When you finance or lease a car, the lender or leaseholder holds the title to the vehicle until the loan is paid off.  The car is the collateral for the loan, and you give the lender a security interest in the vehicle.  Then, if you default on your payments, the lender has a legal right to take back the car, which is called repossession. 

The lender or leaseholder can repossess the car even if you are only a few weeks behind in your payments and even without any notice to you.  The reason for this is that you could try to hide the car or damage it if you knew the lender was coming to repossess it. The creditor also does not need a court order to take the car back, so you have no opportunity to explain your reasons for missing payments to a judge. 

The best thing to do if you are having trouble making your car payments is to contact the lender or leaseholder to let them know what is happening. The lender or leaseholder may be willing to negotiate with you by either temporarily lowering your payments or adding the missed payments to the end of the term so they are no longer considered past due. 

If your car gets repossessed, you have certain legal rights, and the law can protect you from wrongful repossession of your car.  For instance, if your car is repossessed, you have the following rights: 

  • The right to receive a notice immediately after the repossession; 
  • The right to receive a notice before your vehicle is sold or auctioned; 
  • The right to be provided with a statement regarding the sale after your car is sold or auctioned. 

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, it 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 you have paid more than 60% of the loan when your car is repossessed, then your lender must auction the car within 90 days. 

When your car is sold at the auction, the lender will take the money from the sale and first pay the fees and expenses for repossessing and storing the car, and then pay the rest toward the balance you owe on the loan.  If there is not enough money from the sale to pay the loan off after paying the fees and expenses, the lender or leaseholder has the right to sue you in court for the remaining balance on the loan, which is called a deficiency balance.  However, the car must be sold in a commercially reasonable manner, which means the lender or leaseholder cannot sell the car for an amount that is far below market value and then try to collect the deficiency balance from you. 

If your car is repossessed, you have several options of trying to get the car back, including (and there may be others that an attorney might know of or be able to tell you about): 

  • Redeeming your car from the lender by paying the entire loan balance, including all arrears and repossession costs; 
  • Buying your car back by bidding on the car at the auction – but, if you buy back the car at the auction and it is not enough to cover the loan balance and any fees, you will be responsible for the balance; 
  • Reinstating your loan by clearing up all the past due payments and paying all repossession costs, and then continuing to make regular payments on the loan; 
  • Filing for bankruptcy – the automatic stay will stop the lender from selling your car without getting permission from the court first.  This may give you enough time to gather the money you will need to buy the car back. 

There are also some legal defenses that may be available to you.  If the car is not sold yet, you may be able to get it back by arguing that: 

  • Your lender breached the peace when repossessing the car; 
  • Your lender did not sell the car in a commercially reasonable manner; 
  • Your lender waited too long to sue and the statute of limitations ran out. 

Legal Editor: Marshal Coleman, Esq., July 2015 (updated March 2018) 

Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.

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