It is very likely that you depend on your vehicle to go where you need to go – and when you need to go – whether to work, to school, to stores, or to the court. But if you fall behind with the payment of your car payments, or in some states, if you do not have proper car insurance, your vehicle could be taken away. When you finance the purchase of a vehicle or when you make a leasing contract, your creditor or lessor retains important rights to the vehicle until you have paid the last financing fee or until you have paid off the total balance of your lease obligation. These rights are set forth in the contract you signed and by the law of your state. For example, if you do not pay your fees by date, your creditor may have the right to “recover” – or salvage your car without having to resort to the court or warn you in advance. In addition, your creditor may also be able to sell your contract to a third party, called an assignee, who may have the same right to seize the car as the original creditor.
The Federal Trade Commission ( FTC), the national consumer protection agency, wants you to know that the rights of your creditor may be subject to limitations. Some states have enacted rules that establish how your creditor can recover the vehicle and how they can resell it to reduce or eliminate your debt. Creditors who violate any of these rules may lose other rights to you and the vehicle, or they may have to pay for damages.
Seizure of the car
In several states, your creditor can seize or impound your vehicle as soon as you default on your loan or lease payments. Your contract should establish what constitutes a default, but the failure to pay a fee on its due date is a typical example of default. However, if your creditor agrees to change your payment date, the terms of your original contract may no longer apply. If your creditor agrees to make this type of change, be sure to put it in writing. Verbal agreements are difficult to prove.
Once you default, it means that you default, the laws of most states allow the creditor to recover your car without the need to notify you, and grant you the right to enter your property to do so. But your creditor can not “alter public order” to seize your car. In some states, this means exercising physical force, manifesting threats of force, or even removing your car from a locked garage without your authorization. In case your creditor tampers with the public order to seize your car, you may be required to pay a fine or compensate for any personal or property damage. If your creditor incurs an alteration of public order, it can give you a legal defense in case you sue to collect the “outstanding difference” – this is the amount that arises from subtracting the value that your creditor obtains by reselling your vehicle to the figure that you still owe on your contract (plus the recovery and sale expenses).
Sale of the car
Once your car has been recovered or repossessed, your creditor may decide to keep the car as compensation for your debt or resell it in a public or private sale. In some states, your creditor must tell you what you will do with the car. For example, if a creditor chooses to sell his vehicle at a public auction or auction, state law may establish that the creditor must inform him of the date and place of the sale so that you can attend and participate as bidder of the auction. If the vehicle is sold privately, you may have the right to know the date it will be sold.