Jonah Patel
While repossession of a car is generally legal, there are certain circumstances that can make it illegal. In the case of a consumer's vehicle, a creditor cannot commit what is called a breach of the peace, which includes the use of physical force, threats, or lies to obtain the vehicle or its keys, or taking the car from a closed garage without permission. A breach of the peace can also occur if the creditor damages the consumer's property during the seizure of the car, or if they proceed with the repossession after the consumer objects without having a court order. In some states, entering a consumer's property without notice or repossessing a vehicle from their driveway is considered illegal trespassing. Third-party repossession companies hired by creditors may also be liable for trespassing, and they are governed by the Fair Debt Collection Practices Act, which outlines what debt collectors can and cannot do. It's important to note that repossession laws can vary by state, and lenders typically have the right to repossess a vehicle when a borrower defaults on their loan or lease.
| Characteristics | Values |
|---|---|
| Lender takes the car without going to court | Legal in many states |
| Lender does not provide notice before taking the car | Legal in many states |
| Lender does not allow retrieval of personal items from the car | Illegal |
| Lender demands payment for return of personal items | Illegal |
| Lender does not sell the car in a commercially reasonable manner | Illegal |
| Lender does not auction the car within 90 days of repossession if the borrower has paid more than 60% of the loan | Illegal |
| Lender does not pay the borrower the surplus if the car is sold for more than what is owed | Illegal |
| Lender does not allow the borrower to reinstate the contract by paying past-due amounts | Legal |
| Lender does not allow the borrower to redeem the vehicle by paying off the remaining loan balance and fees | Legal |
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What You'll Learn
Voluntary repossession
If you are struggling to make your car payments, it is recommended to contact your lender as soon as possible to discuss your options. Many lenders will be willing to work with you to find a solution, such as revising the payment schedule or deferring payments in the case of a natural disaster.
If you decide to go ahead with a voluntary repossession, you can set up a time and location to return the vehicle and hand over the keys. This allows you to have some control over the situation and avoid the stress of a repossession company showing up unannounced. However, it is important to note that voluntary repossession can still have serious financial consequences. Even if you return the car voluntarily, you are still responsible for paying any remaining balance on the loan, including late fees and the deficiency balance if the car is sold at auction.
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No prior notice
In many states, a lender can repossess a borrower's car as soon as they default on their loan or lease, and often without any prior notice. This is because the borrower could try to hide the car or damage it if they knew the lender was coming to repossess it.
If your car has been repossessed without prior notice, you have the right to bring the loan current by paying all past-due amounts, plus any fees and charges, to regain possession of the vehicle. However, this must be done before the lender sells or auctions the vehicle. It is important to act quickly if you wish to reinstate the loan, as there are strict deadlines for this process. If you want to get your car back after repossession, you may have the right to redeem the vehicle by paying off the entire remaining loan balance, plus any fees and repossession costs.
If your car has been repossessed, your lender generally charges a fee for picking it up. This fee, however, must be reasonable. What constitutes reasonable is generally determined by a court and depends on the type of vehicle taken, how it was taken, and where it was taken.
After the repossession, your lender or leaseholder may allow you to reinstate your contract if you pay the past-due amounts. If the lender or leaseholder does not agree to reinstate your contract, they may try to sell your car at an auction. You will have a right to know when and where the sale will take place, as well as the right to bid on the car and try to buy it back. If the car is sold for more than what you owe, you’re entitled to receive the surplus.
If your creditor cannot account for valuable articles left in your car, you may be entitled to compensation and you should consult an attorney. It is not unusual for people to have belongings stored in their cars when they’re repossessed. Contact your lender right away to arrange a time to retrieve your property. It is important to document what items you left in the vehicle and their estimated value.
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Right to redeem the vehicle
If your car has been repossessed, you may have the right to redeem the vehicle by paying off the entire remaining loan balance, plus any fees and repossession costs. This is often more expensive than reinstating the loan, but it allows you to regain ownership of the vehicle and prevent it from being sold at auction.
The lender will typically provide a deadline for when you need to make the payment to redeem the car. After repossession, the lender will usually sell the vehicle to recover the money you owe. You have the right to receive notice of when and where the sale will take place. If the car is sold for less than the balance of your loan, you may still owe the lender the remaining amount, known as a deficiency balance. For example, if you owe $10,000 on your car loan and the lender sells the car for $7,000, you will still owe the $3,000 difference, plus any fees associated with the repossession and sale.
The balance you must pay to redeem the vehicle may include extra fees and charges, like repossession, storage, and even attorneys' fees. The car loan lender is usually required to send you a written notice of the right to redeem the vehicle shortly after repossessing the car. The notice will include the payoff amount necessary to redeem. If you don't receive this notice within five days of the repossession, contact the lender to get the payoff amount. Redemption is only available for a limited time. Your right of redemption ends when the car is sold.
If you don’t make your car payments on time, your lender might have the right to take your car without going to court or telling you first. However, if you believe your rights were violated, you can file a complaint with your state’s consumer protection agency or consider taking legal action to challenge the repossession. If your lender or the repossession agent violated any laws during the process, you may have the right to challenge the repossession.
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Personal property
In the United States, repossessions are carried out according to state laws that allow a creditor with a security interest in goods to take possession of those goods if the debtor defaults on the contract that created the security interest. If you are having trouble making car payments, contact your lender as soon as possible. Many lenders will work with customers if they believe they will be able to pay soon, even if the payments are slightly late. If you've experienced a natural disaster, your lender may be willing to defer your payments, offer extended repayment plans, grant grace periods, waive late fees, or postpone repossession.
Lenders are not permitted to breach the peace when repossessing a car. In the case of Mbank El Paso v. Sanchez (1992), a repossession agent towed away a car even after the loanee locked herself in it. The court decided that this was an unlawful breach of the peace and declared the repossession invalid. The debtor was awarded $1,200,000 in damages from the bank involved.
After a repossession, you have the right to receive a notice, to be informed of when and where the sale of your car will take place, and to bid on the car and try to buy it back. You cannot be required to pay to get your property back from a repossessed car. Any attempt to do so could be unlawful. The federal Consumer Financial Protection Bureau considers it an unfair trade practice.
In some states, your lender has to tell you what personal items were found in your car and how to get them back. The federal Servicemembers Civil Relief Act requires a lienholder to obtain a court order to repossess a vehicle during the term of the buyer's military service. Your loan contract may authorise the lender or repo agent to take your personal belongings with the car and dispose of them. However, if your contract allows this, it must also require the lender to give you written notice that it has your personal property within 15 days of discovering the items.
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Unfair debt collection practices
While repossession of a car is generally legal, there are certain unfair debt collection practices that creditors may engage in that are considered unlawful. Here are some important points to consider:
- No prior notice: In many cases, creditors are not legally required to provide prior notice before repossessing a vehicle. This means they can repossess your car without warning as soon as you default on a payment. However, they must still act within the bounds of the law and cannot, for example, breach the peace.
- Voluntary repossession: If you voluntarily return the vehicle, you may be able to reduce the fees and expenses owed to the creditor. However, this does not eliminate your obligations, and you may still be responsible for paying any remaining balance on the loan, known as the "deficiency". Additionally, the voluntary repossession may still be reported on your credit history.
- Personal property: While creditors are allowed to repossess the vehicle, they are not permitted to keep or sell any personal property found inside. If they do so, they may be engaging in unlawful debt collection practices. Make sure to document any personal items left in the vehicle and their estimated value.
- Unreasonable fees: After repossessing your car, creditors can charge a fee for picking it up. However, this fee must be reasonable and based on factors such as the type of vehicle, the method of repossession, and the location. If you believe the fee is excessive, you can challenge it in court.
- Withholding property: If the creditor demands payment for the return of your personal property, this may be considered an unfair practice. In such cases, consult an attorney or file a complaint with the relevant authorities.
- Credit score impact: Falling behind on car payments can negatively affect your credit score, making it more challenging or expensive to obtain loans in the future. This is an important consideration when dealing with debt collection practices.
- Auction and sale: After repossession, creditors must sell the vehicle in a commercially reasonable manner. If the car is sold for less than what you owe, you may be responsible for paying the remaining balance, including repossession fees. Conversely, if the car is sold for more, you are entitled to receive the surplus.
It's important to know your rights and understand the laws specific to your state regarding debt collection practices and vehicle repossession. Consulting an attorney or a legal professional can help clarify your rights and options in these situations.
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Frequently asked questions
A breach of the peace occurs when a creditor uses physical force, threats of force, or lies to get the vehicle or keys to the vehicle. It also includes taking the vehicle from a closed garage without the consumer's permission or damaging the consumer's property when seizing their car.
In some states, if a creditor were to come onto a consumer’s property without notice, or to repossess their vehicle from their driveway, it would constitute illegal trespassing.
The FDCPA is a federal statute that governs the actions of debt collectors, including third-party repossession companies hired by creditors. It outlines what debt collectors can and cannot do.
A lender can charge a fee for picking up the car, but this fee must be reasonable. The court determines what constitutes a reasonable fee, considering the type of vehicle, how it was taken, and where it was taken. The lender can also charge repossession fees and expenses for storing the car, which are paid from the sale of the car.
