Car repossession is a situation in which a creditor reclaims a car from a buyer who's fallen behind on his or her car payments. Though laws vary regionally, creditors can often repossess cars without warning the buyer first. There are sometimes alternatives to this process, but it largely depends on the situation. If the creditor and buyer are unable to work out an alternative and the repossession is reported to a credit agency, it can be extremely damaging to the buyer's credit score.
When and Where Cars Can Be Repossessed
When a buyer purchases or leases a car on a payment installment plan, the vehicle is not legally his until he makes all the payments. If he misses payments or defaults, then the creditor can repossess the car at any time. A creditor or car repossession crew cannot threaten the buyer, but they can follow him around as he uses the car and take the car whenever he gets out of it, even if it's only parked for a few minutes. Some cars come with an electronic disabling device pre-installed, which makes them unable to start if the buyer misses a payment. Car buying contracts sometimes offer a grace or warning period, which allows the buyer to be delinquent on payments for a specific number of days, but there may be a penalty fee for late payments.
A repossession crew can take the car from just about anywhere, including a private property like a driveway, or public property like the street or a parking lot. Many laws allow them to trespass onto the buyer's property but not to take the vehicle from an enclosed facility, such as a garage or barn. If the buyer tries to hide the vehicle or damages it before the crew can take it, however, the credit company can often sue him or refuse to return the car, even if he pays all of the outstanding debt. In some US states, these types of activities are considered felony offenses, and the buyer might have to go to jail. It is also the buyer's responsibility to remove any personal items from the car; aftermarket modifications like stereos or rims often must remain with the car.
Process of Repossession
The main point of a car repossession is for the creditor to regain some of the money loaned, so the entire process is geared towards this end. Once the car is repossessed, the creditor will usually have it cleaned and serviced, and will check to make sure that all the parts and features of the car are in order. The creditor will usually then try to sell or auction the car to make back some of the money owed on it. The amount of money that the car is sold for will be deducted from the amount the buyer owes, but he still has to pay back the balance of the loan as well as repossession fees, which usually includes the cost of a repossession crew and any cleaning or repair bills needed to get the car ready to auction. If the buyer surrenders the car voluntarily, he can often avoid paying some of the fees.
If the creditor is selling the car at a public auction, it usually has to let the buyer know when and where the auction is so that he can buy the car back if he wants to. Buyers can sometimes get their cars back from the creditor before they go to auction if they agree to pay back the entire balance owed as well as any fees, but this often depends on the creditor.
Alternatives to Repossession
A person can sometimes avoid going through this process by negotiating with the creditor. It's generally best for the buyer to call the creditor as soon as he knows that he won't be able to make a payment. Sometimes creditors will be willing to accept a lesser payment or to a defer payment for a short amount of time. They are typically not required to work with the buyer, however, so this often depends on the individual situation.
It's also sometimes possible to avoid a car repossession by declaring bankruptcy. Though laws vary regionally, many statues prohibit creditors from trying to collect debts from a person who is going through this process. This type of statute is called an automatic stay, and goes into effect as soon as the person files for bankruptcy. There are a few situations in which a creditor might be able to work around this though, particularly if there is a "lack of adequate protection" for the creditor in the situation. This means that the creditor's asset — in this case, the car — is at risk while in the possession of the buyer. For instance, if the buyer didn't have insurance on the car, or if he didn't register it, then the creditor might be able to claim a lack of adequate protection and take the car even if the person filed for bankruptcy.
Effects on Credit
A car repossession has a very negative effect on a person's credit rating. In the US, can stay on the person's credit rating for seven years. It's sometimes possible to get it removed earlier, however, especially if the way that the incident is recorded on the report is not completely accurate. In this case, a person may be able to have the information taken off because of inaccuracy in a process called credit repair. Credit reporting laws vary regionally though, so buyers may want to consult a lawyer before trying to repair their credit.