Since its invention, the vehicle has changed the way we live our lives.  Owning a vehicle gives us the freedom and independence to travel, commute to and from work more conveniently, take the children to and from school and extracurricular activities, etc. For many, owning a vehicle can provide a great sense of pride and accomplishment, as vehicles tend to be the second most expensive asset people purchase next to a home.  As vehicles continue to become more advanced with technology and safety features, it is hard not to get sucked into the concept of buying a newer vehicle that may be more than you can afford.  It is not uncommon for individuals to finance more car than they can actually afford given extended loan terms that make payments seem reasonable. 

The issue that we find is that many individuals are not fully prepared to appreciate the full cost of ownership when it comes to owning a vehicle.  For example, in addition to a monthly loan payment, vehicles require insurance, maintenance and repairs.  Out of warranty vehicles can become quite costly to repair when they start experiencing issues, and oftentimes can lead you to fall behind on your payments.  Further, changes in your income may impact your ability to make your vehicle payment when you are left with having to choose between making your house payment and putting food on the table. The vehicle then takes less of a priority.

When you fall behind on your vehicle payment you are in default on the loan.  In California, a lender can repossess your vehicle after being in default for just one day.  There is no grace period.  Fortunately, there are strict laws in place that must be adhered to before, during and after your vehicle is repossessed.  If any of these rules are not properly complied with, you have the ability to have your vehicle returned.  Further, even after a proper repossession has been completed, you are afforded an opportunity to get your vehicle back before it is ultimately sold off, including saving your vehicle through Chapter 7 or Chapter 13 Bankruptcy.

At Modesto Bankruptcy Attorneys, we have extensive experience in handling vehicle repossession matters and have been successful in helping clients regain ownership of their vehicle and get them set back on a track with handling their vehicle payments and avoiding a potential future repossession scenario.  To further understand your rights and options if you are dealing with a vehicle repossession, we will discuss the main points below.

  1.  What does it mean to have a vehicle Repossessed?

Vehicle repossession refers to the legal act of a lender taking back possession of a vehicle that they have provided a secured loan against.  A lender, who is a finance company, holds a security interest in the vehicle while the borrower makes payments towards paying off the loan balance. The lender remains in possession of the vehicle’s title until the loan is satisfied in full.  If the borrower defaults on the loan, the lender can then begin legal procedures to take back or repossess the vehicle.  In the state of California, there are strict rules that a lender must follow in order to properly repossess a vehicle. 

In general, there are two types of repossession when it comes to vehicles:

Voluntary Repossession - Voluntary Repossession refers to when the borrow voluntarily returns and surrenders the vehicle back to the lender.  This will occur when the borrower realizes that they can no longer continue to afford the vehicle, and are looking to get out of the vehicle as easy as possible.  Voluntary repossession is less common.

Involuntary Repossession - Involuntary repossession refers to the action

taken by a lender to take back possession of a vehicle without the permission of the borrower after the borrower has defaulted on some term of the loan contract.  The default can be something other than a missed payment. This type of repossession is more common than voluntary repossession.

  1. Who Can Repossess a Vehicle?

Under California law, there are two specific authorized groups that can legally repossess a vehicle.  The first authorized group are the vehicle lenders (finance companies) that own title to the vehicle until the loan is paid in full.  The second authorized group are registered repossession agencies, which are hired by lenders to physically repossess a vehicle on their behalf.  It is more common for lenders to hire repossession agents to repossess a vehicle.  In order to be able to lawfully repossess vehicles, both lenders and repossession agencies are required to register with the California Department of Consumer Affairs and the Bureau of Security and Investigative Services.  This is to ensure that those who repossess a vehicle understand compliance with the strict rules that govern repossession and that can face liability for failing to follow the applicable law.

It is important to understand that just because a repossession agent has been properly registered with the appropriate governmental agencies, they don’t then have unlimited authority to repossess a vehicle.  In fact, California law specifically defines how a repossession agent may take back a vehicle and what action they must take. 

First, a repossession agent is not able to enter onto private secured land to repossess a vehicle without the consent of the property owner.  Private land refers to the vehicle owners own property, such as an enclosed driveway, private building such as a garage, or other secured areas with a fence.  Note, if your vehicle is on the private property of another, that property owner is able to grant permission to allow the repossession agent onto the property, even though the vehicle does not belong to them. 

However, in contrast to how repossession agents are required to obtain permission to repossess a vehicle from secured private property, California law allows a repossession agent to repossess a vehicle that is out in the public.  Specifically, a repossession agent can repossess vehicles from public streets, parking lots, and driveways that are not enclosed or gated off.  This means that a repossession agent can take you vehicle from your driveway if it is not closed off in some way.

Further, the borrower does not need to be present in order for the vehicle to be repossessed.  However, if the borrower is present during the repossession, California law gives the borrower the availability to stop the repossession by delivering the full balance of the loan to the repossession agent.  Although this is quite rare, if the borrower does provide payment in full, the repossession agent must return the vehicle back to the borrower, provide them with an itemized receipt, and lastly deliver the payment directly to the lender to clear that loan balance.

  1.    Your Vehicle Has Been Repossessed, Now What?

As previously mentioned, California requires repossession agencies and lenders to comply with strict rules. Within 48 hours after repossession, a repossession agency is required to provide the borrower with certain notices. 

  1. Notice of Seizure - The notice of seizure must clearly state the contact information for the repossession agency as well as the legal owner of the vehicle (lender).
  2. Inventory of Personal Effects - This notice must list all personal effects that were found inside the vehicle, where they are being held and cost for storage of the items. Generally, this will be a secured lot where the repossession agency has towed the vehicle back to.

Once the legal owner (generally the lender) is delivered possession of the vehicle by the repossession agency, the lender must then take specific steps in order to sell the vehicle and attempt to recoup the outstanding debt.  Within 15 days, the lender must notify the borrower either in person or by certified or first-class mail of its intent to sell the vehicle. 

  1. Notice of Intent to Sell - The lender is required to provide notice to the borrower of its intent to sell the vehicle no later than 60 days from the date of repossession. California law specifically requires that the Notice of Intent to Sell clearly notifies the borrower of their right to regain ownership of the vehicle.  A borrower is able to regain ownership of the vehicle and stop the sale process through Redemption or Reinstatement.  Redemption refers to the borrower paying off the full balance of the loan and having title transferred to them.  Although less common, a borrower may choose redemption when they do not owe a significant amount left on the loan and the vehicle’s value is greater than the remaining balance.  In contrast, Reinstatement refers to the ability for the borrower to pay the sum that was in default and bring the loan current.  The borrower would then be current on payments, be allowed to retake possession of the vehicle and would then be responsible for continuing making timely payments until the balance is paid in full. 

In the event that the borrower does not exercise redemption or reinstatement, the lender can then go on to have the vehicle sold.  Generally, the lender will have the vehicle sold at a dealer auto auction where oftentimes the sale price is less than the remaining balance on the loan.  When a lender sells off a vehicle, there are three scenarios that can result:           

  1. The vehicle sells for more than the outstanding loan balance. Although uncommon, in the event that the vehicle sells for more than was owned on the loan, the lender is required to return the surplus amount to the borrow no later than 45-days from the sale.
  2. The vehicle sells for the exact amount that was outstanding on the loan. This scenario is also rather uncommon, however if it does occur, the loan balance is satisfied in full, and no money is due or by the borrower.
  3. The vehicle sells for less than the outstanding loan amount. This scenario is more common, as vehicles at dealer auto auctions tend to bring in wholesale figures, which are less than the retail value of the vehicle.  In this circumstance where the vehicle sells for less than the loan balance, the borrower is liable for the difference.  It is up to the lender to determine what action to take next.  The lender can choose to forego trying to attempt any additional recovery from the borrow, they can choose to make a written demand for the borrower to send payment for the remaining balance, or they can sue the borrow in court for a deficiency judgment.  If the lender chooses to pursue legal action for a deficiency judgment, they are required to file a formal suit in the applicable court, serve the complaint on the borrower, and the borrower would then need to answer the complaint and the legal proceeding would then pursue. 

  1. What Protections Does California Law Provide to the Lender?

Under California law, the Lender is afforded various protections under the law.  First, California law gives a lender the right to repossess a vehicle when the borrower is in default on the loan, even by missing a payment by one day.  Further, there is no requirement that the lender must notify the buyer.  Technically, the lender can repossess the vehicle the day after a missed payment was due.  Second, a lender has the right to repossess a vehicle as soon as a borrower defaults and/or breaches any of the terms of the loan contract.  This includes a missed payment, but also allows the lender the ability to repossess the vehicle if there has been a lapse in the vehicle’s insurance.  Lastly, if the borrower has made all of the unpaid amount, the lender must reinstate the loan and return the vehicle.  However, the lender is not required to reinstate the loan if any of the following occur:

1.The borrower made an attempt to hide the vehicle in an effort to avoid it being repossessed.

2.The borrower falsified information on the loan application.

3.The borrower intentionally damaged or merely threatened to damage the vehicle in order to reduce its value.         

4.The borrower has previously reinstated the loan more times than allowed by California Law.  California law allows a borrower to reinstate a loan once every 12 months and no more than 2 times over the term of the contract.

  1. What Protections Does California Law Provide to the Borrower?

Under California Law, the borrower has the ability to regain possession of the vehicle at multiple stages of the repossession process up until the time that it is sold.  First, a borrower has the ability to regain possession of a vehicle at the time of repossession, by being physically present and providing the repossession agency with payment for the full balance of the loan.  Second, the borrower has the opportunity to regain possession of the vehicle by reinstating the loan after the lender repossesses the vehicle by paying the past due amount and bringing the loan current.  Additionally, the borrower can reinstate the loan at any time up to when the lender sells the vehicle.  Lastly, the borrower has the right to reinstate the loan contract once every 12 months but no more than 2 times over the term of the contract.

  1. The Impact a Repossession Has On Your Credit Score

Having your vehicle repossessed will almost always have a negative impact on your credit score that will be a part of your credit history for the next 7 years.  First, your credit will be impacted by the fact that you have missed and defaulted on your vehicle payments.  Prior to repossession, the lender will most likely have already reported this information to the credit bureaus.  Second, the actual repossession itself will become a part of your credit history, further negatively impacting your credit score.  Additionally, if your lender sued you and was awarded a default judgment against you, that will show up on your credit history as well. 

Can Filing for Bankruptcy Help With a Repossession?

Fortunately, even when you have defaulted on your vehicle’s loan payments and the lender has lawfully repossessed the vehicle, filing for Bankruptcy can still be of significant help. First, since there are specific timelines that the lender must adhere to before your vehicle can be sold, it is critical that you reach out to a bankruptcy attorney right away.  

I. Chapter 7 Bankruptcy - Under Chapter 7 Bankruptcy, although your debts are discharged due to insufficient funds, it is possible to have your repossessed vehicle returned back to you. In order to have your vehicle returned, you will need to cure any default loan balance, and bring your loan back into good standing.  Additionally, the lender may ask you to reaffirm the debt where you agree to remain liable for the debt.

The above scenario, however, is uncommon when a vehicle does get repossessed. In most circumstances, a Chapter 7 is used to deal with repossessions if the borrower does not want (or doesn’t have the ability) to pay for the vehicle. The purpose of filing for Chapter 7 Bankruptcy in this instance would be to eliminate the borrower’s financial obligation on said vehicle. For example, if the borrower owes $23,000.00 on a vehicle, falls delinquent on payments, the lender repossesses the vehicle, ultimately sells it at an auction for $9,000.00, filing for Chapter 7 Bankruptcy and receiving a discharge will eliminate the borrower’s financial obligation on the remaining $14,000.00 deficiency balance.

II. Chapter 13 Bankruptcy - Under Chapter 13 Bankruptcy, the past due loan payments can become a part of your repayment plan, giving you the ability to repay the delinquent amount over a period of 3-5 years, while still maintaining possession of your vehicle. First, once you file for Chapter 13, the automatic stay goes in place and will prevent the lender from being able to sell the repossessed vehicle.  They must return the vehicle to the borrower. If, however, the vehicle has not even been repossessed yet, the lender is disallowed from repossessing it due to the automatic stay being in place.

For example, let’s say the borrower owes $17,000.00 on a vehicle loan and the monthly payments are $550.00 per month. Moreover, let’s assume that the borrower is 3 months behind on the payments. If the vehicle is repossessed, the borrower can quickly for Chapter 13 relief and if done properly, the lender would be required to return the vehicle to the borrower and the borrower would then pay the full balance, $17,000.00 + any accrued fees, over their 3-5 year repayment plan. As you can see, not only would the borrower get the vehicle back, but they also potentially reduce their monthly payment on the vehicle (down to $283.33 per month based on the above example over a year payment plan, without factoring in fees/interest). The same is true if the vehicle is not yet repossessed. The borrower can still accomplish the same thing by filing for Chapter 13 Bankruptcy and developing the 3-5 year payment plan to pay the vehicle off.

If you find yourself in a situation where you are falling behind on your vehicle’s payments and facing repossession by your lender, contact an attorney immediately.  You want to ensure that you choose a well-experienced and competent attorney who can evaluate your options of getting your vehicle back.  At Modesto Bankruptcy Attorneys, our experienced attorneys will evaluate your repossession matter by first looking to see that all legal requirements were followed by the lender and repossession agency, determine if you have the ability to exercise any options to regain possession prior to the vehicle being sold, and ultimately determining if bankruptcy can be utilized to help save your vehicle. 

We help clients in the following areas: Modesto, Stockton, Turlock, Ceres, Empire, Escalon, Hughson, Lathrop, Linden, Manteca, Oakdale, Patterson, Ripon, Riverbank, Salida, Tracy, Waterford.