Car Repossession: What happens & What Are My Rights

In tough economic times people often stop paying some of their bills. Usually our debts that take priority are things we fear losing like a house or car. When times are tough, usually the first thing we stop paying are our credit cards. Neccessities of life will always take presidency - but be aware: if you dont pay your car payments, they will come and take the car.

Unlike credit card debt, a car is attached to security. The title of the car belongs to the creditor until you make your last payment. Until that time, you are merely borrowing the car. Usually a reposession will take place after 60 days or so with no payments. Depending on the value of the car, the creditor will hire a repo company to take back the car. Once that happens, people often assume their liability ends there. Not true. You will be responsible for any deficieny balance that remains after the car is sold by the creditor.

You can usually get the car back if you bring the loan current and clearly communicate your intentions to the creditor. The worst thing you can do when it comes to your car loan is ignore it. You need to talk to the creditor and hopefully come up with a plan to bring the loan current. Often times, the creditor will work with you -- if your requests are reasonable. You cant expect to keep the car and not pay but you can usually set up interest only payments or reduced payments for a few months while you get back on your feet. The creditor doesn't really want the car back. It's expensive to process a repossession. The creditor has to store the car, pay the repo fees, pay any expenses to repair the car and then they lose even more when they sale it at auction. The creditor rarely gets what you would have paid through the entire term of the loan so it's worth it to them to work with you.

Unless you've filed for bankruptcy protection, you cannot keep a car you're not paying for. In a bankruptcy, the courts allow for secured assets to be protected and usually arrangements are made with creditors of secured debts. If you decide to surrender the car, that is an option as well but you are not required to under normal circumstances.

If the creditor is successful as selling the car, an itemized statement will be sent to you of any remaining balance. This balance is your responsibility. Paying for a car you no longer have is no fun so working with the creditor makes a lot of sense.

It's also very wise to keep close tabs on how the creditor plans to sell your car if you decide you cannot keep up on the payments. You'll want the best price for the car because that means there is less for you to pay after the sale. Make sure the creditor is fair in selling the car and not giving to Uncle Bob for way less than they'd get at a private sale or auction.

When it comes to your credit reports, a repossession is a credit killer. If you've worked with the creditor to redeem the car, ask if they can report the account more favorably. Perhaps report it as past due but remove the repossession mark. If you do not redeem the car, it will be reflected as a repo for 7 years.

You can read more about the consequences of defaulting on your car loan here.