Car repossession: your rights and how to avoid it

In most states, a lender can repossess your car as soon as you default under your loan or lease contract, often after a single missed payment, and usually without going to court or warning you first. But it cannot "breach the peace" while taking the car, it must let you get your personal belongings back, and before selling the car it generally must send you a notice explaining how to get it back. After the sale, you may still owe a deficiency balance. Many details vary by state.

When a lender can repossess

Your contract defines default. It usually includes missing a payment, and can also include letting your insurance lapse or moving the car out of state without permission. In many states, the lender can repossess right away once you are in default. Some states require a notice and a chance to catch up first, often called a "right to cure".

If the lender has accepted late payments in the past, some states require it to warn you before it insists on on-time payment again. Read your contract and check your state's rules.

What "breach of the peace" means

Most repossessions are "self-help": a repossession agent takes the car without a court order. That is legal only if the agent does not breach the peace. What counts depends on state law, but it commonly includes:

• using or threatening physical force
• breaking into a locked garage or through a locked gate
• continuing after you clearly object in person at the scene, in many states
• bringing police along to make it look like an official seizure, without a court order

Taking a car from a driveway, street or open parking lot is usually allowed. If an agent breaches the peace, the repossession may be wrongful, and you may have a claim against the lender.

Your personal belongings

The lender has a right to the car, not to what is inside it. It must let you get your personal property back, and many states set rules for how long it must keep your belongings and how it must tell you.

1. Call the lender quickly and ask where the car is and how to collect your belongings.
2. List what was in the car, in writing, and send the list to the lender.
3. Ask about fees. Some states limit storage or handling fees for returning personal property.
4. Note what is missing or damaged when you collect your things.

Items attached to the car, such as an aftermarket stereo, may be treated differently. Ask the lender.

Getting the car back: redemption and reinstatement

Ask the lender in writing for the exact amount needed to redeem or reinstate, and by what date. Even where reinstatement is not required, some lenders agree to it.

Notice of sale

Most repossessed cars are sold at auction. Before the sale, the lender generally must send you a written notice saying whether the car will be sold at a public auction (with the date, time and place) or privately (with the date after which it will be sold). Many states also require the notice to explain how to redeem the car and whether you could owe a deficiency.

The sale must be carried out in a "commercially reasonable" way. A sale for far below the car's value, without proper notice, can affect whether the lender can collect a deficiency.

Deficiency balances

If the car sells for less than you owe, the difference, plus repossession, storage and sale costs, is called a deficiency. The lender can usually ask you to pay it, send it to a collection agency, or sue you for it.

• ask for a written accounting showing the sale price, the costs charged and how the deficiency was calculated
• check the sale price against the car's typical value
• if the sale brought in more than you owed plus costs, you are generally entitled to the surplus
• some states limit or bar deficiencies, especially on smaller loans
• if a collector contacts you about the deficiency, see debt collector rights and consider a debt validation letter

A repossession and any unpaid deficiency usually appear on your credit report. If the report is wrong, see how to dispute a credit report error.

Protections for servicemembers

Under the Servicemembers Civil Relief Act (SCRA), if you took out the loan or lease before entering active duty and made at least one payment before your service began, the lender generally needs a court order to repossess the car while you are on active duty. Contact your installation's legal assistance office if you think this applies.

How to avoid repossession

• Call the lender before you miss a payment. Many lenders offer a payment deferral, an extension or a revised due date, especially for short-term problems.
• Get any agreement in writing, including the new payment dates.
• Keep your insurance active. A lapse can be a default on its own.
• Consider refinancing with a credit union if your rate is high.
• Sell the car yourself if you cannot afford it. A private sale usually brings more than an auction.
• Know that voluntary surrender is still a repossession. It can save some fees, but you may still owe a deficiency.
• Get advice on bankruptcy if you are facing several debts at once. Filing generally pauses a repossession, but it has serious consequences.

Some lenders use GPS trackers or devices that stop a car from starting after a missed payment. Several states regulate these, including how much warning you must get.

Check your lender and complain if needed

If a lender repossessed wrongly, mishandled your belongings or sold the car without proper notice, write to the lender and keep copies. See how to file a complaint against a company. Your state attorney general and the Consumer Financial Protection Bureau (CFPB) take complaints about auto lenders. You can also compare auto lenders' complaint records or look up your lender.

This guide is general information, not legal advice. Repossession rules vary a lot by state. A consumer attorney or legal aid office can tell you how your state's law applies.

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