Sometimes, despite your best efforts, you may not be able to pay all of your bills in full each month. Whether it’s an unexpected illness, temporary job loss, or expensive car repair, it’s not unusual for many individual’s expenses to cost more than their monthly income.
Recently on our bankruptcy forum a user asked, “I have a high car payment and I have been making regular payments, but for the last several months I have not been able to pay the full car payment amount. Is the creditor legally allowed to repossess my car?”
Creditor’s rights and car repossession after missed car payment
A car loan is a contractual agreement which outlines the amount of money you must pay each month and the date of payment. If you fail to follow the requirements of the loan, including paying less than the agreed upon amount, you have legally breached the loan contract.
While a creditor cannot repossess something after a contract breach that was not specifically named as collateral for the loan, they do have the legal right to repossess a vehicle named as collateral.
So to answer the debtor’s question, yes, the creditor can come and repossess the car even if the debtor continues to make small car payments. And there’s more bad news- not only can they take the car, they can do so without giving any type of prior notice, and they have the right to auction or sell the car to generate funds and recover the lost money you did not pay. Finally, if they auction the car and are not able to generate enough from the sale to cover the loan balance, you may also be held liable to repay the difference.
How do I negotiate repayment with a creditor for a late car payment?
So what do you do if you cannot pay the full amount of your car payment for a few months? You should contact the creditor immediately. Before you do, however, make sure you know your income and monthly expenses and how much you can afford to repay each month.
Some creditors will be willing to negotiate to avoid repossession and the hassle of reselling your car and potentially taking a loss. Remember, whatever you agree to should be in writing.
Try to sell the car on your own
Another option if you cannot pay your car payment is to try to sell the car on your own. Talk to a creditor before you make this decision because you will need to get them to agree to the sale. The good news is that some creditors may allow you to sell the car, especially if they can eliminate their own expenses trying to sell it themselves.
If the creditor refuses to allow you to sell your car on your own, repossesses it, then sells it at auction for less than you could have sold it for, you may have a strong defense against any potential deficiency judgment.
Refinancing the loan- it may be possible
Another possible option to avoid car repossession is to investigate whether you can refinance your car loan. Although this is not always the best option for all car owners, it may be one way to lower your monthly car payments.
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