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What Happens to Your Debt When Your Car is Repossessed?

What Happens to Your Debt When Your Car is Repossessed?

by

JG Wentworth

July 9, 2024

9 min

Car being repossesse

For most Americans, their car is their lifeline – how they get to work, shuttle kids around, run errands. It’s their prized transportation and a major financial investment. So, having that vehicle unexpectedly repossessed by creditors can bring someone’s entire life screeching to a halt. 

Sadly, car repossessions are far more common than people realize. According to data from Consumer Affairs, over 1.2 million personal vehicles were repossessed by lenders in 2022 alone. And recent years have only seen those numbers rise as inflation soars and more consumers struggle with subprime auto loans or leases. 

While the repo truck showing up in your driveway is undoubtedly traumatic, take a deep breath. You do still have some rights and potential options – starting with understanding if that outstanding auto debt is somehow resolved just by having your vehicle seized. 

This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions. 

Repossession doesn’t make your debt disappear 

For many car owners facing this crisis, there’s an assumption that once your vehicle is repossessed, you’re then freed from having to pay the remaining loan balance. Unfortunately, that’s a myth in most cases. 

Here’s the hard truth: Unless you happen to live in one of a limited number of states prohibiting deficiency balances, that repo’d car won’t make your debt go away. Vehicle repossession is simply a creditor exercising their collateral rights to reclaim the asset securing your delinquent loan. 

But after fees and selling the car at auction, chances are high the resale value won’t cover the full outstanding loan amount. That money you still owe is called the “deficiency balance” – and creditors will absolutely come after you to pay it. In other words, getting your car taken doesn’t give you a free pass – the lender can still legally pursue you to recover that remaining debt. 

Your rights and options when facing a repo 

While being on the receiving end of a repossession is never pleasant, you as the borrower do have some protected rights under state and federal laws like: 

  • Notice requirements: In most states, lenders must send delinquency notices and repo warning notices giving you time to get current before taking your vehicle. 

 

  • Privacy rights: Creditors must follow guidelines like not repossessing at unreasonable times, using force/breaking into private property, or discussing the situation with anyone but you. 

 

  • Redemption period: In many states, you have a short window after the repossession to fully pay off the loan and redemption fees to regain the car. 

 

If redeeming isn’t possible, you may also have options like: 

  • Reinstate the loan: By paying just the delinquent payments and fees, not the full balance, you can opt to become current on the loan again after repo. 

 

  • Avoid fees: Depending on state law, you may be able to contest certain repo fees or the creditor’s failure to properly care for and store the repossessed car before auction. 

 

  • Bankruptcy protection: As a last resort, filing for bankruptcy can put an emergency stay on debt collections, prevent the car from being auctioned off, and potentially restructure payments. 

 

  • Negotiate a settlement: If the car gets auctioned but doesn’t net enough to cover the loan, you may be able to settle the deficiency balance for a lump sum with the lender. 

 

The repo process creditors must follow 

While the creditor does have the contractual right to repossess a vehicle after loan default, there are very strict and regulated processes they need to adhere to: 

  • Send official breach notice: Before any repo can occur, lenders must issue a formal “Notice of Default” letter notifying the borrower they’ve violated the auto loan agreement’s terms. This kicks off the repo timeline. 

 

  • Wait the mandatory period: After that breach notice, there’s a state-mandated waiting period lenders must observe – usually 10-30 days – before they can take further repossession actions. This is meant to give borrowers a final chance to get current. 

 

  • Hire repo agents: If payment still isn’t received after that grace period, creditors can then authorize repo companies to legally take possession of the vehicle from public or private property. 

 

  • Properly store the vehicle: Once retrieved, the lender must adequately store the car in a secure facility and make efforts to contact the borrower about paying outstanding amounts to recover it before auction. 

 

  • Auction off the car: If the borrower can’t get fully current on payments and repossession fees within the allotted redemption period, the lender can put the vehicle up for public auction. 

 

  • Provide debt disposition notice: After auction, the lender must issue a notice explaining how the sale proceeds were allocated against the debt balance. Any remaining deficiency amount at that point can be pursued. 

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Steering you away from vehicle repossession  

If you’re falling behind on payments and are worried about having your car or other personal assets repossessed, JG Wentworth might be able to help. Individuals with $10,000 or more in unsecured debt are eligible for our Debt Relief Program,* which can significantly increase your chances of avoiding the grueling repo process in the first place. 

  • One monthly payment 
  • We negotiate on your behalf 
  • Average debt resolution in as little as 48-60 months 
  • 24/7 support 
  • We only get paid if we settle your debt 

 

If you think our Debt Relief Program is right for you, contact one of our dedicated debt specialists today to go over your options.  

The takeaway 

Having your vehicle repossessed is undoubtedly one of the most stressful events a car owner can experience. But it’s crucial to understand that repo alone usually doesn’t mean your auto loan debt disappears. 

Know your rights, understand the legal process, and explore potential options even after the fact to mitigate the deficiency and financial fallout. Because while getting your ride taken is highly disruptive, it’s certainly not the end of the road in resolving that debt burden. 

 

SOURCES CITED 

Bazen, A., “How many cars are repossessed each year? 2024” Consumer Affairs. February 22, 2024. 

Cheung, J., “Anti-Deficiency Laws.” LegalMatch. January 19, 2024. 

*Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required. 

Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment. 

JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy. 

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