Vehicle Repossession

Most auto loans and some leases give the lender a security interest in the vehicle. If payments fall behind according to the loan contract, many states allow the lender to repossess the vehicle without a court order, as long as it does not breach the peace while doing so. Repossession can happen with little or no advance warning, though some lenders provide notice as a courtesy or under state requirements.

After repossession, the lender typically sells the vehicle, often at auction, and applies the proceeds to what you owe. Many states and loan contracts require the lender to send a notice explaining your right to redeem the vehicle by paying the full balance, or to reinstate the loan by paying the past-due amount, within a set window before the sale.

Losing a vehicle can affect your ability to get to work, school, or medical appointments, which can compound financial stress. If the sale does not cover what you owe plus repossession costs, the lender may pursue you for the remaining balance, known as a deficiency balance, in some states through a separate collection action or lawsuit.

Repossession is generally reported to the credit bureaus and can significantly affect your credit score, and a resulting deficiency balance can also be sent to collections if unpaid.

• Contact the lender before you fall further behind to ask about a deferment, modified payment plan, or extension.
• Reinstate the loan by paying the past-due amount plus fees, if the contract and state law allow it before the sale.
• Redeem the vehicle by paying the loan in full, if you have the means to do so.
• Review the lender's post-repossession notice for accuracy and required disclosures, since errors can sometimes limit a deficiency claim.
• Consider Chapter 13 bankruptcy, which may allow you to catch up on payments over time and keep the vehicle, or Chapter 7, which may address remaining unsecured debt.
• Negotiate a settlement on any deficiency balance rather than letting it go to collections or a lawsuit.

If you are behind on a car payment, call your lender before repossession happens; many lenders would rather work out a plan than repossess and resell a vehicle at a loss. If a repossession has already occurred, read every notice you receive about redemption, reinstatement, and sale carefully, and act quickly, since these windows can be short.