Repossession

When consumers are delinquent with loan payments, especially for automobiles, they are subject to repossession. The damages from repossession extend well beyond just losing your car.

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If you can’t pay your car loan, chances are it will be repossessed and those chances have increased dramatically due to the COVID-19 pandemic.

The repossession business went into a slumber of sorts during the 2020 shutdown, but in 2021 repo men and women are making up for lost time.

Analysts say repossessions could go up 100% now that pandemic-induced moratoriums have expired.

“About 1.9 million vehicles were repossessed by lenders and sold (mostly) through wholesale channels in 2019. Our survey of lenders and automotive recovery companies suggest that the volume of repossessed vehicles will at least double in the next six months,” according to Black Book, an industry publication.

Getting your car repossessed is not the end of your financial headache. Repossession leaves a negative mark on your credit history and damages your credit score. a one-two punch that can cripple your finances and limit your ability to get affordable financing in the future.

Repossessions stay on your credit report for seven years. Initially, they can have a big effect on your credit score, but the damage lessens over time and is wiped out completely seven years after you first are delinquent with a payment.

There also is a chance your account will be turned over to a debt collection agency; you will be sued in court and you could have your wages garnished. In other words, there are grave consequences for failure to pay.

What Is Repossession?

Repossession is reclaiming ownership of something that has not been paid off, but still has value.

In most cases, cars are the primary asset involved in a repossession, but it could be real estate, jewelry, artwork or any tangible asset that can be sold to recoup money for the unpaid loan balance.

A  home foreclosure is one type of repossession. However, the term is most commonly associated with  auto loans. The lender is listed as the lienholder on the car title and can reclaim the vehicle if you fail to make an on-time payment.

When millions of Americans were laid off during the pandemic, governments and businesses temporarily halted many debt-collection protocols.

Consumers were allowed to delay paying rent, mortgages, utility bills, car loans, credit card bills, etc. Such forbearance could not last forever, of course.

With the U.S. economy reopening, many of those protections have expired. Some states never had moratoriums on auto repossessions to begin with, according to Auto Finance News.

Congress passed the American Rescue Plan Act in March 2021. Among other things, it provided $21.55 billion for emergency rental assistance and $5 billion in emergency housing vouchers.

It did not funnel a nickel to direct repossession relief. So, if you are waiting for Uncle Sam to keep the Repo Man away, don’t.

How Repossession Works

Technically, as soon as a credit account is delinquent, the lender can take action to repossess the property tied to the loan. In the case of a car loan, if you miss a payment, the bank could repossess the vehicle without notice. They can go on to your property to reclaim it as long as they don’t “breach the peace,” meaning use threats of force.

Typically, the lender contracts with a third-party company to retrieve the property, such as a towing service that specializes in auto repossessions.

Sanitizing cars adds at least $20.53 to the cost of repossession, according to the American Recovery Association. Those costs are passed onto the consumer. The ARA said most of the 260 repossession companies it represents add a $50 cleaning charge on top of their usual fees.

Lenders do not need a court order to start the repossession process. They can shift into gear as soon as you miss a payment. They don’t want to – repossessing a car typically nets the lender only 30% of the loan value – but if you are late or missing payments, this is their best recourse.

Once the property is seized, it is difficult, if not impossible, for the borrower to reverse the situation. The lender charges off the account and may go to court to pursue the borrower for any leftover amounts due, also called the “deficiency.”

Keeping Your Property

It is in the best interests of all parties for a borrower to take immediate action to cure a loan default before repossession occurs.

The primary way to avoid repossession is to contact the lender before you miss a payment and ask them to negotiate a settlement that makes the account current. Talk to a representative from the bank or credit union where you received the loan. Offer them a reasonable proposal that tells them when you will make the next payment and when you expect to be completely back on track.

In most cases the lender would rather come to a payment arrangement than take back the property, which probably will be worth much less than the loan balance and require additional expenses before the creditor can sell it profitably on the open market.

Another way to avoid repossession would be to find a debt consolidation loan at a lower interest rate that what you currently pay on the car loan; ask a family member or friend to give you a personal loan or co-sign a loan for you.

The problem is you might have to get in line for someone to bail you out. Total auto debt in the U.S. was $1.37 trillion in 2021, according to Experian. That was a 6% increase from 2019.

In other words, not even a worldwide pandemic could keep Americans from racking up auto debt.

If your financial situation has become drastic, you could save your car from repossession with bankruptcy. It may sound counterintuitive, but there are options to keep your car after filing bankruptcy. With Chapter 13 bankruptcy, you can make the car part of the repayment plan you present the court. If you file for Chapter 7 bankruptcy, the creditor is prevented from repossessing the car, but could go to court and receive an order that permits repossession.

Repo Laws and Regulations

Laws and regulations on repossessions vary from state-to-state and sometimes from locality-to-locality so it is best to consult with an attorney in your area if you are involved in repossession.

For instance, a repo company usually cannot trespass on private property to retrieve a car, but in most cases, they may have limited privileges to take a car from a driveway. What they can’t do is enter your garage to repossess the car.

In some cases the borrower can save his or her car from being taken by calling the police promptly. Again, laws vary by state and locality, but the police are responsible for keeping the peace and may have grounds to intervene if repo teams break the law. Generally, local authorities cannot help the repo team — the situation is a private matter involving a lender and borrower and must be resolved in a court of law.

Buying Back the Car

If your car has been repossessed, there is a chance, in some states, that you could get it back if you “reinstate” your loan, meaning pay the past-due amount on your loan, plus whatever your lender’s repossession expenses were.

There also are laws in some states that allow you to buy back the vehicle by paying the full amount owed. That doesn’t mean “catching up” on missed payments. That means paying past-due payments and the entire remaining debt.

There also is the possibility that you could get the car back by making a successful bid at a “repo” car sale.

Can Debt Settlement or Consolidation Help?

If you’re in danger of having your property repossessed,  debt settlement or consolidation can help your situation. When you enter into a debt settlement plan, you or a company you hire negotiates with the lender on your behalf to pay off your balance.

The settlement may involve lowering the amount that you owe on the loan. Another option is a  consolidation loan, which bundles all of your debt into one loan so that you can make one manageable debt payment each month.

Remember that time is of the essence. You should consider contacting a debt specialist immediately if you’re concerned that repossession may happen or is already in process. Once completed, repossession is a bell that you cannot un-ring. You will lose a valuable possession and it remains a black mark on your  credit history  for seven years.

The settlement may involve lowering the amount that you owe on the loan. Another option is a consolidation loan, which bundles all of your debt into one loan so that you can make one manageable debt payment each month.

Remember that time is of the essence. You should consider contacting a debt specialist immediately if you’re concerned that repossession may happen or is already in process. Once completed, repossession is a bell that you cannot un-ring. You will lose a valuable possession and it remains a black mark on your credit history for seven years.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

Sources:

  1. Edelman, M., Hardy, M., Quillinan, C., Vankoby, R. (2020, November 13) An auto repossession avalanche is coming: Are you ready? Retrieved from https://www.autofinancenews.net/allposts/auto-finance-excellence/compliance/an-auto-repossession-avalanche-is-coming-are-you-ready/
  2. Stolba, S. (2021, April 12) U.S. Auto Debt Grows to Record High Despite Pandemic. Retrieved from https://www.experian.com/blogs/ask-experian/research/auto-loan-debt-study/
  3. N.A. (2020, December 12) COVID-19 Market Insights. Retrieved from https://www.blackbook.com/market-insights/covid-19-market-insights-12-22-2020/