When a person in the state of Texas defaults on their car loan, they are in danger of having their car repossessed by the lender. Texas repossession laws allow a creditor (or lender) to repossess cars by "self-help" repossession. This means they can hire an unlicensed repo company to pick up a car when the owner fails to make payments. However, both the lender and the repo company must comply with the law when doing so.
Vehicle Repossession Process in Texas
According to Texas Business and Commerce Code Section 9.609, a lender can repossess a vehicle when the borrower or vehicle owner defaults on their loan. The car becomes collateral when they secure a loan to buy it and they commit to paying that loan off each month.
When they miss payments, the borrower is in danger of losing the vehicle. In fact, Texas law states that just one missed payment can result in repossession. A repo company does not need a permit or a court order to collect a vehicle, nor do they need to give the borrower notice when they do so. However, they have limits as to what they can do at the time of pick up.
Repossession Company Limitations
A repo company cannot breach the peace – cause a disturbance in public or lose public order – when it picks up a vehicle. A repossession agent cannot trespass or break into the owner's property to pick up a car. They cannot threaten violence or cause property damage. If a borrower verbally protests the vehicle's repossession, the agency must stop the collection. A repo agency also cannot trick a borrower into leaving their vehicle with a mechanic just to take it when they leave.
If a repo agent threatens violence towards the borrower, that person should not take matters into their own hands – they should call the police. Threats and acts of violence are examples of breach of the peace. A borrower can file a wrongful possession claim in court against the repo agency that makes any of these errors.
Carrying Out a Lawful Car Repossession
In Texas, a repo agency can take the borrower's vehicle from a non-enclosed space, tow it from a parking lot, take it while they're at work, or take it when parked outside their home, even if they are inside. Repossessions often take place at night when there are few interruptions.
The lender and agency do not have to tell the borrower when they will take the vehicle, but they must send the borrower written notice after it's gone. This notice must identify where the car was taken and let the borrower know the steps they need to take to get it back.
What the Borrower Can and Cannot Do
When a person's car gets repossessed, their personal effects will likely still be inside. These do not belong to the repo company, but it can store the property until the borrower shows up to collect it. If an individual has a problem getting their belongings back from the repo company, they can contact the lender or go to small claims court.
The borrower has the right to protest the repossession, but they can't threaten violence against the person repossessing their car, hide the car or stall for time. If they do any of these things, they may run afoul of the law.
Getting a Repossessed Vehicle Back
A borrower has several options to get their car back after repossession. They can pay the loan balance altogether or reinstate it and bring their car payments up to date. They can also negotiate with the lender or lienholder to refinance the loan, or even file for bankruptcy.
To reinstate their loan, a borrower must not only pay the outstanding balance but also late fees. They will also pay repossession fees, including those for the repossession agency and for storage of the vehicle. If they choose to redeem their car, they must pay the loan balance in full within 10 days. If they do not, the lender can sell it.
What Happens at a Public Auction
When a car goes to auction, the lender must notify the borrower of its sale, so they have the opportunity to bid on their own car. If the car sells, it should cover the repossession costs, with the remainder going toward the borrower's loan.
If the car's sale does not cover the lender's expenses, the lender can sue the borrower for the remainder of the money owed. The borrower will receive a summons notifying them of the lawsuit. If they ignore it, they will lose by default judgment and must pay the remaining fees. According to the Fair Credit Reporting Act, the lender must show accuracy in their claim against the borrower – it cannot pad the costs. Borrowers can settle with lenders before going to court, which is more beneficial, as going to court is costly and time-consuming.
Bankruptcy and Repossession
If a borrower in Texas files for Chapter 13 bankruptcy protection within ten days of their vehicle's repossession, they can demand it back with proof of full coverage insurance. Any repossession or storage charges get added to the the loan amount the borrower pays in their bankruptcy payment plan. A borrower who promises to make monthly payments can keep their vehicle, but the lender can sue if they miss one payment.
Chapter 7 bankruptcy allows the borrower to decide if they can afford to keep the car. If they pay for it in a lump sum while in default (redemption), they are responsible only for its full market value, or they can make payments to the lender through a new contract (reaffirmation). However, they can also surrender the car if they can't afford it, which frees them from future debts associated with the repossession.
- Upsolve: Texas Repossession Laws
- Texas Constitution and Statues: Business and Commerce Code Chapter 9. Secured Transactions
- Leinart Law: How Car Repossession Works & How to Stop It in Texas
- Warren & Migliaccio, L.L.P.: Chapter 7 Bankruptcy & Car Repossession: You Have Choices
- Busby & Associates: TEXAS REPOSSESSION
Michelle Nati is an associate editor and writer who has reported on legal, criminal and government news for PasadenaNow.com and Complex Media. She holds a B.A. in Communications and English from Niagara University.