Do I need a lawyer if my car has been repossessed?

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

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 probably need a lawyer to assist you. In other instances, such as 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 to hire an attorney.

Read on to learn more about when it is appropriate to hire an attorney to help you after a car repossession and what you can do on your own.

How Car Repossession Works

When you take out a loan to purchase a car, you normally 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 may be able to take the car away from you (without suing you in court first) if you default on the loan by not making payments or by failing to have car insurance, for example. This is called repossession. Each state has its own rules regarding repossession. (Learn more in Nolo’s article Car Repossession Laws: An Overview.)

When You Should Hire an Attorney

Below are some situations where you should consider hiring, or at least consulting with, an attorney if your car is repossessed.

The Lender Wrongfully Repossessed the Car

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

For example, say you were two weeks late in sending in your monthly payment and the lender repossessed your car. However, the contract states that you are not in default if you are fewer than 30 days late on a payment. In this situation, the lender cannot rightfully repossess the car. (To find out exactly what constitutes a default, 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 (such as changing the payment due date), your attorney can address this in the suit and you may be able to get your car back.

You’re in the Military

Under the federal Servicemembers Civil Relief Act (SCRA), the 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. (For more information, see Nolo’s article Car Repossessions: Special Protections for Military Personnel.)

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. (See our article on Legal Protections for America's Military: The Servicemembers' Civil Relief Act for more details.)

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 do not 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, but your lender sells it for only $5,000. The difference of $2,000 constitutes 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 doing such things as garnishing your wages or directing your bank to turn over funds from your account to pay the debt. (Learn more about how judgment creditors can collect debts.)

Common defenses. If you want to avoid or reduce a deficiency judgment, you may want to hire 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)
• did not 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. (Under state law, the lender only gets a certain amount of time to sue you for an unpaid debt. This is called the statute of limitations. If the statute of limitations has run, you are under no legal obligation to pay the deficiency.)

(Learn more about defenses to a deficiency lawsuit that can decrease or even eliminate the balance of the debt in Nolo’s article Defenses to Car Repo Deficiency Lawsuits.)

When You Might Not Need an Attorney

The following are a few situations where you probably don’t need to hire an attorney if 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 may 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 are sometimes not allowed:

• if the amount still due is less than a few thousand dollars, or
• if the original price was less than a few thousand dollars. (To find out if your state prohibits the collection of a deficiency in certain situations, see State Limits on the Collection of Deficiency Balances.)

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

If you want the car back and have sufficient money available, you probably don’t need to hire an attorney. For example, you typically won’t need an attorney to help you:

Reinstate the Loan

In some states and under some loan agreements, you can 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.

Redeem the Car

You can generally reclaim the car if you pay off the entire loan balance including repossession costs. (This is called “redeeming” the vehicle.) (Learn more about the difference between reinstating a car loan and 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 if you buy the car at the auction, you could still be on the hook for any deficiency.