Auto Repossession Rules
- Every state has laws establishing basic rights for people facing repossession of their car. Although these laws vary by state, the general rule in most states is that a lender cannot begin the repossession process until you default on your loan agreement. Most state laws do not define what it means to default, so you should check the definition in your loan agreement. Most likely, default means you are at least 30 to 90 days late on one or more payments.
- Your loan agreement cannot disagree with state law. For example, if your loan agreement says the lender can repossess your car at any time, even if you don't default, then that provision is not enforceable because it violates state law. However, your loan agreement can provide you with rights that are beyond what your state's law provides. Some states, for example, require a lender to give 30 days notice before repossessing a car. Your lender could, if it wanted, include in the loan agreement a provision that the lender must wait 45 days after giving notice of repossession. The lender could not, however, go below the 30-day state requirement and allow repossession after, say, 15 days.
- Everything changes when you file for bankruptcy. The law imposes an "automatic stay" on all of your creditors, meaning that none can attempt to collect a debt from you without express permission from the bankruptcy court. If you are in default on your auto loan and in danger of losing your car to repossession, you buy yourself some time by filing for bankruptcy.
- Assuming you don't file for bankruptcy, most state laws provide that a lender can repossess your car without any court involvement. This means the lender can show up at your doorstep with a tow truck and take your car away. The purpose of the law allowing this self-help repossession is to reduce the burden on courts and judges who otherwise would have to deal with numerous vehicle repossessions every day.
- In addition to bankruptcy, there is one other exception that could require your lender to get a court involved before repossessing your car. The "breach of peace" rule provides that a lender cannot repossess without a court order if doing so would cause a breach of the peace. Most state laws don't define breach of the peace, but it is generally understood that any confrontation qualifies as a breach of the peace, including your going outside and telling the lender to stop taking your car. So, if you stand up for yourself when the tow truck arrives, you can probably buy yourself a little more time. Don't get carried away, though, or you could find yourself with other legal problems as well.