Car Repossession Loopholes: What Are Your Options?

Article Summary:

Though you can’t hide your vehicle to avoid repossession, you do have several options to avoid repossession. This includes refinancing your loan, declaring bankruptcy, or selling the vehicle with your lender’s permission. You also have the right of redemption after repossession, meaning you can reclaim your vehicle if you pay off the entire loan amount.

If you’ve gone through a financial rough patch, then you may have had the experience of falling behind on your car payments, possibly even losing your car altogether.

A car repossession can impact you negatively in several ways. First, it leaves you without a car, which may be your only way of getting to work or fulfilling other obligations. But it can also take a major toll on your finances, both because of the hit to your credit report and the fact that you may still owe your lender money when it’s all said and done.

If you’re at risk of repossession, it’s understandable that you’d want to do everything you can to avoid it. In this article, we’ll share some ways you can avoid having your car repossessed — as well as some ways you can’t.

When can a car be repossessed?

When you buy a car with a loan, the vehicle itself serves as the collateral for the loan. This means the lender can place a lien on the vehicle’s title, and if you fail to repay the loan, then the lender can seize — or repossess — the car to recover its losses.

Exactly when a lender can repossess a car depends on where you live. In some states, a creditor can repossess your car as soon as you’ve defaulted on the loan, which could be as soon as one month after your first missed payment. In other states, it may take longer for a car repossession to be allowed.

Car repossession loopholes

If you’re at risk of having your car repossessed, you may have heard or read advice that suggests hiding a car to avoid repossession. Some of the advice that’s often shared includes:

  • Keeping your car in a private garage where the person sent to repossess it won’t be able to access it.
  • Removing the GPS tracker from your car so it can’t be tracked down.
  • Lending your car to someone else or trading vehicles with someone.
  • Selling your car and possibly pocketing the proceeds of the sale.

Parking your car in an inaccessible place can give you a little extra time to put your finances in order and make the missed payments. But it’s just a short-term fix. Unfortunately, none of the advice above is actually an effective way to avoid repossession, even if it may delay it temporarily. Ultimately, your lender has the legal right to repossess the car if you fail to make your loan payments. If you don’t allow them to repossess the car, they’ll be able to get a court order compelling you to turn it over yourself.

IMPORTANT! When you take out a loan, you make a legal agreement to repay that loan. If you hide your car from your lender — even if you sell it — you’ll still owe the full loan amount. Failing to repay your loan can not only cause you to lose the car but can also cause major financial problems for you down the road.

Your rights during a repossession

You can’t avoid a repossession simply by hiding a car, but you do have certain rights both during and after the repossession.

What can’t repo agents do?

First, there are limitations as to what a repossession company can do to seize your vehicle. They are allowed to enter your property to take the car. However, a repo man can’t break into your property, including a locked garage. They also can’t breach the peace in the process of repossessing a vehicle, nor can they use physical force or threats of force.

Repossession agents also aren’t law enforcement, nor can they act like it. A repo agent can’t pull you over or use any physical force to detain you. They also generally can’t involve the police in their repossession efforts.

Another right you have during a repossession is the right to any personal property in the vehicle. While the lien gives your lender the right to take the vehicle, it doesn’t give them the right to your belongings. The lender has to inform you about what items were in the car, as well as give you the opportunity to retrieve them.

What can repo agents do?

Unfortunately, there are plenty of actions a repossession company can take. This includes watching your comings and goings to learn your schedule or showing up at your place of employment.

Pro Tip

If you feel your rights were violated during a car repossession, it may be worth enlisting the help of an attorney. Some attorneys specialize in helping individuals who were victims of unlawful repossession.

The right of redemption

Even after your car is repossessed, you’ll have what’s known as the right of redemption, which allows you to recover the car by paying the full loan amount. It’s important to note that the right of redemption doesn’t just require that you make up the missed payments. You’ll have to repay the full loan amount, including both the principal and interest, as well as any late fees that have accrued.

Unfortunately, redemption isn’t an option for most borrowers. After all, if you could afford to pay off the full loan amount on the spot, it’s unlikely you would have defaulted on the loan and had your car repossessed. However, it is an option in case it’s feasible for you.

What happens after a possession?

Once your car has been repossessed, the lender will usually sell it to recover their losses from the loan. The proceeds of the sale will be used to pay down your loan balance. That being said, there may still be some loan balance remaining afterward. In that case, you’ll be on the hook for the outstanding loan amount.

For example, suppose you had an auto loan with a balance of $10,000. Your lender repossessed your car and was able to recover $7,000 by selling it. The remaining $3,000 balance is still your responsibility.

The good news is there are rules around how much your lender can sell the vehicle for. In general, the sale price must be commercially reasonable, meaning they can’t sell the car under its market value. So for the example above where the car was worth $7,000, the lender wouldn’t be able to sell the car for $5,000 to leave you with a $5,000 balance.

How to avoid repossession

As we’ve mentioned, you can’t avoid having your car repossessed simply by hiding it where a repossession agent won’t be able to find it. But the good news is there are still steps you can take to avoid repossession and keep your vehicle.

Make up your late payments

This may not be much of a surprise, but the easiest way to avoid repossession is to simply stay current on your loan payments. You can avoid going into delinquency or default by making your payments on time each month. And if you do fall behind, you can avoid repossession by catching up on your missed payments.

If you’re behind on your payments and at risk of repossession, talk with your lender about how you can fix the situation. Ultimately, the lender wants their money back, whether it’s from you making your payments or from repossessing the car. If you can catch up on those missed payments, your lender will end its repossession efforts, and may even be willing to make arrangements to make your payments more manageable.

Refinance your loan

When you refinance a loan, you take out a brand-new loan to replace the original one. The downside is that you’ll still owe the same amount of money as you did before. But the good news is if you’re having trouble making your payments, refinancing may help you get a lower interest rate or lower monthly loan payment.

If your current monthly payments are too high for your budget, a refinance is worth exploring.

Pro Tip

Refinancing may not be an option if you’re already behind on your car payments, since the missed payments will have negatively affected your credit score.

File for bankruptcy

Bankruptcy is usually the last resort of debt relief, and for good reasons. Not only does bankruptcy often require that you liquidate many of your assets, but it also causes a major hit on your credit report (although repossession does, too). In both cases, you’ll find it difficult to get new credit for several years, including qualifying for a mortgage.

When you file for Chapter 7 bankruptcy, you’ll work with the court to liquidate certain assets to pay off your debt. Any debt that remains after the liquidation is discharged. Some of your belongings are exempt, including your home, vehicle, and personal belongings. While bankruptcy won’t eliminate your car loan if you choose to keep your car, it will free up money that was going toward other debt to instead go toward your car payment.

Again, bankruptcy is a major decision that will affect your finances for years to come. It’s not a decision to be made lightly and isn’t always worth it to avoid repossession. A bankruptcy lawyer can help you decide if it’s the right choice for you.

Sell your vehicle

We mentioned earlier that you can’t avoid repossession by selling your car and pocketing the proceeds of the sale. The reason that doesn’t work is that regardless of whether there’s a car to repossess, you still owe your lender money. And in most cases, they’ll find a way to get the money back.

That being said, you do have the option of selling the vehicle to pay off all or part of the loan balance. If there is still a balance on the loan after you’ve sold the car, you’ll have to pay that off with other funds.

Pro Tip

You may need the cooperation of your lender to sell the vehicle before the loan is paid off. Because there’s still a lien on the title, you don’t necessarily have the legal right to sell the car on your own.

Can I surrender my vehicle to avoid repossession?

You may be wondering whether you can avoid repossession by voluntarily surrendering the vehicle to your lender. Technically, yes, you can avoid repossession by simply handing over the vehicle voluntarily. And it may be enough if it saves you the public embarrassment of having your car seized in front of your neighbors or family.

Unfortunately, surrendering your car — known as a voluntary repossession — still comes with many of the negative impacts of a non-voluntary repossession. First, you’ll still have a major hit on your credit report. In fact, future lenders aren’t likely to see a difference between voluntary and non-voluntary repossession on your credit.

Additionally, just as with any other repossession, if the value of the car isn’t enough to pay off the entire loan amount, you’ll still be on the hook for the remaining balance, even if you surrendered the car yourself.

FAQs

How do I stop my car from being repossessed?

You can stop your car from being repossessed by catching up on your missed payments or by refinancing your loan to make your loan payments more manageable.

Can my car be repossessed if I make partial payments?

A lender can still technically repossess your car, even if you make partial payments. However, showing a willingness to make payments when you can gives the lender motivation to work with you and accept partial payments to avoid repossession.

Can a repossession be reversed?

A repossession may be reversed through the right of redemption, where you pay the full loan balance to the lender to recover your vehicle.

Key Takeaways

  • Though it may sound tempting, in the long run you cannot avoid repossession by hiding your car from the repo man.
  • If you try to prevent your lender from repossessing your car by locking it in a garage or selling it, your lender could file a court order against you.
  • Even after your car is repossessed, you have the right of redemption. This means you can reclaim your car if you pay your lender the remaining loan balance.
  • To avoid repossessing legally, you can contribute to your missed payments, refinance your loan, file for bankruptcy, or sell the car (with your lender’s permission).
  • Unfortunately, a voluntary repossession is still repossession, which can negatively impact your credit score.
View Article Sources
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  2. Car Title Loans — Consumer.gov
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  4. Pros and Cons of Auto Title Loans (Updated 2022) — SuperMoney
  5. How Many Car Payments Can You Miss Before Repossession? — SuperMoney
  6. How Long Does a Repo Stay on Your Credit? — SuperMoney
  7. Some Credit Cards Allow Repossession – Even During Bankruptcy — SuperMoney
  8. Auto Loan Refinancing: Reviews & Comparisons — SuperMoney
  9. 2020 Auto Loan Industry Study — SuperMoney