My Car Was Repossessed - Now What?


You've tried to pay your auto loan on time. You fell behind. Now, it's your worst nightmare. Your car was repossessed. Maybe you were left stranded at work. Maybe the trucker took your car right out of your driveway. Whatever the case, you're sans vehicle now, and it's awful. You feel embarrassed, ashamed, and depressed. What are you going to do? There is life after repossession. Here's what you need to focus on now, and it's important.


Stay Calm and Focused, Know The Facts

According to the FTC, in most states, a creditor can seize your vehicle as soon as you default on your loan or lease. Most banks are reluctant to do this because they're not in the auto sales business. They're in the banking business. Still, the bank wants its money and it has many ways to get it.

Your job, at this point, is to stay calm and focused. It's very easy to just sit and sulk, but this is the absolute worst thing you can do. Overcoming the emotional aspect of a repossession is, sometimes, the hardest part. The money is easy. You either can or can't afford to make payments. In that sense, the money is just numbers on a piece of paper (or on a computer screen).

Your creditor may not have to tell you when your car is being repossessed, but they do need to tell you where they took it and when the car will go to auction (if the bank intends to sell it). Some states also mandate that your lender give you the opportunity to reinstate your loan by paying any delinquent amount, plus repossession costs (i.e. the cost of the tow truck and storage).


Contact The Bank To Get Your Personal Property

Once your car has been towed away, the first thing you need to do is call your bank immediately. Many people forget to do this or assume the bank will just hang up on them. Banks won't do that and, if you happen to get a nasty company representative on the phone, call back and ask to speak to a manager. Remember to stay calm, be civil and business-like, and stick to the facts. You are just calling to get your personal property out of the vehicle.

Your bank cannot forcibly keep any of your personal property. It must return it to you upon request, so don't be nervous about demanding it back. If you want to take this one step further, you can also find out where your vehicle is being held. The bank generally isn't allowed to keep this information from you.


Make Tough Decisions

If you can afford your car, ask the bank to reinstate your loan. Your state might require the bank to do this for you. Otherwise, it's up to the bank. You'll mostly likely have to pay all of the towing costs, impound fees, and the total amount you are delinquent on. That's probably a lot of money considering you can't afford the monthly payment (hence the reason it was repossessed). Consider borrowing the money from one of your life insurance policies, asking a good friend or a family member for some money. You can also turn to retirement accounts for a loan. You may be charged a penalty for access to your funds, but it might be worth it.

Having your car taken is bad enough, having a car loan charged off, or being sued for the balance, will be worse.

If you can't afford your car, the best thing you can do is negotiate a payment arrangement going forward (if your bank is particularly generous) or accept the fact that you're going to lose the car. Your bank will likely send the car to auction. If you know anyone in the market for a vehicle, now's the time to sell them on buying one. Your bank might not tell you this, but if it cannot sell the car for an amount equal to your outstanding loan balance, the bank can sue you for the remainder or charge off your debt.

While charging off your auto loan might not sound so bad, consider that the IRS considers any forgiven loan income - and that's precisely what a charge-off does. It allows the bank to effectively "forgive" the loan balance. You get a 1099 for the unpaid balance and, here's the kicker, you get to pay taxes on that amount.


Understand Your Rights

No one likes fooling around with legal issues (unless they're a lawyer), and that's understandable. The legal issues surrounding a repossession can get hairy. Every state has slightly different laws on the books about what your creditors can and cannot do. Furthermore, some states require that you act within a very short time frame if you want to get your vehicle back from the bank. Unfortunately, some lenders and collection agencies take advantage of your ignorance and might not adhere strictly to the letter (or spirit) of the law.

If, at any point, you suspect that your creditor is treating you unfairly, contact your state attorney general's office (source: naag.org/current-attorneys-general.php) or your local consumer protection agency (source: usa.gov/topics/consumer.shtml). These government offices can explain your rights to you so that you can be sure you're being treated fairly by your creditors during this difficult time.