In Minnesota, having a vehicle is practically a necessity, especially in the winter months when snow and ice can make even the simplest commute a challenge. During this time of year, the last thing anybody wants to receive is a letter threatening repossession. It is possible to stop a lender from repossessing a vehicle, but to do so, you must act quickly.

WHAT IS REPOSSESSION?

Cars and trucks are often financed by taking out a loan. As part of the loan agreement, the lender requires the purchaser to sign a security agreement which gives the lender a lien on the vehicle. This lien is a security interest in the vehicle that is tied to the loan, and gives the lender the right to take back the vehicle and sell it if the borrower doesn’t fulfill the terms of the loan agreement. Repossession is the act of taking the vehicle back so that it can sell the vehicle and try to pay off the loan.

HOW DOES REPOSSESSION WORK?

The loan agreement that the lender and borrower sign when the borrower purchases a vehicle lists the things that the borrower must do in order for the loan to remain in good standing. These things, called terms, detail important parts of the loan, such as how much the borrower has to pay each month, what the interest rate and number of months of payments will be, and requiring the borrower to keep adequate insurance coverage on the vehicle. If the borrower fails to comply with these terms of the loan agreement, then the loan agreement provides that the loan will be “in default” and states what the lender can do about it. The most common reason for a car loan going into default is missed payments. Usually, most loan agreements provide that when payments are 90 days behind, the loan will be in default, and the lender can then repossess the vehicle.

WHAT RULES DOES THE BANK HAVE TO FOLLOW?

Once a car loan is in default, the lender can repossess it. But even if your loan is in default, the lender must follow certain rules in order to repossess it:

• If the lender has accepted late payments from you in the past, they must send you a letter telling you that they will no longer accept late payments going forward.  
• The agent repossessing the vehicle on behalf of the lender cannot “breach the peace” in repossessing the car. This means they cannot threaten you or use actual force to repossess your vehicle.  
• Repossession agents cannot enter a closed garage to repossess a vehicle without a court order.  
• Repossession agents cannot cause damage to property to accomplish a repossession.

WHAT HAPPENS AFTER A VEHICLE IS REPOSSESSED?

After the car has been repossessed, the lender must send the owner a letter telling them how much the owner has to pay to get the vehicle back and when the deadline to do so is, and then tell the owner where, when, and how it intends to sell the vehicle. The lender at this point does not have to let the owner simply catch up on the loan – they can demand that the owner pay the loan in full to get it back. However, it is worth asking if the lender will give the vehicle back if the owner pays the past-due amount plus repossession costs and fees to bring the loan current.  Some banks and credit unions will agree to this, and some will not. 

After the vehicle has been sold, the lender must send the owner a second letter informing them of when the vehicle was sold, how much it received, and what additional costs may have been incurred in the repossession and sale process. The lender must also tell the owner how much, if anything, is still owed on the vehicle loan. It is unfortunately all too common that the high fees lenders charge for repossession combined with the low auction prices result in the borrower owing money to the lender after the repossession.

HOW CAN I PREVENT A REPOSSESSION?

If you notice that the lender intends to repossess your vehicle, you must act quickly – the time between the notice being given and the repossession truck starting to look for your vehicle is only a matter of days. There are several ways to prevent a vehicle from being repossessed: 

One option is to refinance the car or truck with a different lender. You may be able to refinance your vehicle with a different lender, which will make the loan instantly current. As a bonus, you may even get a lower interest rate and/or payment on the new loan.  

Another option is to sell the vehicle to capture any equity. This can work if the vehicle is worth more than you owe. Instead of letting the bank reap any equity in the vehicle (which is rare because of all of the costs and charges for repossession that they tack onto the loan), you can sell the vehicle and keep any equity after the loan is paid off, or trade the vehicle in on a different vehicle, using the equity as a down payment. You may come out ahead if you sell or trade in the vehicle to take advantage of any equity once the vehicle loan is paid off.  

Another option is to file bankruptcy. Filing bankruptcy instantly stops the repossession process and gives you a second chance. The moment a bankruptcy is filed, the automatic stay comes into effect. The automatic stay is a temporary halt to all collections activity which prevents creditors from continuing to collect on debts that are owed to them. This means that the lender cannot try to repossess your car unless and until it gets special permission from the bankruptcy court to do so or your bankruptcy case ends.

If you file a Chapter 7, you will have typically 60 days after the automatic stay goes into effect to catch up the loan. During this time, the lender can’t try to repossess the vehicle. However, if you don’t catch up the loan during this time, the lender can get special permission from the bankruptcy court to resume the repossession process. Whether the lender seeks special permission or not, approximately 90 days after the automatic stay goes into effect, the automatic stay terminates and the lender can resume the repossession process if the loan is not then current.  

If you file a Chapter 13 bankruptcy, then you can use the Chapter 13 process to catch up the car loan delinquent payments over time. Also, it is sometimes possible to reduce the interest rate on the vehicle loan to make it less onerous to pay on, stretch out the amount of time to pay on the vehicle loan, or even reduce the amount that you have to pay on the loan to pay it off.  

Because of the short timelines between when you learn that a lender is seeking to repossess your vehicle and when the vehicle is sold after repossession, it is very important to take action quickly. Call us if you think your vehicle is in danger of being repossessed.  

If you file bankruptcy quickly after the vehicle has been repossessed, you can still get your car back. You have to act quickly, however, because once the vehicle is sold by the lender, it is gone.  

If you still owe the lender money after the vehicle has been repossessed and sold, the lender can and will usually sue you to collect this amount, called the deficiency.