Do I Need a Lawyer If My Car Has Been Repossessed?

When you take out a loan to buy a car, you usually sign a contract that gives the lender a security interest in the vehicle. Depending on the terms of the contract and state law, the lender might be able to take the car away from you, without first suing you in court, if you default on the loan. (You would "default" by not making payments or by failing to have car insurance, for example.) The process of taking the car from you is called "repossession."

In some cases—say the lender repossessed your car even though you weren't actually late on payments or you want to avoid a deficiency judgment—you might want to hire a lawyer to assist you. In other instances, like if you were late on payments but have money available and want to keep the car, it often makes sense to use that money to reinstate the loan or redeem the repossessed car rather than hiring an attorney.

If your car lender repossesses your car, van, motorcycle, SUV, or another motor vehicle, you'll need to examine your goals and decide if it's worth paying for an attorney to help you.

How Vehicle Repossession Works

Each state has its own rules regarding repossession. But, generally, the lender can't "breach the peace" when repossessing the vehicle. So, the repossession agent can't use, or threaten to use, force or violence. It can't break locks or destroy or damage property when attempting to get the car.

When You Should Consider Hiring a Lawyer After a Car Repossession

Generally, you should consider hiring, or at least consulting with, an attorney if your car is repossessed if:

• the lender wrongfully repossessed the vehicle
• you're a military servicemember, or
• you want to avoid a deficiency judgment.

The Lender Wrongfully Repossessed the Car

If the lender repossesses the car while you're current on your payments and not in default for some other reason, you might need an attorney to file a lawsuit to recover the vehicle.

Example. Suppose you were a week late in sending in your monthly payment, and the lender repossessed your car. But the contract says that you're not in default if you're fewer than 30 days late on a payment. In this situation, the lender can't lawfully repossess the car. To find out exactly what constitutes a default in your circumstances, review the paperwork you signed when you took out the loan.

Even if the loan agreement doesn't give you a grace period for late payments, if the lender has accepted late payments from you in the past without declaring a default, or did other things to change the terms of the loan agreement—like changing the payment due date—your attorney can address this in the suit, and you might be able to get your car back.

You're In the Military

Under the federal Servicemembers Civil Relief Act (SCRA), a lender must get a court order before it can repossess your car if:

• you're on active military duty
• you signed the loan agreement before you went on active duty, and
• you paid at least the deposit or first payment before you went on active duty.

The SCRA is extensive and complex. If you're on active duty, an attorney can inform you about all of your rights under this law.

You Want to Avoid a Deficiency Judgment

Once your car has been repossessed, the lender will most likely sell it at a public or private auction. If the proceeds from the sale don't cover the balance of the loan, the difference between the sale price and the total debt is called a "deficiency."

Example. Say you owe $7,000 on the car, including costs and fees, but your lender sells it for $5,000. The difference of $2,000 is the deficiency.

In most states, your lender can sue you to collect the deficiency. If the lender gets a deficiency judgment, it can generally get this amount from you by using regular collection techniques, like garnishing your wages or directing your bank to turn over funds from your account to pay the debt (called "levying" your account).

If you want to avoid or reduce a deficiency judgment, consider hiring an attorney to raise a defense to the deficiency action. The most common defenses to this type of suit are that the lender:

• breached the peace when repossessing the vehicle (for example, by using or threatening to use physical force against you to take the car or removing the car from a closed garage without your permission)
• didn't sell the car in a commercially reasonable manner by following appropriate sale procedures regarding the manner, time, place, and terms of the sale, or
• the statute of limitations has expired. (If the statute of limitations has expired, you're under no legal obligation to pay the deficiency.)

When You Might Not Need an Attorney After a Car Repossession

The following are a few situations where you probably don't need to hire an attorney after your car has been repossessed.

You Don't Want the Car Back

If you know you can't keep up with the payments, and you don't want the car back, it's probably not necessary to hire an attorney—unless you're eventually sued for a deficiency balance, which might not even happen. The lender could choose not to pursue a deficiency judgment, and some states place limits on deficiency balances after repossession. For example, deficiency judgments sometimes aren't allowed if:

• the amount still due is less than a few thousand dollars, or
• the original price was less than a few thousand dollars.

You Want the Car Back and Have Money Available to Pay the Debt

If you want the car back and have sufficient money available to reinstate the loan or redeem the vehicle, you probably don't need to hire an attorney.

• Reinstating the loan. In some states and under some loan agreements, you may reinstate your loan by paying the past-due amount plus the costs of repossession and related expenses. If you reinstate the loan, you must make future payments on time and meet the other terms of your reinstated contract to avoid another repossession.
• Redeeming the car. You can generally reclaim the car if you pay off the entire loan balance, including repossession costs, called "redeeming" the vehicle.

Purchase the Car at the Auction

When your lender sells the repossessed car at an auction, you can attend and bid on the vehicle. Keep in mind that you could still be on the hook for any deficiency if you buy the car at the auction.

Talk to an Attorney About Car Repossession

Again, you probably don't need to hire an attorney if you want to redeem the vehicle, reinstate the loan, or buy the car at the auction. However, if you think your vehicle was unlawfully repossessed and the lender won't help you, you should consider hiring or at least consulting with a local attorney. An attorney can tell you if the lender's actions were against the law, as well as possibly help you get your car back by raising any illegalities either directly to the lender or by filing a lawsuit in court.