It can be hard to do the needed research and be an informed consumer, both before getting a vehicle, and during the life of your car loan or lease. Don't just sign the papers blindly; vehicles take a big bite of your budget, and your monthly coupon book likely covers four to seven years.

Your vehicle is a major expense and investment, and you don't want to lose it to repossession. The Federal Trade Commission offers consumer information on vehicle-related transactions, including repossession. Know the rights and responsibilities on both sides.

Your Car, Collateral and the Lender

Your car is collateral; it gives your lender protection against losses if you don't make your payments. The legal term for this protection is a security interest. It secures or guarantees your payments on the loan or lease. Your mortgage is another example of a consumer security interest.

Repossession is the main way a lender enforces its security interest in your vehicle. If you don't pay, it takes the car back.

Repossession on One Missed Payment?

If you look at your loan contract, you should see a term covering when you're in default (the failure to pay or perform contract terms), and the consequences. You may be in default if you miss any payments.

Do You Have Options?

If you're having money problems, don't ignore them and hope the repo man won't visit you. Contact your lender and try to find a solution. A revised payment schedule or allowing you to catch up on payments are often cheaper for the lender than taking the car back. If you reach an agreement, get it in writing to avoid problems later.

However, your lender doesn't have to make a deal with you. It may refuse to take late payments, accelerate the loan and declare the entire amount due immediately, or repossess the car.

A voluntary repossession, where you return the car, could mean less expense for you both. However, you may be responsible for any loan balance the car's sales proceeds don't cover, called a deficiency. Also, negative entries noting the repossession or your late payments almost certainly will show up on your credit reports.

Taking the Car - Repossession

State law controls the actual repossession process, and the laws vary from state to state. In general, though, creditors, or the repossession services they hire, usually can't take a vehicle from your closed garage without your consent. Doing so is a breach of the peace in many states. Creditors may have to answer for any damage caused during repossession.

Generally, the creditor has no rights in the personal property in your car, and must take reasonable care to see your things aren't removed from it improperly. A lender may have to pay you for any personal property lost or damaged when your car was taken.

Selling Your Car to Pay the Loan

Once repossessed, the lender sells your car, using the sales proceeds to pay off your loan, as well as the costs of the repossession and sale. The lender has options when selling your car, including:

• A public or private sale. State law may require notice to you of auction details so you can attend and bid. For private sales, you may have the right to know the sales date
• State law may give you the right to buy the car back; you'll need to pay the loan balance and repossession costs
• Reinstatement of the loan is allowed in some states. Here, you bring your payments current, pay related expenses and honor the reinstated loan or you'll face repossession again

The lender does have the duty to sell the car in a commercially reasonable manner, meaning in line with standard customs for the business type and market. The lender doesn't have to get the highest price possible. A lowball price, one that's way lower than fair market value, may be a sign of an unreasonable sale.

Deficiency Payments

As a general rule, you're responsible for paying any deficiency, or the balance on your loan or lease, after your car is sold. For example, if your loan balance was $5,000, and the car was sold for only $3,000, you'd still owe the lender $2,000. You'll also owe any fees under your contract, including fees related to repossession, loan prepayment or early lease termination.

If there's a deficiency, most states' laws allow the lender to sue you for the balance. Don't ignore a lender's lawsuit for a deficiency judgment. It may be your only chance to raise a defense to the lender's claims, such as misconduct during the repossession process.

Questions for Your Attorney

• Can creditors or collection agencies harass me over my car loan? Is it illegal to threaten repossession?
• Can I try to buy my repossessed car back at a public sale for a bargain price?
• Am I liable for paying my spouse's debts? If I get my car in our divorce, can I have my spouse's name removed from the loan, too?
• Will filing for bankruptcy prevent or stop repossession efforts?

Related Resources on Lawyers.com^sm

- Contact a Consumer Law Lawyer or Debtor-Creditor Law Lawyer in your area for specific legal advice, and read about Selecting a Lawyer
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- Read Debt Collectors May Go Too Far and Vehicle Financing Scams, or access more Consumer Law or Debtor-Creditor Law articles and information
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- Legal Dictionary

Related Web Links

- Repossession Information & Resources from the FTC