When a car buyer finances a vehicle, the vehicle itself is used to secure the loan. If the buyer misses payments, sometimes by being as little as a few weeks late on a single payment, the finance company may exercise its ability to repossess the vehicle. Although the repossession process seems highly mechanised to most borrowers, debtors have several options to postpone or completely stop repossession.
Although the lender has the legal right to repossess a vehicle if the loan it secures is not paid, most lenders exercise this right only as a last resort. The repossession process is very expensive for lenders, as it often involves contracting a professional repossession agency at a hefty cost. Even after the vehicle is repossessed, it must be cleaned and prepared, then sold at an auto auction. The sales price of the vehicle is rarely sufficient to cover the outstanding debt itself, leaving the lender to pay the repossession, cleaning and auction fees from its own profit. For this reason, lenders are generally eager to work with borrowers, even making special unadvertised payment arrangements for borrowers serious about bringing the loan to a "Current" status.
Borrowers who can no longer afford the financed vehicle but do not want to experience repossession may be able to simply sell the car themselves. When informed that a car is for sale, many lenders will delay repossession activity for a short time to allow purchase of the car. After the vehicle is sold, the debtor can use the funds from the sale to pay off the remaining loan balance (and have the title sent to the new owner). Many banks are also willing to work with borrowers to avoid the repossession process and will set up a payment arrangement to cover any unpaid balance after the vehicle is sold.
Although bankruptcy is an extreme measure and is best left as a last resort, a borrower who is unable to reach a satisfactory arrangement with the lender but who does not want to lose the car may consider asking for court protection. When a borrower files bankruptcy, courts immediately issue a moratorium on collection activities, including repossession. In certain cases under Chapter 7 of the bankruptcy code, the court may still require the car to be forfeited. Under chapter 13 code, however, the court may structure a repayment plan between the borrower and the lender, allowing the debtor to retain ownership of the vehicle.
When a borrower uses a vehicle to secure a loan, as is common when financing a vehicle, the lender places a lien on the vehicle's title that ensures its legal ability to repossess the car if the debt is unpaid. Although the specifics of the repossession process are spelt out in the loan agreement, many states have laws regulating when a vehicle can be repossessed and what actions a lender can take to obtain the car (most states prohibit lenders or their agents from entering secured private property to repossess a vehicle, for example). By maintaining familiarity with state and local regulations regarding repossession, a borrower can work to avert the process before the vehicle is taken.