Car Repossession Laws: Vehicle Repo Due to Auto Loan Default at Simple Debt Relief

Car Repossession Laws: Vehicle Repo Due to Auto Loan Default

Posted by admin on June 30, 2010 Leave a comment (0) Go to comments

Defaulted on a secured auto loan? Although all states have different car repossession laws, an understanding of vehicle repo rights certainly helps.

A vehicle continues to belong to the finance company until the final repayment has been made. A car loan is secured on the vehicle so failing to comply with the terms and conditions of the agreement is likely to result in automobile repossession. The Federal Trade Commission (FTC) stated on its official website that: “If you don’t make timely payments on the vehicle, your creditor may have the right to “repossess” — or take back your car without going to court or warning you in advance.” Although the rules on auto repossession are vague, failing to keep-up with the repayment schedule could cost someone their car.

Car Repossession Laws: Company Policy vs State Law

The laws on auto repossession vary considerably between states, but the one constant is that auto loan default coupled with a failure to clear any outstanding arrears will lead to vehicle repo. Make payment a few days late and the majority of lenders are likely to exercise discretion, especially if they are notified in advance. That said, there is no substitute for checking the small print of the agreement to determine the lender’s policy in relation to non-payment. Remember that state law always supersedes company policy. The problem is that not all states have hard-and-fast car repossession laws.

Automobile Repossession: Vehicle Seizure

Although the lender is perfectly entitled to recover collateral under current car repossession laws, there are rules that strictly govern the way that a car can be repossessed. Recovering a car can prove to be a difficult exercise as the lender is not legally entitled to commit a ‘breach of the peace’ during the recovery process. Although the law varies between states, removing the car by force from a locked garage or threatening force to repossess an auto are likely to result in a claim for damages.

Repossessing a Car and the Subsequent Sale

Although the majority of lenders will sell the vehicle on, other will opt to keep it. There is an obligation on the lender to attempt to sell the car in a ‘commercially reasonable manner’. A public auction would satisfy this requirement, but selling the car cheaply to a friend or relative would not. If a repossessed vehicle is sold at a public auction, most states require that the previous owner is advised of the date and time. This is to provide them with an opportunity to bid on or buy back the car. In order to redeem the vehicle, it is necessary to pay the full amount owed, including the arrears and any outstanding debt.

Dealing with Vehicle Repo Deficiencies

A Vehicle repossession deficiency is defined as the difference between the outstanding debt and the final sale value of the car. Although the lender has redeemed his collateral, the borrower remains responsible for the deficiency on an unsecured basis. If the lender breached the peace when recovering the automobile or didn’t sell the car in a ‘commercially reasonable manner’, the borrower has grounds to contest a deficiency judgement and should seek legal address. Now that the debt is unsecured, a deficiency can also be tackled with a debt free solution, such as a debt settlement program or filing for bankruptcy.