When you lease or finance a vehicle, your creditor automatically has significant rights that will only end when you have paid off the debt in full, as indicated in the agreement you will sign and the laws of your state. If you fail to make your monthly payments on time, the lender may be able to take back the car and resell it without notifying you ahead of time or going to court—or sell the contract to a third party who will have the same rights.
What you should know
If you negotiate with your creditor, and they agree to a new payment date, the terms in the original contract may no longer apply, and this change in schedule should always be done in written form. If your lender takes steps to seize your vehicle—including threats, removal of your car from a closed garage without your consent, and physical force—this is considered to be a violation of the law. This means that if you are injured or your property is damaged in any way, they may be ordered to compensate you or required to pay a penalty. It will also provide you with a legal defense if your creditor decides to sue you to clear the debt.
The difference between what you owe on your car loan, including certain expenses, and what you lender receives when it is resold is known as a “deficiency”. For example, if you owe $11,000 on the vehicle and it is sold for $8,000, the deficiency is $3,000 and any other applicable fees. In most states, your lender can sue you in a deficiency judgment to collect the $3,000 you owe if they follow the correct procedures related to repossession and resale. (Also if any surplus funds remain once the resale is complete, they must be paid to you, but this does not happen very often). Under certain circumstances you may have a legal defense related to a deficiency judgment, but you will need to consult an attorney if you decide to go that route.
What you should do
Since most creditors want to stop auto repossession, you may be able to meet with them and develop a new plan of action that works for both of you. (This is far less difficult than trying to reach an agreement once your car has been repossessed.) Be prepared to offer a monthly payment that seems realistic, and update your budget so that you will be able to meet all of your financial obligations and basic needs.
Your lender may not agree to any updates to your contract and simply tell you that you must return the car, which would be termed a “voluntary repossession.” Taking that step will be less expensive for them and, in turn, cost you less as well. You will still be responsible for the balance that you owe, and your repossession or late payment may be recorded on your credit report.
Here are some other steps you can take to stop auto repossession:
- Determine the value of your car, decide if you will be able to pay off the loan once you sell it, and advise the lender about what you plan to do. You will be without a car once it is sold, but your credit rating will not be affected.
- If you are a home owner, consider refinancing by using your home equity line of credit or taking out a home equity loan, but be certain that you can handle the details.
- Regard the possibility of having your car repossessed as a clear sign that you need to simplify your lifestyle. Review your budget and expenses to see where you can cut back, and if you have other outstanding loans, consult a reputable credit counselor and establish the goal of becoming debt free.
- Consumer protection laws in some states will enable you to have your car loan reinstated if you pay back what you owe up to that point, along with your lender’s expenses related to the repossession, and you must continue to make your payments on time.
Tags: auto repossession, how to stop auto repossession, stop auto repossession
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