If you fail to make your car payments or otherwise default on your auto loan, you risk your lender repossessing your vehicle.
When you finance or lease a car, you normally give the lender a security interest in the vehicle. Every state has its own rules regarding repossession, but having a security interest generally means your lender can repossess the car without notice if you default on the loan.
Many things can constitute a default, but the most common reasons are not making timely loan payments or not having car insurance.
In most states, car lenders can seize your vehicle without prior notice if you default. However, they can't breach the peace while they do it.
Breaching the peace usually means using or threatening to use physical force against you to take the car back. But it can also simply involve repossessing the car from your closed garage.
If your lender breaches the peace, you might be entitled to damages or use it to defend against a deficiency lawsuit (discussed in more detail below).
The lender can keep or sell the car to satisfy your loan obligation. Each state has its own rules regarding sale procedures and notice requirements. However, you usually have a right to know when and where the sale will occur.
Also, your lender must sell the car in a commercially reasonable manner. This generally means the lender has to follow standard sales practices, but it's not required to obtain the highest possible price. You might have a claim for damages or a defense against a deficiency if the sale wasn't commercially reasonable.
Repossession is only one of the remedies available to your lender if you default on your loan. Having your car repossessed doesn't get you off the hook for your obligation to pay the entire loan balance. If the proceeds from the sale of the vehicle aren't enough to cover the balance of your loan, the remaining portion is called the deficiency balance. In most states, your lender can sue you to collect this deficiency.
However, as discussed above, you might have a defense to a deficiency action. The most common defenses are:
You might still be able to get your car back if the lender hasn't sold it yet. Below, we discuss some options for getting your car back.
"Redeeming" essentially means repurchasing the vehicle. You can generally redeem your car if you pay the lender your entire loan balance, including all arrears and repossession costs.
But most people usually don't have the money to redeem a car.
Some states allow you to reinstate your loan and get the car back if you can cure all of your arrears and pay for the repossession costs. After you reinstate, you must continue making regular loan payments.
If your lender sells the car at an auction, you can bid on the vehicle to try to repurchase it. But even if you buy back the car, you'll remain liable for any resulting deficiency balance.
If you file for bankruptcy before the sale, the automatic stay will prohibit the lender from selling the car without obtaining court permission. Depending on the type of bankruptcy you file, this filing can buy you more time to gather the necessary money to get your car back or allow you to cure your arrears through the bankruptcy. (To learn more, see Your Car in Chapter 7 Bankruptcy and Your Car in Chapter 13 Bankruptcy.)
If you're behind on your loan payments, the best thing to do is to communicate with your lender. Your lender might be able to offer you a solution, such as a reduction in payment amount or interest rate, that can help you catch up on your payments and avoid repossession.