Car Repossession: Notices the Lender Must Provide

Learn what notices your auto loan lender must provide during the car repossession process.

By , Attorney · University of the Pacific McGeorge School of Law

If you're behind on your car payment, your car loan lender likely has the right to "repossess" or take your car, and in many states, the lender doesn't have to tell you before doing it. However, lenders in every state must tell you when they plan to sell the car by sending you a notice at least ten days before the sale date. Whether your lender must tell you how to get your vehicle back or provide other information will depend on where you live.

Below you'll learn more about car repossession, including:

  • what car repossession is and the process involved
  • notices lenders often send when repossessing a car, and
  • how to prevent repossession or get back a repossessed car.

You'll find links to more information about car repossession, lender notices required by state law, and keeping vehicles using bankruptcy throughout the article. A local attorney can advise you on your specific rights.

What Is Car Repossession and When Does It Happen?

Car repossession occurs when a borrower doesn't pay a vehicle loan as agreed, and the lender exercises the right to take back the financed car. The ability to repossess a vehicle protects the lender from loss and can extend to other borrower responsibilities. For instance, a lender might have the right to repossess a financed car if the borrower doesn't maintain auto insurance.

Learn more by brushing up on car repossession and auto loan charge-offs.

How the Car Repossession Process Works

When a borrower falls behind on a car payment, the lender makes arrangements to have the vehicle picked up and sold at auction. Once sold, the lender applies the sales proceeds to the borrower's loan balance.

The lender must follow state law when repossessing a car, and the requirements vary by state. However, many states offer somewhat similar protections.

How to Keep Your Car From Being Repossessed

If you've fallen behind on your payment, but you still have the vehicle—or even if you just lost the car and can act quickly—try the following:

Negotiate a new payment plan. Call the lender and explain you're having a problem paying your loan. The lender might waive the late payments and move them to the end of your loan period. Or, the lender might lower your monthly payment or adjust the interest rate.

File for Chapter 13 bankruptcy. The "automatic stay" in bankruptcy stops the repossession process. Chapter 13 bankruptcy lets you pay past-due amounts over five years and keep the car, and sometimes you can pay less than you owe using Chapter 13's "cramdown" tool. Learn more about stopping a car repossession by filing for Chapter 13 and find out how to calculate a Chapter 13 payment plan.

File for Chapter 7 bankruptcy. But know that Chapter 7 bankruptcy isn't the best chapter to save your car. Even so, some options are available. If it's worth less than you owe, you can "redeem" it by paying the total value in one lump sum payment. Most filers ask a friend or family member to lend them the money or turn to a lender specializing in bankruptcy redemption loans, but you should expect the interest to be high.

Another route? If the lender is willing to renegotiate your payment terms, you can enter into a new contract or "reaffirmation agreement" in Chapter 7 and keep the car. However, lenders aren't required to negotiate, so it's best to hammer out the details before filing for bankruptcy.

Also, there are more things filers must do to keep cars in bankruptcy, so be sure you understand the limitations involved—especially if you're hoping to save your vehicle from repossession using Chapter 7 bankruptcy.

Notices Lenders Send During the Car Repossession Process

Sometimes you can't stop the repossession process right away. Even so, you'll want to understand your options. Many states require lenders to explain repossession rights to borrowers by sending out letters or "notices." Be sure to read them. Here are a few routine repossession notices you might receive, depending on your state's laws:

  • Acceleration notice. This notice informs you that the total loan amount is due because you defaulted by missing a payment.
  • Notice and opportunity to cure. If you've fallen behind on your payments, you'll be notified of the deadline to pay all past-due amounts or the entire loan balance to avoid repossession.
  • Redemption notice. Some states allow borrowers to pay to get a car back after repossession.
  • Post-repossession notice. This notice tells you when the lender will sell your car at auction.
  • Deficiency notice. Cars often don't sell for what the borrower owes, and a deficiency balance tells you how much remains due.

We explain each notice in more detail below.

The Lender Sends an "Acceleration" Notice When the Entire Car Loan Is Due

An "acceleration clause" lets the lender collect the entire loan amount after you miss a payment. If you don't pay as agreed, you lose the right to a payment plan and must pay the total owed.

For example, suppose your loan balance is $10,000. If you miss your $500 monthly payment, an acceleration clause lets your lender demand $10,000 immediately, and if you don't pay up, the lender can repossess the car.

Some states prohibit a lender from accelerating a loan without notice, but most lenders send an acceleration notice even if state law doesn't require it. But it's not to be "nice."

First and foremost, the lender wants your money, not your car. So if you receive an acceleration notice, try talking with the lender. Many lenders will willingly listen to your situation and negotiate new terms with which you can comply.

A "Cure" Notice Tells You How Much to Pay to Prevent Repossession

Some states require a creditor to give you time to pay before repossessing the car. An "opportunity to cure" notice must explain the amount due and the payment deadline. The total outstanding loan balance will be due if the lender accelerates your loan. Otherwise, the total will equal your past-due payments and allowed fees.

Some opportunity to cure notices contain more information, including:

  • when a late payment becomes a default
  • the deadline to pay the default
  • when the lender will repossess the vehicle, and
  • if the lender is exempt from notice requirements.

If you previously defaulted on the loan, fixed or "rehabilitated" it, then defaulted again, the lender might not send a notice explaining your cure rights after the second default. Some states only require the lender to send this notice once.

A "Redemption" Notice Explains How to Get a Repossessed Car Back

Most states give you time to "redeem" your loan by paying what you owe after the lender repossesses your car. The notice explains the amount you must pay by the deadline date and other terms.

You'll likely have to pay the loan in full, which many borrowers can't do. However, Ohio and a few other states let you get your car back if you can pay the past-due installments. Learn more about what your lender must do after car repossession and the differences between reinstatement and redemption.

A "Notice of Sale" Tells You When the Lender Will Sell the Repossessed Car

Every lender must tell you when your vehicle will be sold. The notice should go out at least ten days before the sale date, and it will probably contain:

  • your vehicle's description
  • the time, date, and location of the public auction
  • how to get an accounting of the amount owed, and
  • how to find out more about the upcoming sale.

If the car sells for less than you owe, you'll pay the difference or "deficiency" balance, plus sales costs. Learn more about deficiency balances after repossession.

A "Deficiency" Notice Explains How Much You Owe After the Lender Sells a Repossessed Car

After selling the vehicle, the lender must send you a notice listing the vehicle sale amount and repossession expenses. Also, the lender must tell you if you have a deficiency balance you must pay or if the lender sold the car for more than what you owed and is sending you a check for the surplus amount.

The lender can't try to collect the deficiency until sending this notice, and you might not be liable for a deficiency if you don't get the sale notice. An attorney can explain your rights and whether you're entitled to additional compensation.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

You'll find fillable, downloadable bankruptcy forms on the United States Courts Bankruptcy Form webpage.

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

More You Might Like

Will Chapter 7 Prevent a Car Repossession?

Your Car in Chapter 13 Bankruptcy

Deficiency After Car Repossession: Will I Still Owe Money?

Will Filing for Bankruptcy Get Back a Repossessed Vehicle?

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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