If you’ve stopped making your car payments, and your mailbox is filling up with late notices from the lender, you probably don’t know what to expect and are worried about the consequences. Fortunately, you have options.
Reinstatement Can Help You Get Current on Your Loan
When you miss a scheduled payment, you default on—or break—the contract. Some states or loan agreements allow you to fix the default through a reinstatement. You can reinstate your loan by paying all the overdue payments in a single lump sum.
You can call the lender and ask for the reinstatement amount directly. Once you reinstate your loan, you’ll resume making your monthly payments.
For many, however, it’s not as easy as it might seem because, by the time you've missed several payments, it’s likely that you’ll have incurred late fees, interest, and other charges. So, bringing your loan current will mean paying more than just a few missed payments—you’ll have to pay the additional fees, too.
The Lender Will Repossess the Vehicle If You Can’t Make Your Payments
The lender doesn’t have to wait for you to get caught up. If you fall behind and can’t reinstate the loan, in most cases, the lender can repossess the car (take it back) after the first missed payment and sell it at auction (more about the repossession sale below). Here’s how it works.
The lender will send someone to tow your car to a storage facility. However, towing can only occur if your vehicle is in an easily accessible location, such as a street or parking lot. A tow requiring a more intrusive procedure isn’t allowed if it will result in a “breach of the peace.” Actions falling within this category would likely include:
- taking the car from a locked garage, or
- repossessing the vehicle using force, violence, or abusive language.
While you could keep your car in a locked garage or park it at an unlikely location, there are better long-term strategies than this one. You’ll still have to deal with the defaulted loan, and worse yet, you don’t want to be accused of attempting to defraud a creditor. Plus, it’s uncomfortable living with the idea that your car might disappear at any moment. Instead, you might be able to negotiate with the lender or refinance the loan, for example. If you need help working out a deal with the lender, consider talking to a debt relief lawyer.
How to Get Your Vehicle Back After Repossession
Most states give a right to redeem the vehicle after repossession. You would redeem by paying off the total amount of the loan. But the longer you wait, the more it will cost you because the repossession fees and storage costs will increase the balance you owe.
Also, be aware that you’ll likely have a short time to do so. If you find yourself in this position, you should act quickly and consult an attorney if necessary.
How Car Repossession Sales Work
The lender will sell the vehicle at a public sale once it’s in its possession. In most states, the lender must tell you when and where the sale will take place. Additionally, the sale must be “commercially reasonable,” which means that the lender must sell it for a price close to what the car is worth—not for pennies on the dollar.
The lender will apply the sales proceeds to your loan. If the vehicle sells for less than what you owe, the remaining balance is called a “deficiency.” You’ll probably still owe this deficiency amount even though you don’t have the car, and the lender can take steps to collect it from you.
What Is a Voluntary Repossession?
If repossession is inevitable, but you don’t want to be taken by surprise, you can give your car back to the lender in what’s known as a “voluntary repossession.” However, you should contact your lender before completing a voluntary repossession because the lender might agree to waive the deficiency. Why would the lender do this? Because the lender would save the money it would have spent repossessing your car. You could ask that the lender forgo putting a repossession on your credit reports, as well.
Keeping the Car by Filing for Chapter 13 Bankruptcy
If you want (or need) your vehicle, you might be able to hold on to it by filing for Chapter 13 bankruptcy. However, understand that you’ll need to have enough income to pay your living expenses, your monthly car payment, and make up any overdue amount over the course of a three- to five-year repayment plan.
Chapter 7 Bankruptcy Will Get Rid of a Deficiency Balance
If you’ve already lost the car but are stuck with a deficiency balance, filing for Chapter 7 bankruptcy can potentially discharge it (wipe it out). Other debts, such as credit card balances and medical bills, will be discharged, as well.
If you’re not sure if filing for bankruptcy is right for your situation, consult with a local bankruptcy attorney.