If you’ve missed a car payment, and then another, and another, you may be facing the prospect of having your car taken away from you. Vehicle lenders have specific rights, which end only when you have paid off your loan obligation. These rights will be laid out on the contract you signed when you drove the car off the lot. And one of these rights is to take the car back or “repossess” it if you fail to make timely payments. However, there is a process to repossessing a vehicle legally. Learn more about the car repossession process below.
What Rights Does the Lender Have Over Your Vehicle?
Once you default on your loan, the creditor can initiate the car repossession process and sell your contract to a third party (called an assignee). They can also seize and sell the vehicle to recoup the costs. Some lenders may be more aggressive than others, but the FTC does impose rules that creditors must abide by or they lose their rights against you.
After the default has been declared, the creditor may come on to your property at any time, without notice, and repossess the vehicle. The law prohibits you from hiding the vehicle if the creditor has announced that they intend to repossess your car.
There are, however, limitations on the repo man can and cannot do. For example, they may not threaten you, use physical violence, or attempt to enter a locked garage. In the event that your creditor “breaches the peace” in an attempt to repossess the car, you may be entitled to collect damages.
What Is a Deficiency Judgment?
A creditor may decide to sue you in order to collect a deficiency judgment — in other words, the difference between what you agreed to pay on the loan and what the creditor was able to recover in the process of selling the car. The creditor may also try to charge you for costs related to the repossession and selling of the car.
However, the lender has a duty to attempt to sell the car at a “reasonable” cost or somewhere near the fair market value of the vehicle at the time of repossession. They cannot simply give the vehicle away for a few grand and then hold you accountable for the difference. If they do, you can raise this as a defense to a deficiency judgment.
How the Lender Will Try to Collect a Deficiency Judgment
Most consumers, especially those in financial trouble, aren’t enthused about paying on cars that were taken away from them for non-payment. However, the creditor is entitled to the deficiency balance discussed above. If they want to recover that money, they usually have to sue you for the balance or let it go into collections. On the other hand, if the creditor manages to recover more than the loan amount, they are required to pay you that sum of money. For reasons that are probably quite obvious, that almost never happens.
Once the lawsuit is in motion, the creditor’s hands must be clean in order to recover the money they say they’re owed. If they used any illegal tactics in repossessing the car or otherwise did not follow state and federal laws when initiating the repossession, they do not have legal standing to collect the deficient amount of money. The lender must abide by the rules of the vehicle repossession process set forth under Texas and federal law.
Additionally, there is a statute of limitations on debt collections. If the creditor attempts to bring the suit outside the statute of limitations, the case will be dismissed and they won’t collect a dime.
Can You Buy Your Vehicle Back?
You do have the option of buying your car back, but you will generally need to pay both the delinquent balance and the entire remaining debt. In lieu of that option, you can also bid on the car at a repossession sale. Of course, most people behind on their payments are struggling financially and can’t afford that option.
Texas is not among the states that allow consumers to “reinstate” loans after they have gone into default. This means that you won’t be able to reclaim your car by paying the amount you’re behind on the loan.
What Can You Do If Your Car Is Repossessed?
If you believe a mistake has been made, you should contact your lender immediately. There may have an error in their accounting marked your account as delinquent when it’s not.
If there was no mistake and your car was repossessed because you defaulted on the loan, you will have to pay the remaining balance on the loan in order to get your car back. This may, however, not be in your best financial interests or even feasible in your current situation. In some cases, you may be able to work with your lender to create a new payment plan.
Lastly, if you are facing the loss of the vehicle or paying money on a vehicle that was taken away from you, you can declare bankruptcy as a means of forestalling the repossession. It may help you free up money to pay your car or discharge debts owed on a car you no longer have.
If you are already in a bankruptcy, speak to your attorney about your rights to your vehicle during that process.