You're late on a car payment. Then you miss one completely. The next thing you know there's a tow truck in your driveway hauling away your car.
When you buy or lease a car or truck, your creditor has the right to take back the vehicle if you're late or skip payments -- and they don't have to go to court to get permission to do so. While the deck is stacked in the creditor's favor in most cases, the consumer does have some rights.
In Iowa, Attorney General Tom Miller has reached a settlement with an Ottumwa used car dealer to stop attempting to have customers waive their rights surrounding repossessions. In Iowa, a consumer cannot agree to give up those rights or any rights under the Iowa Consumer Credit Code.
Right to cure
Often called a "right to cure" or cure of default, the law requires that creditors inform consumers the first time they default on a credit transaction in a one-year period. Creditors must also provide consumers a notice informing them of their rights, including the right to correct the alleged default.
The notice must describe the default, the steps the consumer must take to resolve it, and the creditor must allow consumers 20 days to correct the default before repossessing a vehicle.
That's the law in Iowa. However, it may be different in the state where you live. If you are concerned that you may fall behind on your car payments, you should check with your state attorney general's office to learn where you stand under state law.
If you're behind on your car payments and your creditor is threatening to repossess your car, North Carolina Attorney General Roy Cooper suggests contacting the creditor before it becomes an issue. It's possible they may be willing to work with you, setting up a payment plan.
No advance notice
In North Carolina and most other states, a creditor is not required to give you any advance notice before repossessing your car. The creditor or its repossession agent is allowed on your property to seize the vehicle as long as there is not a "breach of the peace."
In this case, a "breach of the peace" is considered using physical force, threats of force, or even removing your car from a closed garage without your permission.
The Federal Trade Commission (FTC) says that, while creditors have the right to repossess your vehicle, those rights are not unlimited. Some states impose rules about how your creditor may repossess the vehicle and resell it to reduce or eliminate your debt. Creditors that violate any rules may lose other rights against you, or have to pay you damages.
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. But in some states, your creditor must let you know what will happen to the car.
For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
Buying back the vehicle
In any of these circumstances, you may be entitled to "redeem" -- or buy back -- the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale.
Some states have consumer protection laws that allow you to "reinstate" your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor's repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a "commercially reasonable manner." Your creditor doesn't have to get the highest possible price for the vehicle -- or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable.
"Commercially reasonable" may depend on the standard sales practices in your area. A creditor's failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment, the FTC says.
If you think your car may be in danger of being repossessed, it is a good idea to remove all personal items from it. But if there are personal items in the vehicle when it is repossessed, the FTC says you are entitled to get them back.
In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can't account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.
Of course, it's better to prevent a repossession from taking place by making your payments on time. But if a financial emergency places you at risk, the FTC advises consumers to start a dialog with their creditor as soon as possible.
"Contact your creditor as soon as you realize you will be late with a payment," the FTC advises on its Website. "Many creditors work with consumers they believe will be able to pay soon, even if slightly late."
You may also avoid some embarrassment and expense by agreeing to a "voluntary repossession." That may reduce your creditor's expenses, which you would be responsible for paying. But even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report.
Finally, if you are facing, or already in, bankruptcy, the FTC suggests asking an attorney for information about your rights to the vehicle during that process.