When car buyers purchase cars in Arkansas, like in most states, they often use financing to pay for the vehicle. The consumer buys the automobile from the seller and a third party (or creditor) lends the consumer the rest of the money. In exchange for lending the money, the consumer agrees to pay interest as well as other conditions that protect the creditor's interest in the vehicle. One such condition is typically the creditor's right to repossess the vehicle in the event the purchaser defaults.
The sales contract between the buyer and creditor usually defines what behavior constitutes default. For example, if the consumer misses one payment, that could put her in default. Some contracts may define default as 90 days without making a payment. However defined, once a car buyer in Arkansas goes into default, the creditor can initiate repossession. Arkansas has adopted the Uniform Commercial Code, which allows creditors to repossess vehicles when the purchaser goes into default without initiating a judicial proceeding. In other words, in Arkansas, creditors can repossess cars without having to go to court first. However, the creditor can only repossess the vehicle if it does so without breaching the peace.
Under Arkansas law, once the creditor repossesses the car, it can resell the vehicle in a public or private auction. Most states, however, give the consumer a short period of time in which they can "redeem" the vehicle. Arkansas allows ten days from the time of the repossession where the consumer can redeem the vehicle. To redeem, the consumer must pay the full amount left on the car note and any costs and interest that the sales contract specifies. For example, if the consumer defaults on a $20,000 after making $5,000 of payments, to redeem the vehicle, the consumer would have to pay the full $15,000 left on the note plus costs and interest.
When the creditor resells the vehicle, it must do so in a "commercially reasonable manner." That means the seller, for example, cannot sell a car worth $20,000 for $1,000. In Arkansas, if the creditor resells the vehicle in a commercially reasonable manner and does not recover all of the money owed, then the creditor can go after the consumer for a "deficiency judgment." For example, if a consumer defaulted with $15,000 owed on their car note, the seller repossessed, waited the required ten day period, and resold the vehicle in a commercially reasonable manner for only $12,000, then the creditor could go after the consumer for the remaining $3,000 plus costs and interest.
Please consult a qualified attorney licensed to practice law in Arkansas to determine how the law applies to the facts of your situation. Arkansas law, like all laws, is subject to change.