Car Repo Rules

Car repossession is a contractual right often established by creditors in loan or lease agreements. These rights are most often invoked when payments are late or stop before the owner or lease holder's financial obligation to the creditor is fulfilled. States have varying laws as to when and how car repossession may be undertaken. However, there are general rules of repossession one should know if it become a possibility.

Seizure

According to the Federal Trade Commission, a creditor has the ability to repossess a vehicle once the driver has defaulted on his debt. Contracts will often define what constitutes defaulting on a lease or loan.

Resale

Creditors who have repossessed vehicles may decide to keep the vehicles to satisfy the remaining debt and in turn resell the vehicle. According to the FTC, creditors in some states must inform the former car owner what will happen to the repossessed vehicle. Other states have a mechanism by which owners may reclaim their cars by getting the payments up to date. Vehicle owners are also responsible for repossession costs, so those often must be paid as well before a vehicle may be reclaimed.

Payment

If the vehicle is repossessed and resold, it doesn't necessarily mean the debt is cleared. If the vehicle is sold for less than the remaining debt on the lease or loan, the borrower is responsible for that debt.

Personal Property

Personal items in a repossessed vehicle remain the property of the car owner. Creditors are responsible for identifying and returning personal property and, in some states, are responsible for safeguarding those items according to the FTC.

Voluntary Repossession

People who have defaulted on their car lease or loan may have their vehicle voluntarily repossessed to the creditor. Although this reduces the cost of repossession for which the car owner is responsible, it doesn't ensure that the car could be reclaimed or that the car repossession won't be added to the owner's credit report.