You’re probably familiar with how a car loan works. You get cash from the bank and the bank gets a security interest in your car. There are plenty of other types of purchase money loans, but cars are the most common. You take ownership of the car and pay the loan back over time, with interest. Most car loans last for a few years, and if you make all your payments, that’s the end of the story. If you default on your payments, though, the bank may reclaim or repossess your car in lieu of payment.
When you take out a purchase money loan for a car, you agree to pay the bank a certain sum of money (equal to a portion of the principal amount plus interest) every month. If you miss a payment, you break the loan contract and you’re in default. You may also default on your loan for breaking another clause of the loan agreement, such as a promise to keep insurance on the car. Some loan agreements have a grace period during which you may make your missed payments or otherwise fix the issue before you have any negative consequences. If you make the payment during the grace period, you “cure” your default and the loan will go on as if nothing happened. If your loan contract doesn’t have a grace period or if you fail to cure the default within the grace period, the bank has the right to repossess your vehicle.
Repossession laws in NJ
The thought of repossession is scary. Someone comes to your home and takes your car away, with or without your cooperation. Thankfully, the law carefully regulates the repossession process and repossession practices to make sure you and your property are safe. The bank can repossess your car. It can’t threaten you or damage any of your property.
When you miss a payment, the bank will notify you of the default. They technically have the right to repossess as soon as you miss the payment, but the repossession process is time-consuming and expensive. They’re hoping your check got lost in the mail. If that’s not the case, then they’ll repossess your car. They can go through the court system, but they don’t have to do so. The bank may either repossess your car or “render [the car] useless and dispose of [the car]” on your property. N.J.S.A. 12A9-609.
What can the Repo Man do?
A repo man can simply walk onto your property and take your car. He can’t break in, which means he can’t come through a locked gate or get into your garage. However, it’s illegal to interfere with the repossession process, so if the bank notifies you of your default, don’t lock your car in. If you’re present when the repo man arrives to take possession of your car, you may ask to retrieve any personal belongings from the car. If not, they’ll take your car and everything in it. You’ll have to contact the repossession company to get your personal effects from the car. Call as soon as possible – you’ll have to pay for the storage of your property. The repo man will notify the police when he takes possession of your car so they know it wasn’t stolen. If you’re worried that your car may have been stolen rather than repossessed, contact your local police and ask if they received notification about the repossession.
Repo men cannot damage your property or threaten you in any way, but you can’t fight them, either. If you feel that a repossession agent has mistreated or abused you, keep careful records of your interactions and contact an experienced attorney.
What happens next?
When the bank takes possession of your car, it may dispose of it in any “commercially reasonable” way, which means that it has to sell the car for the highest possible price. After the bank has taken possession of the car, it can dispose of the car in any “commercially reasonable” way. That may mean selling it at auction or in a private sale, but they have to try to get the most for it when they sell it. The bank may choose to sell through a public auction or a private disposition. N.J.S.A. 12A9-610. The bank must notify you of the upcoming sale at least 10 days beforehand. That gives you one last opportunity to redeem your car by paying off your full balance.
In addition to the amount of your loan, you’re liable for the costs of repossessing, storing, and selling your car. They’ll add that to your total balance. If they sell the car for more than the amount of your outstanding loan, they must pay you the excess. If they sell it for less, you’ll owe the bank the amount of the deficiency. Whether the sale results in a deficiency or excess, the lender will notify you afterward.
How can I get my car back?
The best way to keep your car is to avoid having it repossessed in the first place. If you’re going to miss a payment, contact your lender about it and try to work out a different payment plan. If you’re worried your car is going to be repossessed, don’t try to hide it from the repossession agents. It’s illegal and it’s a temporary fix at best. Between the time the bank repossesses your car and the time it sells your car, you have the legal right to “redeem” the vehicle. To redeem, you need to pay off your loan and the fees associated with it. Most people don’t have that much cash on hand, but you may be able to take out another loan with more favorable terms and use the proceeds to pay off the original car loan.
What should I do?
For any loan, if you’re going to miss a payment, contact your lender. They don’t want to go through the repossession process any more than you do. Explain what’s going on and ask to modify the terms of your loan. You may also decide that you won’t be able to make payments anymore and offer to voluntarily surrender your car. You can enter an agreement with the bank to surrender the collateral in lieu of paying the loan. The bank might agree to that arrangement if your car is relatively new and in good condition. If your car still has value, consider selling it privately. You won’t have to pay the fees and charges for the repossession and storage of your car and you’ll probably get a higher price than the bank would at auction.
If you’re struggling with more than just your car loan, you might consider filing for bankruptcy. When you file, you get the protection of the automatic stay. That stops all collection actions, including repossession. You won’t have to worry about someone showing up to tow your car away forever. You’ll probably be able to keep your car and other assets after bankruptcy, too. Once your finances are in order, you’ll be able to make your payments again. If you’re struggling with debt, speak to an experienced bankruptcy attorney about your rights and options.