flows, they will be able to suggest a repayment plan that you can afford and that which enables you to retain your home and car, as well as pay for the essentials of daily life.
Author bio: Sam Adams is a lawyer who has had extensive experience of working with financial companies with large exposure to automotive loans. An expert of debt relief and negotiation, he writes extensively on the subject in various online media. Click here to know more about debt relief.
- 1 Will Filing Chapter 13 Get My Repossessed Car Back?
- 2 Get The Facts Regarding an Automobile Repossession
- 3 Car Repossession: What Is the Difference Between Reinstatement and Redemption?
- 4 What Happens When You Default on a Car Title Loan?
Will Filing Chapter 13 Get My Repossessed Car Back?
When a financial crisis looms, it can be difficult to figure out what steps you should take first. You might think of filing for bankruptcy, then your auto lender sends a repossession agent for your car while you’re mulling it over. If you file for Chapter 13 -- and if you do so relatively quickly -- you may be able to get the vehicle back. Chapter 13 is the form of bankruptcy where you agree to pay your debts off over a period of years. You get a few perks in exchange, like keeping your property.
When a lender repossesses a vehicle, it sells the vehicle to collect as much of the defaulted loan balance as possible. When your vehicle is sold, it’s gone -- you can’t get it back. But you should have a week or two before this happens, and depending on the state you live in, lenders may be legally obligated to let you know when and where the sale or auction will take place, and that lets you know how long you have to act. If you file for Chapter 13 within this time period, an automatic stay goes into effect. The stay is a legal bar against your creditors taking any actions to collect your debts, including selling your vehicle.
Chapter 13 is more complicated than Chapter 7. It involves submitting a proposed payment plan to the court, along with your petition. The payment plan shows the judge, the trustee and your creditors how you’re going to meet your ordinary living expenses and make Chapter 13 payments to the trustee. The trustee uses this money to pay down your debts, apportioning it among your creditors each month. Getting your car back may hinge on your proposed plan. It must convince the court -- and your lender -- that you have enough disposable income left after paying your regular monthly bills that you can include your missed car payments in the payment plan and remain current with the loan going forward.
When you’ve filed your petition and proposed plan, you can then file a complaint for turnover in your bankruptcy case. The complaint tells the court why you really need your car and asks the judge to order your lender to return it to you. The most obvious reason you may need your vehicle back is so you can get to work and earn money to pay off your creditors in your Chapter 13 plan. If you have another compelling reason, such as a sick family member who needs transportation for medical care, you can include this as well. If the court grants your request, your lender must turn your car back over to you.
If your payment plan clearly shows how you intend to pay the money you owe, your lender may give your car back without waiting for the judge to order it. Otherwise, you may have to appear in court for a hearing.
Bankruptcy law requires that secured creditors -- those with loans anchored by collateral -- must have adequate protection during the proceedings. It may be several months after you file your bankruptcy petition before the court approves and confirms your payment plan. During this time, your car is depreciating. It wouldn't be fair to the lender if it had to wait, receiving no payment, while your car's value decreases. You’ll probably be required to make adequate protection payments during this time period. Adequate protection payments are based on the value of your vehicle and how much of your usual monthly payments would typically go toward principal. They’re usually close to the amount of your regular car payment.
If your lender attempts to repossess your car after you’ve filed for bankruptcy, this is against the law -- the automatic stay doesn't let creditors collect after this point. Your lender can file a motion with the court, however, asking the judge to lift the stay if your proposed plan doesn’t cover your past due payments or show that you can keep current with the loan going forward. It can also file a motion for relief from the stay after your plan is confirmed if you fall behind with your car payments again.
Get The Facts Regarding an Automobile Repossession
Last Updated: August 1, 2017
Buying a car is the second biggest purchase we make behind buying a house. But, if you are late with your car payments, your vehicle could be repossessed by your lender. Going through an auto repossession is not a fun experience and one that should not be taken lightly as it will cause major damage to your credit score.
When you finance or lease a car, truck, or some other type of vehicle, the loan is normally secured against the vehicle itself. This means that your creditor or lessor holds specific rights to your vehicle until you've completed all loan payments or fulfilled your leasing obligation; and, should you default on the loan, the lender has the right to repossess the vehicle. In fact, even one late payment may provide creditors the opportunity to legally repossess your car, so it is important to be aware of contents of your specific contract and state law governing repossession.
Can Your Car Be Repossessed by the Lender?
If you have defaulted on your contract in any way, your creditor or lessor may have the right to repossess your vehicle. In many states, they can do this legally with no advance warning, and no court action. They must, however, do this without "breaching the peace." It is worth emphasizing again the importance of reading your contract and understanding what constitutes default in your individual situation. The loan contract must disclose the lender's repossession policy and what your rights are if repossession occurs. If your state has specific laws for auto repossessions, they usually will be referenced in the contract as well.
What if You Can No Longer Pay on the Car?
Many of us are faced with temporary challenges such as medical bills or unemployment, and need to find an interim solution. Obviously, it is smarter to try to prevent a vehicle repossession than to dispute it afterward. Contact the creditor and attempt to negotiate a grace period or revised payment schedule; if successful, be sure to obtain any agreements in writing.
If the creditor or lessor refuses to allow any leniency and repossession is eminent, you may decide that voluntary repossession is an option for your situation. Giving the vehicle back voluntarily may reduce your creditors expenses for repossession fees; however, you will still be responsible for paying any deficiency on your credit or lease contract, and there is no guarantee that the late payments and/or repossession will not end up on your credit report.
A typical vehicle repossession might progress through the following steps:
- You are notified in writing by your creditor or lessor that your payment is late (not necessarily required, however; contingent on your specific contract).
- You may receive a second notice/warning and/or a telephone call warning of your overdue payment.
- A grace period may pass (length as stated in your contract).
- A second warning may be provided either by phone or mail.
- Your car is repossessed in one of several methods.
- You receive notice of repossession and some explanation of your rights and the process for exercising them.
- You decide whether to pay the exorbitant fees or allow the creditor to sell it at auction for perhaps a fraction of it's worth; possibly leaving you with a balance still due, or deficiency judgment.
If you default on your loan, the law in most states allows the creditor or lessor to repossess your car; however, some state laws place specific limitations on the ways a creditor or lessor can repossess and/or sell your vehicle to pay off your debt. Research your specific state laws; if any rules are violated, you may be entitled to damages from the creditor or lessor! For instance, some states require creditors or lessors to inform you in advance if they plan to enter your property to seize your car. If a breach of peace occurs (a public scene, harm to person or property, perhaps even removing your vehicle from an enclosed garage), you may be entitled to compensation.
Once your car has been repossessed, it will most likely be sold in a public or private auction to cover the debt partially or in full. State laws typically provide some requirement that the sale of the repossessed vehicle be conducted in a commercially reasonable manner. Generally, the expectation is that the sale price obtained is fair for the established market for the vehicle (but the expectation is on the low end), and the method of selling the car was conducted in a commercially reasonable manner according to standard custom for the appropriate market. Thus, contingent on your individual state law, failure to sell your vehicle in a commercially reasonable manner and get a fair and honest market price, may provide means for a claim or dispute against your creditor for damages.
Some state laws require that the creditor or lessor must inform you what will happen to your car; if it is to be sold at public or private auction for instance, inform you of the date of sale and allow you the right to participate and/or buy back the vehicle (inclusive of additional fees you may owe due to the repossession process). If the creditor or lessor does not inform you of this information, and your state law dictates this, you may be able to recover damages as well.
Personal property left in your vehicle is typically not considered the property of the creditor or lessor post-repossession; and in fact, they are typically required to ensure that others cannot damage or remove items left behind. Depending on your state laws, you may have a right to compensation for any missing articles of personal property resulting from the repo process. Personal property constitutes freestanding items that are left in the car which are not improvements or physical attachments to the car (like a built-in GPS or DVD player).
It's not over yet. Your car was repossessed while you were enjoying your popcorn with that cool guy or gal you just met, sold for pennies on the dollar and now you are in front of a judge being sued for the outstanding balance. How did this happen? Sometimes when your car is repossessed the original creditor sells the car for less than the amount remaining on your loan. When this happens they can come after you for the balance, called the deficiency. This Sample Letter is for the purpose of disputing collection activities on a deficiency from a motor vehicle repossession. It may be used AFTER 2 years from the date of the repo sale, providing there has been no filed claim for a judgment. It should not be used if you have been sued, or if the repossession is less than 2 years ago.
Depending on your individual state's law, in the event of a suit for a deficiency judgment, you should be notified of the date of the court hearing. It is during this process that you would provide and utilize any grounds for disputing the judgment; such as any failure to follow the protocols we have discussed earlier (again, each state is different so you will need to do your homework).
Car Repossession: What Is the Difference Between Reinstatement and Redemption?
If your car is repossessed, you might be able to get it back by redeeming the car from the lender (paying the full amount you owe) or reinstating the car loan (getting current on payments). Below you can learn about redemption and reinstatement after vehicle repossession, the difference between the two, and whether those options will be available to you.
If you get behind on your car loan, it is likely that your lender will cut its losses by repossessing the vehicle under the terms of its contract with you, selling it, and applying the sales proceeds to the outstanding balance on your loan. (To learn more about how repossession works, see Car Repossessions and Auto Loan Charge Offs.) If the proceeds from the sale are not enough to cover the balance on your loan plus the lender’s costs of the repossession and sale, you’ll owe the car lender the remaining amount, called a deficiency. (Learn about deficiency after car repossession.)
Once the car is repossessed, however, you may be able to get the vehicle back from the lender through reinstatement of the loan or by redeeming the car from the lender.
When Redemption or Reinstatement Make Sense
There may be a number of reasons why you want to get your car, truck, van, or other motor vehicle back after the repossession, including:
- You have equity in the car that you do not want to lose.
- The loan is nearly paid off.
- Having a repossession on your credit report will make it difficult for you to obtain another car loan for some time.
- You want to avoid being held responsible for any deficiency balance remaining after the car is sold by the lender.
- Your financial circumstances have changed so that you can afford the payments.
Regardless of your motive for getting your car back, there are two methods you may be able to use to make that happen: redemption or reinstatement. Whether you can redeem the vehicle or reinstate the loan will depend on:
- the terms of the loan contract between you and the lender, and
- whether your state requires the lender to provide you with redemption or reinstatement rights.
Keep in mind, however, that the time period for redeeming and reinstating is short. Under the laws of most states, after the vehicle is repossessed, the lender is only required to keep it for 10 to 15 days before the car is sold. Therefore, it is vital that you act quickly. Consider talking to an attorney or doing some research if you want to be sure of your rights, but contact the lender as soon as possible after repossession to preserve your right to redeem the car or reinstate the loan.
Redeeming Your Car After Repossession
When you redeem your vehicle from the lender, you essentially buy back the car for what you owed on it. Generally, you can exercise your right to redeem the car until the lender sells or otherwise disposes of it.
Every state grants a borrower some form of redemption right, however, those laws may differ as to:
- how long the lender must keep the car before it is sold (usually 10 to 15 days after the lender notifies you of the repossession)
- what kind of sale the lender must use (mass vehicle auctions are common)
- how the lender must notify you of your right to redeem, how and when it plans to sell the car, and how much it will cost you to redeem it.
Exercising your right to redeem the vehicle may be expensive. In addition to the outstanding balance, the cost to redeem will include the lender’s reasonable repossession expenses, towing charges, storage fees, cleaning and repair expenses, attorney’s fees, and other costs like late fees that accumulated during the loan but remain unpaid. These fees alone could amount to hundreds of dollars.
The terms of the redemption may be negotiable, though. The lender may be willing to take less than the full amount owed or discount the repossession fees in order to reduce losses it might incur if it sells the car for less than its value.
Reinstating the Loan After Repossession
Instead of redeeming the car for the outstanding balance plus the lender’s reasonable expenses, you might be able to regain possession of the car by reinstating the loan. To reinstate, the lender will typically require that you bring all the payments current, pay any outstanding fees under the contract, like late payment fees, and reimburse the lender for the costs of repossession.
Once you have reinstated the loan, you will still be required to make the remaining payments on time and keep adequate insurance coverage.
Do You Have the Right to Reinstate?
In some states, the law requires that a lender allow you to reinstate the loan. Even if reinstatement is not provided for by law, however, your lender may have included reinstatement in the terms of its financing agreement with you or may have a policy that allows a borrower to reinstate.
How Much Does it Cost to Reinstate?
Like redemption, lenders may be willing to negotiate the terms of reinstatement, including how much of the outstanding balance or repossession costs you will have to pay to get your car back, or the lender may be willing to change the terms of the remaining payment schedule.
What If You Can’t Afford to Redeem or Reinstate?
If you do not have the resources to redeem the vehicle or reinstate the loan, bankruptcy may be another option. With Chapter 13 bankruptcy, you could propose a plan to repay the car lender over time or to redeem the car for less than what you owe on it. (Learn more in Using Chapter 13 Bankruptcy to Get Your Car Back After Repossession.)
What Happens When You Default on a Car Title Loan?
A car title loan is a slithering can of worms that you really don’t want to open unless your very life depends on it. Title loans are considered the worst of the worst when it comes to subprime loans, which are high-interest, short-term loans marketed to people who don’t have the credit or the income to qualify for loans at reasonable rates. In other words, they’re marketed to the very people who can least afford to pay them off on time. It’s kinda like enticing someone with diabetes to eat a huge bag of doughnuts.
Car title loans, also known as title loans, title pawns, and pink slip loans, are usually processed and paid out within an hour of applying. Title lenders don’t check your credit, and while some require that you have some type of income – whether from a job, unemployment, or retirement – many lenders will accept a bank account with a little cash in it as proof of income. In most cases, all you really need in order to take out a title loan is an ID, the original lien-free title to a car in your name, and a spare set of keys. In exchange, the lender will give you somewhere between 25 and 40 percent of the value of your car, which you can keep driving as long as you don’t default on the loan.
When you live paycheck to paycheck like 76 percent of Americans do, little emergencies can seriously jack up your life. All is good until suddenly your car breaks down and needs $1,000 in repairs, which you don’t have, or the gas company suspends your service for that past-due $300, which you also don’t have. Unless you’ve got a well-to-do friend or relative willing to lend you the cash, you’re in dire straights.
Since your credit score, income, and current debt probably disqualify you from getting a traditional low-interest loan in an emergency, you may feel that you really have no choice but to hand over the title to your car and hope that you can pay off the loan before you wake up one morning to find your car gone. But the high interest rates associated with these loans makes them a gamble that 17 percent of title loan customers lose.
The monthly interest rate on title loans is typically 25 percent, which is equivalent to a 300 percent APR, or annual percentage rate. The APR is the amount of money you’ll pay in interest if you carry a loan for twelve months. The term of a title loan is usually 30 days, at the end of which the principal plus interest is due. In the case of a $1,000 loan, you would have to pay $1,250 at the end of the term or pay only the interest and roll over the principal for another month, during which interest continues to accrue at the same high rate.
On average, title loan borrowers roll over the loan eight times. Total cost for a $1,000 loan at the end of eight months? A staggering $3,000 plus any additional charges, which may include lien, origination, and document fees and, to add insult to injury once your car is repossessed, a repossession fee.
The Aftermath of Repossession Due to A Car Title Loan
If you default on your loan and the repo man pays you a visit in the middle of the night, you may have a few days or even a couple of weeks to come up with the required cash and negotiate the return of your car before it goes to auction, but that all depends on the lender’s auction schedule. If it goes to auction before you can get it back, the lender will recoup the amount you owe from the proceeds of the car’s sale.
And then what? Do they send you a check for what’s left over? Not if they don’t have to, and they don’t have to in states where title loans are governed by pawn laws, as they are in most of the 20 states where title loans are legal. You can default on a small remaining balance after paying three times that amount in interest and still lose your car and every penny of the equity you have in it. On top of that, you’ll have to come up with the funds to buy a new car.
If you’re considering taking out a title loan to cover an emergency, don’t do it until you’ve exhausted all other resources first. Talk to family and friends about a loan, contact community or government agencies that have funds set aside to help people in need through various hardships, ask your creditors for an extension on payments due, or go the traditional route and pawn something of value that won’t leave you stranded and buried under a mountain of insurmountable debt if you can’t make the payments.
Only after you’ve explored every other avenue you can think of should you consider taking out a title loan, and even then, only after combing through your budget and finding ways to scrimp and save for the next month to ensure you’ll be able to pay off the loan at the end of the term.
If you’re already playing the title loan blues and are on the verge of repossession (or not,) make an appointment with a credit counseling service to find out what options may be available to you for getting your debt under control to avoid financial ruin.