Your creditor has the right to repossess your car if you stop making payments. However, the creditor must follow certain rules when doing so. For example, the repossession agent or tow truck driver cannot break open a locked gate or force a garage door open to take your car. You also have the option to negotiate a voluntary return of the car to avoid a forced repossession.
Defaulting on the Loan
Generally, your creditor has the legal right to repossess your car as soon as you default on the loan. In some instances, your creditor could declare you in default of your loan after just one missed payment. Your loan agreement will clearly stipulate what constitutes default.
Taking the Car
Laws in most states allow creditors to repossess the car without notice once you are in default. That means the creditor could take the car at any time of day or night without your permission. The car can be repossessed from your place of work, a shopping mall or from your home. The repossession agent can come onto your property to get the car but may not cause any damage to your property while retrieving it.
Selling the Vehicle
After your car is repossessed, the creditor can keep it as compensation for your debt or sell it. The car could be sold privately or through a public auction. According to the Federal Trade Commission, the creditor must notify you that the car has been repossessed and must tell you what will happen next--such as a public auction. If the car is sold at auction, you will have the right to attend and bid on the car. Also, consumer protection laws in your state may allow you to regain possession of the car through a process called reinstatement. Reinstatement requires you to pay all missed payments in a lump sum, along with expenses the creditor incurred during the repossession. Once your loan is reinstated, you will resume making monthly payments as before.
If the creditor sells your car, you could be held liable for any remaining balance on the loan--called a deficiency judgment. For example, let's say you owed $12,000 on the loan when the car was repossessed. The car was sold at auction for $9,000. That leaves a deficiency judgment of $3,000, plus repossession and administrative fees. The creditor could file a lawsuit against you in small claims court for the balance.
The creditor cannot keep or sell personal property that was stored in your car at the time of the repossession. You can make arrangements to retrieve your personal items when the creditor or repossession agent contacts you to tell you that the car has been repossessed. The creditor or repossession agent is obligated to take reasonable care to keep your personal property safe until you can retrieve it. Specific laws regarding your personal property vary by the state, according to the Federal Trade Commission. For example, in California, repossession agencies must make a list of all personal items found in your car at the time of repossession and notify you within 48 hours. The notification must include instructions on how to retrieve your items.