Your Rights Under State Auto Repossession Laws

In today’s sluggish economy, auto repossessions have become an increasingly common phenomenon.  And while unemployment figures continue to rise, a job layoff isn’t the only event that can lead to missed car payments — even in a thriving economy, personal circumstances such as divorce or a medical crisis can put pressure on your household budget.

Determining what your rights are under these circumstances isn’t easy, since auto repossession laws vary not only from state to state but also according to the contract you signed when you financed your vehicle.

But by examining the laws in a handful of states, you can get a general idea of your rights and risks when car repossession looms.

What can trigger auto repossession?

You may have driven off the car lot with the keys in the ignition, but until you’ve made your final car payment, your lender retains important legal rights to your vehicle. In many states, the lender can repossess the car without going to court or even warning you in advance.

In general, lenders have the legal authority to seize your car as soon as you default on your loan. Again, laws vary by state. In South Carolina, for instance, the car owner can’t be declared in default until she is at least 10 days late and has received a notice of default by the lender, which gives her 20 days to catch up on her payments.

Until recently, Wisconsin car lenders couldn’t repossess a vehicle without first getting a court order, unless the owner voluntarily surrendered the vehicle. Since a change in the law in 2006, however, consumers no longer enjoy that protection, and creditors must only mail the car owner a notice; the consumer then has 15 days to challenge the creditor’s notice of intent to retake the vehicle and to initiate court proceedings. Essentially, the new law allows lenders — not a neutral third party — to unilaterally decide that a consumer is in default, and unless the consumer agrees to be sued, he or she has no forum to question the validity of the creditor’s claim.

Always read your contract carefully. While default is most often defined as failure to make timely payments, taking the car out of state permanently without permission of the lender, failing to keep the car insured, or damaging the car may also be considered default by some lenders.

Once you’re in default, creditors in many states can repossess your car — without advance notice — at any time of day or night. (Car repossession without notice has come under criticism recently following several situations where car owners lost their lives trying to protect their property after confronting car re-possessors in the middle of the night.)

What happens to your vehicle after it’s repossessed?

Once your car’s been repossessed, your lender can keep the car as compensation for your debt, but more often than not, the car is resold at a public or private sale. In many states, your creditor must inform you of the date, time and location of the sale. You may be entitled to buy back the vehicle or reinstate the loan by paying the full amount owed (as well as any expenses, like storage and attorney fees, incurred by the creditor).

Any resale must be conducted in a “commercially reasonable manner.” While the car doesn’t have to be sold for top dollar, if it’s sold at below fair-market value, this could be deemed “unreasonable,” and you may be able to collect damages from the creditor.

Personal property left in the vehicle belongs to you

Creditors cannot legally keep or sell any personal property found inside your vehicle. This doesn’t include improvements you made to the car, such as a new stereo system or ski rack. If your personal possessions left inside the vehicle are “lost,” you may be able to obtain compensation. Speak to an attorney.

Your lender could still sue you even after your car’s repossessed

If your car is repossessed and sold for less than what you owed on your loan, your creditor can sue you for what’s called a “deficiency judgment” to collect the balance. However, a creditor can lose the right to sue for a deficiency judgment if he failed to follow the rules of repossession — if, for example, he committed a breach of the peace.

“Breach of the peace” could mean the use of physical force, threats of force, or removing your car from a closed garage without your permission. While Ohio law states that a car owner doesn’t have to unlock a car for repossessors or open garage doors for them, hiding the car can be a crime in some states if it’s intended to prevent a creditor from getting the car.

In Texas, a creditor can’t, among other things, use profane or obscene language intended to abuse, cause a telephone to ring continuously, or make repeated telephone calls with the intent to harass.

What assets can creditors go after in a deficiency judgment?

If your car is sold for less than what you owed, there are certain consumer assets that are protected from recovery by the car lender. Under the Texas Debt Collection Act, for example, these possessions are exempt from collection efforts:

  • Your “homestead”
  • Burial lots
  • Wages
  • Professionally prescribed health aids
  • Alimony
  • Home furnishings, including family heirlooms
  • Provisions for consumption
  • Farming or ranching vehicles
  • Boats and motor vehicles used in a trade or profession
  • Clothing, books, tools, equipment
  • Two firearms
  • Athletic and sports equipment
  • Two horses, mules or donkeys, and a saddle, blanket and bridle for each
  • 12 head of cattle
  • 60 head of other types of livestock
  • 120 fowl
  • Household pets

Texas creditors may take assets you have in a bank account and get a writ of garnishment to satisfy the judgment. (Although car loan lenders can’t garnish wages in Texas, other creditors can garnish wages for child support, student loans and certain taxes.) The “wages” clause, however, only pertains to those who work for an employer. Creditors seeking to recover a judgment on a car loan from self-employed workers can use garnishment to take the money that is owed to them by their customers.

If your car is sold for more than what you owed, the lender has to give the excess money back to you, according to the Federal Trade Commission (FTC).

Some lenders won’t provide financing unless the car owner agrees to the installation of an electronic device that allows them to disable the ignition if the owner has missed a car payment.

Depending on your contract and your state’s laws, this kind of device could be considered the same as repossession or a breach of the peace, according to the FTC.

For details about auto repossession laws in your state, contact your state’s Attorney General or local consumer protection agency.

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