Most debts, including car loans, have a statute of limitations for court filings. The timeframe of the court filings statute varies by state but is typically between three to six years. If you fail to make your car payments, your vehicle can be repossessed by the lender or a repossession agent and sold to pay your car loan debt. If the value of the car is less than the balance of the loan, the creditor may be able to sue you for the deficiency as long as the statute of limitations hasn’t expired.
According to the U.S. Department of State, 85% of Americans travel to work by car. It’s arguably one of our most important possessions and gets us to and from the grocery store, doctors appointments, and assists with many other important tasks that would be difficult to accomplish without a vehicle.
Therefore, having your vehicle repossessed because you can’t make the car payments is a catastrophic event for many people. Today, we’ll take a closer look at car repossessions, what your legal rights are if it happens, and options to remedy the situation as best you can.
How vehicle repossession works
When you lease a vehicle or buy it with financing, part of your car loan agreement is that you provide consent to make the monthly payments. If you don’t hold up your end of the bargain, the written contract allows for the car dealer or lender to repossess the vehicle. A car loan can technically be considered delinquent even if you pay late by only one day. However, chances are your lender won’t repossess the vehicle unless you’ve missed at least one or two car payments.
The lender can then seize the vehicle and, in a lot of cases, doesn’t even have to notify you. But they do have to take the car in a relatively civilized manner. This is also referred to as seizure without “breaching the peace” by the Consumer Financial Protection Bureau (CFPB). This means your car can’t be repossessed by force, by the threat of force, or by entering private, locked premises like a closed garage.
Basically, your repossessed car be taken from any open, public area, which could include a parking lot, street, or even your own driveway.
What happens after repossession
After the bank or repossession agency has taken the repossessed vehicle, they can keep it or sell it to settle the debt owed. Typically the lender will choose to sell the vehicle in either a public auction or private sale in a “commercially reasonable manner.” That basically means they don’t have to try for the highest price possible but they should follow basic, standard sales practices to get a reasonable price for the car.
The result of that is often a deficiency between what you owe on the car and the price they get for it. For example, if you owed $10,000 on the car and it sold for $8,000, the deficiency is $2,000, which you are usually responsible for.
Prior to selling the vehicle, the lender must send you legally required written notices of where and when the car is being sold, so as to give you the opportunity to make good on the loan. Or, if your loan agreement doesn’t allow for reinstatement of the loan, you may be entitled to buy the car back by paying the loan amount in full plus the repossession fees. This may include money spent on collection efforts as well.
For example, if they’re selling the car at a public auction, you have the opportunity clear things up beforehand or appear and bid on the car yourself. Or, if it’s being sold in a private sale, you should be notified of the timeframe you have to settle the debt (if that’s an option for you).
What a deficiency balance means for you
If your vehicle is repossessed and sold, you’ll most likely be responsible for paying the remaining balance between the amount left on your loan (plus any repossession fees) and the sale price. This is known as a “deficiency balance.” In the above example, that means you would still owe the bank $2,000 plus any repossession fees charged.
If you can’t or won’t pay the deficiency fee, the car lender will probably send you to a collection agency. Technically, collection agencies are not allowed to use aggressive tactics to recover the money, says the CFPB, but that doesn’t necessarily mean they won’t try. And they’ll probably also take you to court and sue you to reclaim the debt.
If you do get sued, the creditor or collection agency will likely ask the court for a deficiency judgment. This means you’ll be on the hook for the deficiency balance and any costs associated with both the repossession and the collection efforts. There is a statute of limitations on suing for deficiency (usually 3 to 5 years) but it varies by state.
What this means for your credit
At this point, it’s important to remember that all of this has been added to your credit report. This type of incident is pretty serious. It lowers your credit score drastically and makes it much more difficult to get any kind of financing in the future. It will also stay on your credit history for up to seven years.
If your credit suffered because of car repossession, you may want to consult one of the credit repair companies below.
What does the statute of limitations on car repossession really mean?
As stated earlier, most states have a statute of limitations that extends from three to six years. That means the final date is the deadline for a lender or collection agency to file a lawsuit against you. It does not mean that you no longer owe the money or that you will stop hearing from debt collectors, although you can send them a certified letter telling them to quit contacting you.
It also doesn’t mean you couldn’t still have your vehicle repossessed, if you haven’t already. Chances are the car is long gone by then, but the distinction should be made that the statute only applies to the deadline for lawsuits, not repossessions. There is also a statute of limitations for suing the debtor for a deficiency between the debt balance and the value of the repossessed car (typically 3 to 5 years depending on the state).
How to avoid repossession
If you find yourself unable to make your monthly payments, the first thing you should do is talk to your lender. You may be able to come to some kind of agreement to avoid repossession altogether.
Depending on your car lender, they probably don’t want to go through the hassle of repossessing your car and selling it to recover their money. In that case, they might be willing to work something out with you if you’re sincere in your desire to pay your debt. You may also want to consider the below options.
Reinstating your loan agreement
If you can manage it, this is your best possible option to avoid repossession. Reinstating the loan agreement means you pay back all of the missed payments and any applicable late fees so that you become current on the loan.
You should check your loan papers to see if this is a provision in your contract. If it isn’t, some states will still allow you to reinstate the loan (even after repossession) until the car is sold by the lender or otherwise disposed of.
Refinancing your car loan may give you a lower interest rate and/or a longer time to pay back the debt, which could give you smaller, more manageable car payments. Keep in mind, though, that lengthening the loan term will also mean you end up paying more money in interest over the life of the loan. However, that might be one of your better options to keep your car and save your credit.
Sell the car
If you’re struggling to make your monthly payment, or already missed one, you might need to take matters into your own hands. For instance, you can sell the vehicle yourself before it gets repossessed and effectively ruins your credit report.
Selling it in a private sale might get you a better price than the car lender would get — possibly even enough to pay off the remaining balance of the loan. This option would rescue your credit and allow you to get another car loan in the future.
Voluntarily surrender the car
Another option is to voluntarily give the car back to the lender. You still lose the car, which is unfortunate, but you may be able to negotiate that surrendering the vehicle will count as full payment and cancel your total debt. This way, at least you won’t have to seek professional help or have attorneys evaluate a collection lawsuit, which will only put you further in debt.
File for bankruptcy
While this isn’t an ideal solution, contacting a bankruptcy attorney might be something to look into, especially if you’re having trouble with debts other than just your car loan. Those seeking debt relief often get to get keep their property even after filing for bankruptcy. This might be particularly true if keeping your car (to get to work, for example) is a critical part of you being able to successfully manage a debt relief plan.
There is usually no charge for an initial consultation, so you might want to make an appointment with a bankruptcy lawyer for a free evaluation. At the very least, it’s a way to explore all of your options before dealing with a repossessed vehicle and a damaged credit. Alternatively, you may want to reach out to one of the debt settlement companies below to see if you can pay down your debt for less than what you owe.
How do I find the repossessed car laws in my state?
Because the state laws for repossessed cars vary, it’s a good idea to find out the exact laws in your area. You may have different rights and/or obligations under your individual state laws that you should be aware of. The CFPB recommends contacting your state attorney general, a local consumer protection office, a private attorney, or a legal services office in your area for more information.
Can I fight a deficiency balance demand for payment?
In some cases, you might be able to argue that you are not liable for the deficiency judgment. For example, if you believe the creditor violated your rights by taking the car, you may not have to pay the deficiency balance. Similarly, if the creditor didn’t provide you with the legally required written notices to try to collect the debt, you also might not have to pay.
In any case, if you think there is a solid legal reason for not paying the deficiency balance, you should consult an experienced repossession attorney to explore your legal rights.
What happens to the personal property left in my repossessed vehicle?
Your rights regarding personal items left in your car during a repossession vary by state. However, most states require repossession agents to give you access to your things.
If the lender or repossession agency refuses to return your stuff or demands payment for them, you should probably call a lawyer, talk about your options, and find out the laws regarding repossession in your state. It’s possible you may need to take legal action in order to get your personal items back.
Can the bank repossess other property I own?
Yes. A repossession can occur on any loan that is secured by an asset. Anytime you finance property, which could include boats, motorcycles, houses, or other assets, you sign a loan agreement that constitutes acceptance of the terms set forth within. Part of that agreement is giving the lender a share in the property (a lien), which means they have a legal right to seize the property — whatever it is — if your account becomes delinquent.
How do I dispute a repossession on my credit?
As mentioned previously, if you have a repossession on your credit, it will remain on your report for up to seven years. The only way you might be able to get it taken off is if you negotiate with the lender. For example, if you haven’t paid the deficiency balance, you might agree to pay it in exchange for the creditor taking it off your report.
If the creditor refuses, there’s nothing you can do about it if it’s a valid repossession. However, even if the lender won’t help you out by fixing the credit report, it’s still a good idea to pay that deficiency as soon as you are able. For one, it’ll get the debt collectors off your back, and it also looks better on your report to show that you’ve settled the total debt.
Can I buy a house with a car repossession on my credit?
There is no law that says a car repo will preclude you from getting a mortgage loan, but it certainly doesn’t help. If the rest of your credit history is a mess (along with the repossession), you probably won’t be eligible for a mortgage anyway.
However, if the vehicle repossession was a long time ago, your credit report reflects that you’ve settled that debt, and the rest of your credit history is solid, you may still be able to get approved for a home mortgage.
- Debts that are secured with an asset, such as car loans, come with a statute of limitations that’s usually between three to six years.
- The statute only applies to the deadline when a lawsuit can be filed. Repossessions are typically not a court matter, so they do not have a deadline.
- A lender or repossession agent can seize your car from a public place, including your driveway, without notifying you. They can then sell it publicly or privately to cover the loan.
- Creditors can sue you for a deficiency between the balance of the loan and the value of the repossessed car as long as they are within the statute of limitations.
- There are a number of ways to avoid repossession such as reinstating the loan, selling the car, or refinancing.
View Article Sources
- CFPB Moves to Thwart Illegal Auto Repossessions — Consumer Financial Protection Bureau
- My car has been repossessed, and I was told it will be sold. What can I do? — Consumer Financial Protection Bureau
- Car Repossession Loopholes: What Are Your Options? — SuperMoney
- How Long After a Car Repossession Can I Get a Mortgage? — SuperMoney
- How Many Car Payments Can You Miss Before Repossession? — SuperMoney
- How Do You Get a Repossession Off Your Credit Report? — SuperMoney
- How Long Does a Repo Stay on Your Credit? — SuperMoney
- How To File for Bankruptcy and Keep Your Car — SuperMoney
- Some Credit Cards Allow Repossession – Even During Bankruptcy — SuperMoney
- Is It a Good Idea to Use a Car as Collateral for Loans? — SuperMoney
- Can I Refinance My Car With The Same Lender? — SuperMoney
- How To Trade A Car That Is Not Paid Off — SuperMoney
- How to Remove a Cosigner From a Car Loan — SuperMoney
- 2020 Auto Loan Industry Study — SuperMoney