Authored By: Northwest Justice Project - CLEAR Intake Line
Learn about your rights and the rules the creditor must follow when repossessing a car.
- When can a repossession take place?
- How does a repossession take place?
- What happens after an item is repossessed?
- Can I get a repossessed item back?
- I cannot make a car payment. How can I avoid a repossession?
- They repossessed my car. Can I get back the personal property I had left in it?
- Can I pay the deficiency?
- What is an Electronic Disabling Device?
- Should I try talking with my lender?
*NOTE: This explains what happens with vehicle repossessions. These rules also apply to the repossession of any consumer product used as security (collateral) for payment of a loan.
When you finance or lease a vehicle, you and your lender or lessor have important rights and obligations under the contract you signed and state law. For example, if you do not make timely payments on the vehicle, your lender may have the right to “repossess” (take back) your car without going to court or warning you in advance.
The lender can seize your vehicle as soon as you “default” on your loan or lease. Your contract defines what a “default” is. Failure to make a payment on time or to keep insurance on the vehicle are common reasons for default.
Once you are in default, the lender may repossess your car at any time.
They do not have to notify you before the repossession occurs.
The lender cannot commit a crime, use abusive language, enter a home without permission, or take an item if you physically resist.
Cars can be towed from public or private lots.
A car can be towed from your driveway if no other car is moved. It cannot be towed from your garage.
If there is a breach of the peace in seizing your car, your lender might have to pay a penalty or compensate you if any harm is done to you or your property. A breach of the peace also may give you a legal defense if your lender sues you to collect a “deficiency judgment.” That is the difference between what you owe on the contract (plus repossession and sale expenses) and what your lender gets from the resale of your vehicle.
If you have paid more than 60 percent of the amount of the loan:
The lender must sell, lease, or otherwise dispose of the item, unless you sign a statement after the default permitting the lender to keep the item in full payment of the loan.
The sale must be held within 90 days of repossession.
The lender must send you written notice of the sale time and place.
If you have paid less than 60 percent of the amount of the loan:
The lender can keep the item as payment for the loan or sell it.
The lender must send you written notice what it will do. If the lender chooses to keep the item, you have 21 days to protest in writing and demand they sell the item.
*If you are not sure how much you have paid, ask the lender for an accounting of the charges and your payments.
The proceeds from the sale go to cover the balance of the loan and the costs of the sale and repossession. They must return any money left over (“surplus”) to you. If the proceeds of the sale do not cover the loan and expenses (“deficiency”), the lender can sue you for the full amount owed, including repossession fees, auction costs, and legal fees.
You have the right to redeem (buy back) the repossessed item up until it is sold or within 21 days of getting notice that the lender is going to keep it. The cost to redeem the item will depend on the terms of the contract. You may be liable for the cost of repossession and attorney's fees.
Contact your lender as soon as possible. Be honest about the situation and about why you cannot pay. If you have been a good customer and made payments on time in the past, your lender might agree to defer (put off) a payment and let you keep the car. If you can reach an agreement to change your original contract, get those new terms in writing. You can ask for an accounting so you can find out how much you still owe. Do not wait until the lender turns your loan over to a debt collector. By then, your lender has given up on you. It is too late to negotiate.
Refinance. You may be able to negotiate a lower interest rate or spread out the payments over a longer period. This will result in lower payments. The downside is that you will pay more interest. Compare loans from your current lender and others.
Sell the car to pay off the loan. Determine how much you owe on the vehicle. Then check its market value on a site such as Edmunds, Kelley Blue Book, or the National Auto Dealers Association (NADA) Used Car Pricing Guide (Pacific Northwest edition). If you owe less than the car is worth, sell it and use the cash to clear your debt. Before selling, review your financing agreement. See if the lender charges prepayment penalties for paying off your loan early.
Look for ways to save more money. Are you sure you cannot make your payment? You may be able to cut household expenses by eliminating other services you do not need. You might qualify for assistance programs to help cover groceries, utilities, or prescription drugs. You may also benefit from free credit counseling.
Even if you return the car voluntarily, you must still pay any outstanding debt on the loan, and the lender’s costs of the repossession (interest, late fees, legal fees, costs of the sale, and so on). Your lender still may enter the late payments or repossession on your credit report.
A lender may not keep or sell any personal property found inside the vehicle after repossession. You should immediately make a written demand for the return of your personal property. Make a list of the property in the vehicle. (See Sample Letter.) Keep a copy of your property list, demand letter, and proof of mailing. If the lender does not return your personal property, you can file a complaint with the government agency that regulates that lender. (Search here for the agency that regulates your lender: http://www.nmlsconsumeraccess.org/Home.aspx/MainSearch.) You may also file a small claim for the value of your lost property. See How do I sue in Small Claims Court.
Any difference between what you owe on your contract (plus certain expenses) and what your lender gets for reselling the vehicle is a “deficiency.” Example: You owe $10,000 on the car. Your lender 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. The lender can sue you for a deficiency judgment to collect the remaining amount owed if it followed the proper procedures for repossession and sale.
Your lender must pay you if there are surplus funds after they apply the sale proceeds to the outstanding contract obligation and related expenses. This does not happen often.
Some lenders might not provide you financing unless you agree to the installation of an electronic device that tracks the vehicle’s movement with the global positioning system (GPS) or keeps your car from starting if you do not make payments on time.
Yes. It is easier to try to keep a repossession from taking place than to dispute it after the fact. Contact your lender as soon as you realize you will be late with a payment. Many lenders work with customers they believe will be able to pay soon, even if slightly late. 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.
Your lender or lessor may refuse to accept late payments or make other changes in your contract. They may demand that you return the car. If you agree to a “voluntary repossession,” you may reduce your lender’s expenses, which you would be responsible for paying. Even if you return the car voluntarily, you must still pay any deficiency on your contract. The lender still can enter the late payments or repossession on your credit report.
If you are facing, or already in, bankruptcy, ask a lawyer about your rights to the vehicle during that process.
This publication provides general information concerning your rights and responsibilities. It is not intended as a substitute for specific legal advice.
This information is current as of February 2018.
© 2018 Northwest Justice Project — 1-888-201-1014.
(Permission for copying and distribution granted to the Alliance for Equal Justice and to individuals for non-commercial purposes only.)