What to Do If Your Car Was Repossessed

Car repossession occurs when a lender takes back a vehicle because the borrower has failed to meet the terms of their loan agreement. This typically happens after a borrower defaults on payments. The repossession process allows the lender to regain possession of the vehicle to mitigate financial loss. This article provides guidance on the steps individuals can take and their rights if their car has been repossessed.

Immediate Steps After Repossession

After a vehicle is repossessed, the lender is required to send specific notices to the borrower. These notices contain information regarding the repossession and the borrower’s rights. Review all documents received from the lender or the repossession company immediately.

These notices include the lender’s contact information, the reason for repossession, and the vehicle’s location. The notice also outlines the borrower’s rights, including the opportunity to recover the vehicle, and how it will be disposed of, such as through auction or private sale. Verify the accuracy of this information. Document all communications with the lender, noting dates, times, and discussion content.

Options for Recovering Your Vehicle

After a vehicle has been repossessed, borrowers have two primary legal avenues to regain possession: reinstatement or redemption.

Reinstatement

Reinstatement involves paying all past-due amounts on the loan, along with any late fees and the costs incurred by the lender for the repossession itself. This process allows the borrower to bring the loan current and resume regular payments. State laws often dictate whether a lender must offer the option of reinstatement, and the specific timeframe within which it must be exercised, which can range from 10 to 20 days after the repossession notice is sent.

To pursue reinstatement, the borrower should contact the lender to obtain a precise quote of the total amount required. This quote will itemize all missed payments, accrued interest, late charges, and repossession expenses, which may include towing and storage fees. Once the full amount is paid, the lender is obligated to return the vehicle, and the loan agreement continues under its original terms.

Redemption

Redemption involves paying the entire outstanding balance of the loan, not just the past-due amounts, plus all repossession costs and fees. Redemption effectively pays off the loan in full, giving the borrower clear title to the vehicle. This option requires a larger payment than reinstatement, as it encompasses the remaining principal balance, all accrued interest, and any charges related to the repossession and potential sale preparation. To initiate the redemption process, the borrower must request a full payoff amount from the lender. While reinstatement allows the loan to continue, redemption concludes the loan agreement entirely upon payment.

Understanding the Sale of Your Vehicle

If a borrower does not, or cannot, recover their repossessed vehicle through reinstatement or redemption, the lender will proceed with selling the vehicle to recover the outstanding loan amount. The lender is generally required to conduct this sale in a “commercially reasonable manner,” which means the sale process should be fair and designed to obtain a reasonable price for the vehicle under the circumstances. This does not necessarily mean obtaining the highest possible price, but rather one that reflects market conditions and typical sales practices for such assets.

Common methods of sale include public auctions, where the vehicle is offered to the highest bidder, or private sales to a buyer. Before the sale occurs, the lender is required to send the borrower a notice of sale. For a public sale, this notice will typically specify the date, time, and location of the auction. For a private sale, the notice will inform the borrower of the date after which the private sale may occur.

The proceeds from the sale are applied in a specific order: first, to cover the costs associated with the repossession and the sale itself, such as towing, storage, reconditioning, and auction fees. After these expenses are covered, any remaining proceeds are then applied to the outstanding balance of the loan. It is important for the borrower to understand that if the sale proceeds are less than the total amount owed on the loan plus all associated costs, a deficiency balance will arise.

Dealing with a Deficiency Balance

A deficiency balance represents the remaining amount owed on a loan after a repossessed vehicle has been sold and the proceeds applied. This balance is calculated by taking the total outstanding loan amount, adding all repossession costs and sale expenses, and then subtracting the amount the vehicle sold for. For instance, if a borrower owed $15,000 on a loan, and the vehicle sold for $10,000 after $2,000 in repossession and sale costs, the deficiency balance would be $7,000 ($15,000 + $2,000 – $10,000).

Lenders generally have the legal right to pursue the borrower for this deficiency balance. This pursuit can take several forms, including direct collection attempts by the lender or by a third-party collection agency. If these attempts are unsuccessful, the lender may initiate legal action to obtain a court judgment against the borrower for the outstanding amount. A judgment allows the lender to pursue further collection actions, such as wage garnishment, bank account levies, or property liens, depending on state laws.

Upon the sale of the vehicle, the borrower should receive a final deficiency notice from the lender, detailing the sale price, the expenses deducted, and the remaining amount owed. Reviewing this notice carefully is important to ensure accuracy. While directly disputing the deficiency can be complex, understanding the calculation and the lender’s rights is a necessary step in addressing this financial obligation. Non-payment of a deficiency balance can negatively impact one’s credit report for several years.