What is Repossession? Do I Have To Be Given Notice That They Are Going to Repo My Car?
In Texas, state law provides that a creditor with a lien upon personal property may repossess the collateral if the debtor (that's you) is in default, that is, if you haven't made payments, if you've failed to maintain insurance on the collateral, or committed some other breach of the underlying contract or security agreement.
The creditor does not have to give you notice of the repossession before they "repo" the collateral. If fact, the creditor is unlikely to give you notice of exactly when or where they intend to pick up the collateral, because they're concerned that you'll hide it or otherwise keep it from them.
One of the most embarrassing moments that I have heard of is the client that I had many years ago that came out of the grocery store, loaded down with babies and groceries, only to find the repo man (now known as "recovery agents") had taken her car while she was shopping. She had waited a little too long to take care of the matter!
Can a Recovery Agent Breach the Peace in Repossessing a Vehicle?
Now, even though a creditor or recovery agent may repossess without notice, and without a court order, he or she is not allowed to repossess if the repossession involves a "breach of the peace." That is, a creditor cannot legally break into your garage to get your vehicle, run you off the road, take it by force, take it over your objection, or the like. Court decisions have held that it is OK for a creditor to repossess a vehicle from a driveway or from a public street, so long as it is done without a breach of the peace. What exactly constitutes a "breach of the peace" depends on the facts of each case.
What if I Hide the Collateral? I Can Trade With A Friend, Or Keep It In My Garage...
Even though a creditor may not breach the peace in repossessing the vehicle, please don't just hide or refuse to surrender collateral to a lienholder indefinitely. You have a duty under the civil law to make collateral available to a lienholder when demanded. If you don't, they may decide to sue you and get a "Writ of Sequestration," a court order that orders a sheriff to basically "arrest" the vehicle pending a hearing.
There is also a criminal statute here in Texas, Hindering Secured Creditors in the Texas Penal Code, which makes it a crime to conceal, remove, or harm, etc. property on which there's a lien with the intent to hinder enforcement of the lien. I imagine other states have similar laws.
I don't get reports that this law is used that much, but it's certainly on the books, so if you're in default and a lienholder makes demand on you for return of the collateral, it's another reason to see a lawyer right away to find out what you should do.
What Happens After a Texas Repossession?
What's the usual result of a repossession? Well, the recovery company takes the repossessed collateral to a storage lot or auction house, where it's stored for a period of time. Under state law, the repossessed vehicle must be sold in a "commercially reasonable" manner.
You must be given reasonable notice of the date, time and place of the sale, which has been interpreted to mean no fewer than 10 days after the date you were given notice of the sale, at the last known address the lienholder had for you.
Be sure to pick up your mail, particularly certified mail, so you know what is going on. "Ignorance is no excuse" applies here. The notice is good, whether you pick up the letter or not, so long as it was properly mailed.
Will I Still Owe Money After The Sale?
Now, this notice of the sale is intended to give you an opportunity to "redeem" the vehicle, that is, raise the money to get it back. Almost without exception, a bank or finance company, whoever has repo'd your vehicle, unless you stop the sale by filing a Chapter 13 bankruptcy or otherwise legally stop the sale, will insist upon you paying the full amount of the debt, plus all expenses of repossessing and storing the car, to get it back.
If you can't (or won't) redeem the vehicle, and you do nothing else, such as file bankruptcy, then the vehicle will be sold, typically at auction, and the proceeds applied to the balance due on the loan, and you still owe the difference between what you owed on the loan, and what the vehicle was auctioned for, and this often is not anywhere near what you could sell it for. Also, the lender tacks on all the costs of repossession, storage and sale fees, etc., etc., and sends you a bill.
Can I Get Sued For The Balance?
If you don't pay, the lender can then file a civil lawsuit against you for this unpaid balance, and if they win or if you don't defend, typically the debt will increase by another one-third to one-half for the lender's attorney fees and court costs. After that, the judgment bears interest until paid. Here in Texas the judgment is good for ten years, and can be renewed every ten years. The judgment remains on your credit report for as long as it is valid.
Options to Avoid Repossession
Now, to stop a repossession, obviously I would suggest that the debt be brought current. Sometimes lenders will agree to defer payments, put them at the end of the contract, or let you pay a payment and a half until you are current, if you'll be able to make payments on time from now on. Perhaps other arrangements can be made, depending on your case.
But if there's no other choice, you may want to consider filing a case under the U.S. Bankruptcy Code. Under either Chapter 7 or Chapter 13 of the Code, the types of bankruptcy cases used by consumer debtors, an "automatic stay" or federal court order goes into effect immediately upon filing the case with the court, which stops repossessions and all other debt collection actions against you in their tracks, by all your creditors. It may even be possible to recover a vehicle, if it has already been repossessed, so long as it has not been sold.
How Does Chapter 13 Help?
Under Chapter 13, a plan can be proposed, which basically combines or consolidates all of your debts, and allows you to pay over a 3 to 5 year period, with any unpaid balance at the end canceled or discharged. And you get the title to the vehicle at the end.
The plan re-finances the car and allows you to pay over a period of time, usually the 3 to 5 year length of the plan. If you've owned the car for less then 910 days (about 2 1/2 years), and the vehicle was purchased for your personal use, you will have to pay the balance due on the vehicle, with an interest rate set by the Bankruptcy Court. If you've had the vehicle longer, you can only pay it's value, plus some interest.
Your responsibilities during the plan are to make your Chapter 13 plan payment and keep the vehicle insured with "full coverage" insurance. And your creditors are required to leave you alone- they can no longer call you, send you bills, or threaten to take your property.
What Happens If I File Chapter 7?
Most people faced with repossession want to keep their car, so Chapter 13 appeals to them. But if you want to surrender the car, but don't want the lienholder coming after you with a lawsuit, you may want to consider filing a Chapter 7 Bankruptcy.
In Chapter 7, all of your debts, with very few exceptions, are canceled. If you are in possession of a vehicle with a lien on it, you must pay for it according to the promissory note or contract that you signed when you bought it, or surrender it to the lienholder.
It may be possible to make other arrangements in a Chapter 7 to keep the vehicle, depending on your case. You do have the right to "Redeem" the vehicle in Chapter 7 by paying the lender what the vehicle is worth, but they can insist upon this money in full and in cash, so you may have to borrow the money to do this Chapter 7 Redemption.
Please note that this Chapter 7 Redemption is a different right than you have under state law, to redeem vehicles after repossession.
Will I Qualify For Chapter 7?
Because of amendments to the Bankruptcy Code that were passed in 2005 (largely written by the credit industry), you may or may not qualify to file Chapter 7. Because of the "means test," some people make too much money to file Chapter 7, so if they seek bankruptcy relief, they must file Chapter 13.
But this is a "high class" problem, and it should not necessarily be looked upon as a bad thing. If you are facing a repossession, you may want to file Chapter 13 anyway, as it is easier to keep your vehicle, if you are delinquent on the payments and facing a repossession, and pay it out over time through a Chapter 13 plan.
I recommend that you hire an experienced attorney to help you file bankruptcy, particularly Chapter 13. It may not seem too complicated from looking a "how-to" books or certain internet sites, but don't be fooled. I have had attorneys that are in debt trouble hire me to help them file bankruptcy. Bankruptcy is a very complicated area of law.
Additional resources provided by the author
For attorneys in your area, you can visit the web site of the National Association of Consumer Bankruptcy Attorneys (NACBA). There is a great deal of information about debt, credit and repossession on the web site of the Federal Trade Commission (FTC). Another excellent organization of consumer attorneys is the National Association of Consumer Advocates (NACA).