If My Car Is Repossessed, Do I Have to Pay Off the Entire Loan Balance to Get It Back?

If you're facing a car repossession, you might be wondering: Do I need to pay the entire loan balance to get my vehicle back? The answer depends on your state's laws and the terms of your loan agreement. You might have options like redeeming the repossessed vehicle (paying the full loan balance plus repossession fees) or reinstating the loan (catching up on missed car loan payments).

You could also consider negotiating another arrangement with the lender, such as a partial reinstatement plus a repayment plan or refinancing the loan. So, you might not need to pay off the loan balance to recover your repossessed car.

Ultimately, paying the full loan balance is just one way to get your repossessed car back, but it's rarely the only option. If you understand what rights you have, such as the right to redeem the car or reinstate the loan, as well as other options, you can make informed decisions and, with any luck, get your repossessed car back.

Understanding Car Repossession Basics

Your auto lender can repossess your car if you default on the loan. Usually, repossession will happen around 30 to 90 days of missed payments. But your contract might allow repossession after just one missed payment. Other triggers that can lead to a vehicle repossession include failing to maintain insurance coverage (or adequate coverage) or violating the terms of the loan in some way.

Generally, the lender can repossess the car without getting a court order. But lenders can't breach the peace in the process, such as by using physical force or breaking into your locked garage to get the vehicle.

Following a repossession, you'll get a notice telling you how you can reclaim the vehicle. In most states, the lender has to notify you, in writing, about your reinstatement and redemption rights within a short time, usually five days or so after repossessing the car.

Redemption: Paying the Full Loan Balance

In many states, you get the right to pay off the entire loan and get your car back after repossession, which is called "redeeming" the car. Even if allowed by law, redemption can be challenging because you have to pay the full remaining balance, not just the late payments. The balance you would need to pay to redeem the vehicle might include extra fees and charges, including repossession and storage fees, and even attorneys' fees.

This option is typically available until the lender sells the car at auction.

You might also have a right to reinstate the car loan. To reinstate the car loan, you bring the loan current by making up all of the past due payments, including applicable fees and late charges, in one lump sum. Reinstating the loan puts it back in "current" status.

You can reinstate the car loan only if your state's law allows it or if your loan agreement specifically states that you have this right. Some states provide a reinstatement period during which you can reinstate the loan. Or your loan agreement might have a provision that permits reinstatement. Check your loan agreement or talk to a local attorney to learn about your rights.

Reinstatement could be an option for you if you can't pay the car loan off in full.

Alternatives to Redeeming the Car or Reinstating the Loan

If neither reinstatement nor redemption is an option for you, there's no harm in approaching the lender to negotiate a different resolution, such as a partial reinstatement and a new payment plan. The lender might even refinance the car loan if that's viable for you. Another potential option is settling the debt by offering a lump sum to the lender that's less than what you owe on the car. (However, settling debt sometimes has tax consequences.)

Here are some tips to for getting a good deal when trying to get your repossessed car back:

• Let the lender know you want to get your car back. Selling a repossessed car usually leads to a financial loss for the lender. Lenders are sometimes open to working out an alternative agreement because selling the car at auction could yield less money.
• If trying to settle the debt for a lump sum, offer the fair market value of the car. If you offer to pay the car's fair market value, the lender can make just as much as they would selling it at an auction—without all the extra fees and work.
• Don't offer to pay more than you can afford. If you can't afford the terms of whatever new deal you come up with, the lender will continue the process by selling the car at auction and you'll lose the vehicle.
• Get the agreement in writing. An oral agreement isn't binding. After you work out a deal with the lender, get the details of the agreement in writing.

Buying Your Car Back at Auction

If the lender puts your car up for sale at an auction, you can bid on it and repurchase it. However, if the sale price doesn't cover your loan, the sale results in a deficiency balance. For example, if you owe $20,000 and pay $15,000 at the auction, the sale results in a $5,000 deficiency. When the sale results in a deficiency, the borrower might face a deficiency judgment. However, in some situations, the law prohibits a car lender from trying to collect a deficiency balance after a car repossession; you might have a defense to a deficiency lawsuit.

Bankruptcy to Get the Car Back

If the creditor isn't willing to work with you, then bankruptcy might be an option, depending on your financial circumstances. You might be able to get the car back if you file Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Bankruptcy can prevent the loss of your car because of the automatic stay, but it severely impacts your credit for seven to ten years. Filing for bankruptcy just to get a car back is rarely a good financial decision. Consult a bankruptcy attorney to discuss the pros and cons.

Getting Help With Getting Your Car Back After Repossession

For more information about car repossession laws in your state, consult with a local debt relief attorney. If you want to learn more about filing for bankruptcy, talk to a bankruptcy lawyer.