Stopping Car Repossessions by Lenders & Your Legal Options
Even if you have fallen behind in your payments on a car loan, you may be able to avoid the repossession of your vehicle. In some cases, a late payment may not amount to defaulting on a loan unless you have fallen significantly behind. Or the loan agreement might provide that you are not in default unless the creditor notifies you of the default. Getting current on your payments and avoiding a notice of default may involve paying not only past due payments but also late fees.
Sometimes a lender will accept late payments regularly, which may mean that it has waived its right to base a default on the lateness. However, you should not assume that the lender will accept late payments permanently and should try to keep up with payments if possible.
Reinstating the Loan
If you are technically in default, but the car has not yet been repossessed, you may be able to reinstate the loan by paying back all of your past due payments and late fees. Your agreement with the lender may provide a right to reinstatement, or you may have this right automatically under state law. Sometimes reinstatement is a one-time option, so you cannot use it again if you default on the loan a second time.
Refinancing the Loan
Sometimes a consumer can extend the term of the loan or ask another lender for credit to refinance the existing loan. This may not be worthwhile in the long term if the car is several years old, since it will depreciate over time. However, it may be a useful option if it reduces the amount of the individual payments and has a lower interest rate than the original loan. You should make sure to understand any fees and penalties attached to the new loan before accepting it.
Considerations Before Refinancing
The car’s current value and rate of depreciation
The length of the loan and the new interest rate
The penalties and fees involved with refinancing
Negotiating With the Lender
You may be able to agree with the lender to sell the vehicle on your own instead of having the lender repossess and sell it. This may allow you to get a better price for the car than the lender could. While the lender does not need to agree to this plan, you may be able to get any deficiency balance after the lender’s sale reduced by pointing to the lender’s refusal to let you sell the car to a buyer who would have paid more for it.
Another option is to give up the vehicle to the lender voluntarily rather than going through the repossession process. The lender may find this option appealing because it avoids the costs of repossession, and it may agree to reduce or eliminate the deficiency balance on the loan. This also may be appealing to you if you would ultimately bear some of the costs of repossession. You should make sure to put any agreement that you reach with the lender in writing.
Be sure to document any misconduct by the lender and raise these issues during negotiations.
Whenever you are negotiating with the lender, you can put yourself in a stronger position by raising any misconduct by the lender during its interactions with you. If you have a valid defense or counterclaim, it may be more willing to reach an agreement with you instead of litigating the case in court.
Filing for Bankruptcy
For people facing serious financial difficulties, filing for bankruptcy under Chapter 7 or Chapter 13 may be an appropriate course of action. This will give you the protection of an automatic stay, which prevents a lender from repossessing and selling your car without court permission. It also will prevent collection efforts based on a deficiency balance. However, bankruptcy is a significant step to take, and you should not take it just to avoid losing your car.