Having a car repossessed can be consequential, as most people need a car for everyday use and repossession contributes to the negative information in your credit history.
Repossession: If you fall behind on your car payments, the company that financed the purchase of the vehicle is legally entitled to take it back. In order to repossess the vehicle an original court order with the stamp of the court needs to be present. If approached by anyone without a court order, it would be best to scrutinize all documentation very closely. Usually a sheriff of the court would have to hand over such a court order.
Knowing the law: For specific information regarding the repossession of your car, how the process works, as well as repossession rights , do the following:
- Find out about the law by contacting a consumer law attorney, research on the net or contacting your municipality.
- Review the details of your car loan agreement.
Your loan agreement may give you the right to avoid repossession by curing the default.
Car auctioning: After a vehicle is repossessed, a lender stores it and arranges to sell it in a public auction.
When the vehicle is sold, the lender applies the sale proceeds to the clients outstanding car loan balance. If the proceeds don’t cover everything, the lender is legally entitled to ask the client to make up the difference.
Although the lender is legally obligated to sell the client’s vehicle for a “commercially responsible price,” the selling price is not guaranteed to cover the deficit.
Paying the deficiency: If the client can’t afford to pay the full amount of the deficiency in one lump sum, the lender may allow the deficiency to be paid off in instalments, over a period of time.
If the client and the lender do come to an agreement about paying the deficiency, the client should not begin making payments until everything is in writing. If the lender won’t prepare an agreement, the client should write one themselves and send the lender a copy once the original has been signed and dated by the client.
Anticipating what happens if the client can’t pay the deficiency: If the lender refuses to let the client pay the deficiency through an instalment plan, the client should not give into their demands, as doing so can jeopardise the ability to keep up with priority debts and/or most important living expenses.
By not giving in, the lender is left with the following options. The lender can:
- Turn deficiency over to a debt collector
- Sue the client for the right to collect the deficiency. If the lender wins the lawsuit, it may ask the court for permission to do one of several things
- Put a lien on one of the clients assets, preventing the client from borrowing against it or selling it until the deficiency is paid
- Seize one of the clients assets, sell it and apply the proceeds to the debt
- Garnish the clients’ wages. The lender receives a portion of the wages for a limited period of time
- Write off the deficiency and report it as uncollectible to the credit bureaus it works with.
Getting your vehicle back: After your vehicle is taken and before it is auctioned off, clients have two options to try get their vehicle back.
- Buy it back from the lender. Buying it back may make financial sense if the vehicle is worth more than the outstanding balance on the loan.
- Reinstate your car loan. Reinstating the loan means you agree to resume paying on it according to the original agreement.
- Talk with a consumer law attorney. DebtBusters have an in-house legal department, thus make sure to check the agreement with your budget and a DebtBusters consultant.
Avoiding repossession in the first place: Repossession is avoidable, as steps such as, negotiating with a lender, selling the vehicle, and filing for bankruptcy can be taken.
Negotiating a way to keep your car: If your credit history is in relatively good condition and you haven’t yet missed a car loan payment, but you are worried about keeping up with those payments, you may want to approach your lender about extending the term of your loan (its duration) in order to lower your monthly payments. If the lender agrees, you will pay more in interest over the life of the loan, but that trade-off may help you keep your vehicle. If the lender agrees, you will pay more interest over the life span of the loan, but that trade-off may help you keep your vehicle. DebtBusters will negotiate with your lenders on your behalf.
Giving Your Car Back Voluntarily:
When you and the lender can’t come to an agreement on a way to keep your car, when selling it is not a viable option, you can just give it back to the lender. Doing so is called voluntary repossession. The main benefit is that you don’t have to reimburse the lender for the costs of repossessing the car. However you may still have to pay the lender for the costs of storing and selling it.
After you give your car back, the process works pretty much as if you lost your car in repossession.
In order to improve your financial situation, selling your car may be another option to consider. For more information, please read the following information: