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What happens if my car is repossessed?

You have certain rights and protections if you’re at risk of or have had your car repossessed.

Losing a car to repossession can be financially and emotionally difficult. However, you do have certain rights and protections if your car has been repossessed because you were unable to make your car payments.

Auto loan servicers must ensure that every repossession is lawful. If you believe your repossession is an error, contact your lender or servicer immediately, and if you’re not able to resolve it, you can submit a complaint and/or pursue a legal action in court.

Being notified before your car is repossessed

In many states, a lender can repossess a vehicle – without a warning or a court order – after you’ve missed payment, but other states require lenders or servicers to send you a notice before repossession, alerting you to what payments have been missed and allowing you time to make them up.

If you’re an active-duty servicemember, the Servicemember Civil Relief Act (SCRA) prohibits repossessions without a court order for any auto loan contracts or agreements you entered into before your military service.

“Breaching the peace” during repossession

Under some state laws, a lender can’t repossess a vehicle unless they can do it without “breaching the peace,” which generally means:

  • Threatening or using physical force
  • Removing a vehicle from a closed garage without permission
  • Continuing with repossession after you have resisted or refused to allow the repossession

If the lender commits a breach of the peace, you can contact law enforcement. A breach of the peace may also give you a claim for damages or a defense, which may lessen the amount you eventually owe after the sale of the vehicle.

Getting access to your belongings

It’s not unusual for people to have belongings stored in their cars when they’re repossessed. Contact your lender right away to arrange a time to retrieve your property.

It is important to document what items you left in the vehicle and their estimated value. If the lender or repossessing company demands payment for return of your property, you should consult an attorney. In a public enforcement action, the Bureau found that an entity engaged in an unfair act or practice by withholding consumers’ personal property unless the consumers paid an upfront fee to recover the property. You can also file a complaint with your state attorney general or consumer protection office .

How a repossession affects your credit

Falling behind on car payments affects your credit, and this can make it harder or more expensive to get loans in the future. A repossession could also stay on your credit reports for up to seven years. Repossession can also mean paying higher insurance rates.

If the repossession was in error, you can dispute it with the credit reporting companies to have it removed.

Catching up on your loan

In some states, laws grant you the right to pay to get your vehicle back after it’s been repossessed. These laws usually provide a time period when you can make up any overdue payments, as well as pay the additional costs associated with repossession. This process is referred to as curing or reinstating your loan.

Your rights if your vehicle is being sold

Even if you don’t live in a state with laws that allow you to cure or reinstate your loan, you have certain rights after your vehicle has been repossessed. You have the right to be notified before your vehicle is sold or kept as compensation for your debt. This gives you the opportunity to buy it back.

For a public sale, your lender must notify you of the date, time, and place of the sale so you can have a chance to bid on the vehicle. For a private sale, the lender must notify you of the date when your vehicle could be sold. Regardless of whether it’s a public or private sale, you may be entitled to buy back the vehicle by paying the full loan amount, plus the repossession costs, before the sale. This is sometimes referred to as redemption.

Additional protections and costs around repossession

Even though you no longer have the vehicle, you may still be responsible for certain costs. Here’s what you need to know.

Paying for repossession

If your car has been repossessed, your lender generally charges a fee for picking it up. This fee, however, must be reasonable.

What constitutes reasonable is generally determined by a court and depends on the type of vehicle taken, how it was taken, and where it was taken. You can ask your lender to provide a list of the repossession costs.

Paying the deficiency balance or receiving the surplus

If your vehicle is repossessed and sold, you may be responsible for paying the difference between the amount left on your loan, plus repossession fees, and the sale price. This is known as a “deficiency balance.” Similarly, if the car is sold for more than what you owe, you’re entitled to receive the surplus.

Lenders must sell the car in a commercially reasonable manner, and it can be important for you to know how much it’s sold for. You can consult an attorney if you think the sale price in repossession was unreasonable.

For example, if you owe $10,000 on the vehicle and your lender sells it for $7,500, you owe the deficiency of $2,500, plus any other fees for repossession. If you don’t pay the balance, the lender is allowed to hire a debt collector to collect it.

Alternatively, in this example, if the car is sold for $12,000, you are entitled to receive the money above the amount you owe (after fees are paid).

You could also have other rights under your state law, and you can find more information through your state attorney general and state consumer protection office or by consulting with a private attorney or your local legal services office.