Repossession
A car payment is the most common type of secured debt held by consumers. For most lenders it is easy to repossess a car or truck through a process called repossession. Though all the states have laws governing the timing and methods that may be used in repossessing a vehicle, generally, vehicle loan contracts give the lender the right to take back the car at anytime the loan falls into arrears. Technically, if you are late on a single car payment, your lender may be able to come get your car. In many states, this is also true if you fail to maintain adequate insurance on the vehicle to protect the loan value, therefore skipping car insurance payments can have the same consequences as missing loan payments.
As a practical matter, however, most lenders don't want to take away your car any more than you want to lose it. A car, unlike a home, is a rapidly depreciating asset; as soon as you drive it off the dealer's lot, it's worth much less than you just paid for it. For that reason, vehicle lenders much prefer that you keep your car and make the payments on the loan as scheduled. In most cases, the first late payment will generate an automatic notice from the lender, and possibly the assessment of a late fee. If you don't get caught up, most loan contracts give the lender the right to repossess the vehicle.
Once the contract is breached, a lender may, without notice at any time of the day or night, repossess your vehicle even if it is on your property. However, most states prohibit any breach of the peace in the process of the repossession. This usually means that the lender may not use force, threats of force, or even enter your closed garage without your permission. If a breach of peace occurs, it can entitle you to file a complaint against the lender, who may be required to pay you damages or a penalty, especially if any harm is done to you or your property. A breach of peace may also give you a legal defense if the lender attempts to have a deficiency judgment entered against you.
If the lender or its assignee-a third party the lender may hire to repossess the vehicle-does seize your vehicle, any personal property inside the vehicle is still legally yours. Many states also require the lender to use "reasonable care" to prevent anyone from removing your personal property from the car. Usually, they must notify you about how you can retrieve your property. If you believe personal property was removed from the vehicle or disposed of without your permission, you may have grounds for legal action against the lender and you should speak with an attorney.
Once repossession has occurred, the lender may decide if it wants to keep the vehicle as payment for the debt or to sell it. The sale may be either a private transaction or a public auction. In some states the lender is required to notify you of the date of the sale or auction so that you can choose to attend and participate in the bidding.
You may also have the right to "redeem," or buy back, the car by paying the amount you are in arrears, any costs associated with the repossession, and, often, the remaining balance of the car loan. Some states also give you the right to reinstate your loan by making up the missed payments plus any repossession expenses. Naturally, you will then need to make future payments on time and in full in order to keep your reinstated loan in good standing.
If the car is sold or auctioned, most states require that the transaction be conducted in a commercially reasonable manner. This doesn't mean that the lender must sell the car for full market value, but if the sales price is far enough below market value that may be evidence the sale was not commercially reasonable and can give you grounds for a damages claim against the creditor or a defense against a deficiency judgment.
Other options for stopping vehicle repossession include filing a bankruptcy. For additional information regarding vehicle repossession and consumer rights, see the Federal Trade Commission web site: Repossession and consumer rights