Facing a car repossession can feel overwhelming, but you’re not alone. Many people find themselves struggling with missed payments due to job loss, unexpected expenses, or other financial hardships. If your car gets repossessed, understanding your rights can help you take control and minimize the impact on your life and finances.

What Is Car Repossession?

Car repossession occurs when your lender takes back the vehicle because you’ve defaulted on your loan. Auto loans are secured loans, meaning the car itself serves as collateral. If you fail to meet the terms of your loan agreement, the lender can seize the vehicle without court intervention in most states, including Virginia.

How Does the Repossession Process Work?

1. Default on the Loan: Once you miss a payment, your lender may consider your account in default. The terms of your loan agreement will specify when you are officially in default, though most lenders wait for two or three missed payments before taking action.
2. Repossession Without Warning: In most cases, you will not receive advance notice. The lender hires a repossession company to tow your car from your home, workplace, or public area.
3. Sale or Auction: After repossession, the lender typically sells the car at auction or through a private sale to recover the remaining loan balance.
4. Deficiency Balance: If the sale price of your car doesn’t cover your loan balance, you’ll owe the deficiency balance. For example, if you owed $15,000 and the car sold for $10,000, you would still owe $5,000 plus repossession fees.
5. Credit Impact: A repossession will appear on your credit report for seven years, significantly lowering your credit score. This can make it harder to get approved for future car loans, mortgages, or credit cards.

Once the repossession is complete and the car has been sold, you may owe a deficiency balance. Here’s how lenders typically collect this balance:

1. Demand for Payment: After calculating the deficiency, the lender will send you a demand for payment.
2. Debt Collections: If you don’t pay, the lender may turn the debt over to a collection agency. This can lead to frequent collection calls, letters, and potential credit reporting.
3. Lawsuits: Lenders can sue you to collect the deficiency balance. If they win the case, they can obtain a judgment against you.
4. Wage Garnishment and Bank Account Freezes: Once a judgment is in place, the lender can garnish your wages, freeze your bank accounts, or place liens on other assets, depending on state law. Stopping garnishment can be difficult. 

This process can lead to further financial stress, making it important to address the deficiency balance early, whether through negotiation or legal options like bankruptcy.

How Repossession Affects Co-Signers

If you have a co-signer on your auto loan, repossession will affect them too. A co-signer is equally responsible for the loan, and lenders typically treat both parties the same in terms of liability.

1. Credit Impact: Repossession and any deficiency balance will appear on the co-signer’s credit report, damaging their credit score just as it affects yours.
2. Liability for the Deficiency Balance: The co-signer is fully responsible for paying the deficiency balance if you do not.
3. No Separate Notice: Lenders are not required to send a separate repossession or payment notice to the co-signer. This means your co-signer may not even know about the repossession until their credit is impacted or they receive collection calls.

If you have a co-signer, it’s essential to keep them informed about your loan status to avoid surprises.

Leased Car Repossession: Why It Can Lead to a Large Deficiency Balance

If your leased car is repossessed, the financial consequences can be severe. Lease contracts are structured differently than auto loans, often resulting in a higher deficiency balance.

1. Balance Due on the Lease: When a lease is repossessed, you owe the remaining lease payments and fees.
2. Residual Value: Lease contracts include a residual value/lease buyout, which is the projected value of the car at the end of the lease. When the car is repossessed and sold, the sale price is often far below the residual value, leaving a significant deficiency balance.

For example, if you owe $15,000 in lease payments and the residual value is $20,000, but the car sells for only $10,000, you could be left owing over $25,000 in deficiency balance.

Voluntary Repossession vs. Involuntary Repossession

Choosing to voluntarily return your car to the lender may offer logistical benefits, but the financial and credit consequences are nearly identical to involuntary repossession.

1. Deficiency Balance: Regardless of whether the repossession is voluntary or involuntary, you are still responsible for paying any deficiency balance.
2. Credit Impact: Both types of repossession are reported to credit bureaus, damaging your credit score.
3. Potential Benefits of Voluntary Repossession:
   • You may avoid repossession fees (e.g., towing and storage).
   • You can plan your next steps, such as arranging new transportation.

Ultimately, voluntary repossession is not a solution to avoid financial liability but can provide more control over the process.

How Chapter 7 and Chapter 13 Bankruptcy Can Help When Your Car Gets Repossessed 

If repossession is imminent or you owe a deficiency balance, bankruptcy can provide relief. Both Chapter 7 and Chapter 13 offer options for dealing with car loans and repossessions.

1. Surrendering the Vehicle
   In both Chapter 7 and Chapter 13, you have the option to surrender your vehicle if you no longer want to keep it. When you surrender the car in bankruptcy:
   • You are not responsible for any deficiency balance.
   • The lender cannot pursue you for collection after the discharge.
2. Keeping the Vehicle
   If you want to keep your car:
   • Chapter 7: You may be able to reaffirm the loan, which keeps the loan agreement in place, or you can do a retain and pay, which keeps the bankruptcy protection in place, but you kee the car, if you make the regular payments. Alternatively, you can redeem the car by paying its fair market value in one payment.
   • Chapter 13: You can include past-due payments in your repayment plan and restructure the loan. This can stop repossession and help you catch up on payments over time.

Bankruptcy may also prevent or reverse repossession if filed early enough.

Virginia-Specific Car Repossession Laws

In Virginia, repossession laws favor lenders. Here’s what you should know:

1. Repossession Can Happen After One Missed Payment: Lenders can repossess your car after just one missed payment (basically after you are at least 10 days late with the regular payment), though most wait until at least three payments are missed.
2. No Right to Loan Reinstatement: Virginia law does not require lenders to allow loan reinstatement (pay what is behind). You may have to pay the full balance of the loan to recover your car. The lender can choose to allow a borrower to only reinstate the loan to have the vehicle returned.
3. Repossession Fees: You are responsible for towing, storage, and administrative fees after repossession.

FAQs About Car Repossession

1. Will I receive notice before repossession?
   In Virginia and many other states, lenders are not required to notify you before repossessing your car.
2. Can I get my personal belongings back after repossession?
   Yes. The lender cannot keep or sell your personal items, though you may need to pay storage fees to retrieve them.
3. How long will repossession affect my credit?
   A repossession remains on your credit report for seven years from the date of the first missed payment.
4. Can bankruptcy help if my car has already been repossessed?
   If your car hasn’t been sold yet, Chapter 13 bankruptcy can potentially force the lender to return it. Both Chapter 7 and Chapter 13 can discharge any deficiency balance.

When to Contact a Bankruptcy Attorney

If you’re facing repossession or already owe a deficiency balance, you don’t have to go through it alone. At Ashley F. Morgan Law, PC, we understand how overwhelming debt and repossession can be. Our experienced bankruptcy attorneys can guide you through your options, including:

• Stopping repossession before it happens through bankruptcy.
• Reclaiming a repossessed car if it hasn’t been sold.
• Eliminating deficiency balances and other unsecured debts through Chapter 7 or Chapter 13.
• Creating a manageable repayment plan to keep your car and avoid future financial problems.

We’ve helped many clients protect their assets, regain control of their finances, and rebuild their credit after repossession. Whether you’re in Virginia or nearby, we’re here to provide compassionate, hands-on assistance.

Schedule a Free Consultation Today

Contact Ashley F. Morgan Law, PC to schedule a free initial consultation. We’ll review your situation, explain your options, and help you make the best decisions for your future.

Don’t wait until it’s too late—let us help you get the financial relief you deserve. Do not feel like you need to wait until your car gets repossessed to go over options; if you are struggling to make your car payment, it is best to talk about your options early.

Contact Us or call at 703-880-4881 today!