In the United States, vehicle repossession law is mandated at the state level and determines both the consumer's and lender's rights. If your car is repossessed, you are still responsible for the remaining amount on your full car loan, but this amount may be lowered if the lender sells or if any violation occurred in the repossession or auction process.
Buy-Back Option
In some states, you have the legal right to buy-back a repossessed car for the overdue amount on your loan plus the dealer's repossession charges. To determine your state's vehicle repossession laws, visit your state's Attorney General website.
The Auction Option
If your state does not allow a buy-back or you cannot afford to pay the overdue amount on your loan, your bank lender or dealer has the option to re-sell the repossessed car to help recoup the loss. As a consumer, you also have the option to bid on the car at auction, but your rights in this matter will vary from state to state. If you do not buy back the vehicle at auction or it sells for a lower amount than the total you owe, you are responsible for the dividend, which is known as the deficiency, as well as the lender's repossession charges. If you buy the vehicle at auction, you will only owe the repossession charges. Your lender must give you any surplus amount if your vehicle sells for more than the amount left on the loan, although this is rare.
Paying the Deficiency
If you owe a deficiency on your auctioned car, your lender has the right to sue you for this amount in some states. However, you have legal rights when it comes to the manner in which the vehicle was auctioned and whether the price was legitimate, how long the lender waited before billing you for the deficiency and whether the repo man legally obtained your vehicle in accordance to your state's breach of peace laws. Also keep in mind that you have full legal rights to the personal items in your car, even if your car was repossessed while they were still inside. If any of these violations occurred, speak to a lawyer about your rights and whether your deficiency can be thrown out or lowered.
Solutions/Tips
One of the best ways to avoid repossession is to talk to your lender about your options before the car is taken. Another option is to find a family member or friend to buy your vehicle or take over your payments, or to file for bankruptcy, although the latter should only be considered as a last resort. To talk with a credit counselor about your finance options, visit the National Foundation for Credit Counseling at FFCC.org.
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