Repossession doesn’t make your debt disappear 

For many car owners facing this crisis, there’s an assumption that once your vehicle is repossessed, you’re then freed from having to pay the remaining loan balance. Unfortunately, that’s a myth in most cases. 

Here’s the hard truth: Unless you happen to live in one of a limited number of states prohibiting deficiency balances, that repo’d car won’t make your debt go away. Vehicle repossession is simply a creditor exercising their collateral rights to reclaim the asset securing your delinquent loan. 

But after fees and selling the car at auction, chances are high the resale value won’t cover the full outstanding loan amount. That money you still owe is called the “deficiency balance” – and creditors will absolutely come after you to pay it. In other words, getting your car taken doesn’t give you a free pass – the lender can still legally pursue you to recover that remaining debt. 

Your rights and options when facing a repo 

While being on the receiving end of a repossession is never pleasant, you as the borrower do have some protected rights under state and federal laws like: 

• Notice requirements: In most states, lenders must send delinquency notices and repo warning notices giving you time to get current before taking your vehicle. 

• Privacy rights: Creditors must follow guidelines like not repossessing at unreasonable times, using force/breaking into private property, or discussing the situation with anyone but you. 

• Redemption period: In many states, you have a short window after the repossession to fully pay off the loan and redemption fees to regain the car. 

If redeeming isn’t possible, you may also have options like: 

• Reinstate the loan: By paying just the delinquent payments and fees, not the full balance, you can opt to become current on the loan again after repo. 

• Avoid fees: Depending on state law, you may be able to contest certain repo fees or the creditor’s failure to properly care for and store the repossessed car before auction. 

• Bankruptcy protection: As a last resort, filing for bankruptcy can put an emergency stay on debt collections, prevent the car from being auctioned off, and potentially restructure payments. 

• Negotiate a settlement: If the car gets auctioned but doesn’t net enough to cover the loan, you may be able to settle the deficiency balance for a lump sum with the lender. 

The repo process creditors must follow 

While the creditor does have the contractual right to repossess a vehicle after loan default, there are very strict and regulated processes they need to adhere to: 

• Send official breach notice: Before any repo can occur, lenders must issue a formal “Notice of Default” letter notifying the borrower they’ve violated the auto loan agreement’s terms. This kicks off the repo timeline. 

• Wait the mandatory period: After that breach notice, there’s a state-mandated waiting period lenders must observe – usually 10-30 days – before they can take further repossession actions. This is meant to give borrowers a final chance to get current. 

• Hire repo agents: If payment still isn’t received after that grace period, creditors can then authorize repo companies to legally take possession of the vehicle from public or private property. 

• Properly store the vehicle: Once retrieved, the lender must adequately store the car in a secure facility and make efforts to contact the borrower about paying outstanding amounts to recover it before auction. 

• Auction off the car: If the borrower can’t get fully current on payments and repossession fees within the allotted redemption period, the lender can put the vehicle up for public auction. 

• Provide debt disposition notice: After auction, the lender must issue a notice explaining how the sale proceeds were allocated against the debt balance. Any remaining deficiency amount at that point can be pursued.