Contact your creditor right away if you know you are going to be late with a car payment. It is easier to try to prevent a car repossession than to dispute it later. Many creditors work with consumers they believe will be able to pay soon. You may be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract, get it in writing to avoid questions later. However, your creditor or lessor may refuse to accept late payments or make other changes in your contract and may demand that you return the car. If you agree to a voluntary repossession you may reduce your creditor's expenses, which you would be responsible for paying. However, even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report. Finally, if you are facing, or already in, bankruptcy, ask an attorney for information about your rights to the vehicle during that process.
Your creditor may not commit a breach of the peace when seizing the vehicle. In some states, that means using physical force, threats of force, or even removing your car from a closed garage without your permission. Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a deficiency judgment (which is the difference between what you owe on the contract plus repossession and sale expenses and what your creditor gets from the resale of your vehicle).
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
In any of these situations, you may be entitled to buy back the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. You can also try to buy back the vehicle by bidding on it at the repossession sale.
Some states have consumer protection laws that allow you to reinstate your loan. This means you can reclaim your car by paying the amount you are behind on your loan along with your creditor's repossession expenses. However, if you reclaim your car your future payments must be made on time and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a commercially reasonable manner. Your creditor does not have to get the highest possible price for the vehicle or even a good price. However, a resale price that is below fair market value may indicate that the sale was not commercially reasonable. "Commercially reasonable" may depend on the standard sales practices in your area. A creditor's failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.
Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can't account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.
Any difference between what you owe on your contract (plus certain expenses) and what your creditor gets for reselling the vehicle is called a deficiency. For example, if you owe $10,000 on the car and your creditor sells it for $7,500, the deficiency is $2,500 plus any other fees you owe under the contract. Those might include fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common. You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
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