What it takes to provoke the repo man
Dear Debt Adviser:
I cannot afford to make my car payment this month. If I
miss one payment, can they repossess my car? I will be able to make
the payment within a month.
It is not likely that your lender will repossess your car
after one missed payment, however, depending on the loan contract
and state law, the lender may have the right to do so.
In many states, the creditor or lessor may legally
seize your vehicle as soon as you default on your loan or lease.
Check your loan agreement and determine what constitutes default
in your state.
If you're in default, your creditor may repossess
the vehicle if it believes you will not honor your loan agreement.
Once repossessed, the creditor may sell your car in either a public
or a private sale to recover a portion of what is owed. Depending
on the laws in your state, you may be entitled to know the date
of the sale.
If you are thinking that it might be best to just
go ahead and let them repossess your vehicle, your troubles will
not be over when your vehicle is sold. In fact, you will be trading
one set of troubles for a worse set. Although the sale of a repossessed
vehicle must be conducted in a commercially reasonable manner or
according to standard custom in a particular business or an established
market, this does not mean the car will sell for the balance you
owe. It only means that the sale price may not be far below fair
You will be responsible for the difference in what
the creditor collects from the sale of your car and the balance
due on your loan. This is called a deficiency balance and your creditor
can obtain a judgment against you in court to collect the deficiency.
For example, if you owe $5,000 on the car and the creditor sells
the car for $3,000, the deficiency is $2,000 plus all sorts of fees
you owe under the loan contract default provisions. So, with this
course of action you end up with the worst of both worlds. You still
owe a payment, but you have no car. I've seen the interest on a
deficiency balance increase dramatically, because the person is
now a bad risk, resulting in a payment not much less than the original
one that can go on nearly forever! As a bonus, your credit report
will show the default and you will have all the expensive issues
that go with bad credit. However, failure to sell the car in a commercially
reasonable manner may give you legal recourse for damages or defense
against a deficiency judgment. But don't bet on getting much satisfaction
from this route. It will involve expensive attorneys, litigation
and more stress than anyone would like.
I've taken you down this dark road on purpose to answer
your question regarding repossession. There is a better route. Now
for the road that I recommend you travel. Contact your lender before
the payment due date and let them know that you are having trouble
meeting this month's payment on time. The sooner you talk to them,
the better your chances of getting a favorable response. If you
already missed it, call anyway before you miss a second payment.
Penalties and fees may take a big chunk out of your next payment
before it is applied, and you could be further behind than you think.
Be prepared to give a firm date by which you will make the payment
and to assure them that the following month's payment will be made
on time. If you have a good story about why you were late, tell
them. It's really none of their business, but it is their money,
so be prepared to explain. In the end they are people too, and often
will cut you some slack if you communicate the whole situation.
Ask about penalties and fees. Ask if they can be waived once you
make the next payment on time.
I do not know why you are experiencing difficulty
making this month's car payment, but it is imperative that you find
out. Your inability to pay a scheduled payment may be a sign of
significant financial problems. You have me worried about the state
of your finances. I hope I have successfully passed that worry on
to you. I recommend that you review the following exercises and
implement any that you are not currently using.
- Develop a spending plan to take control of your
monthly spending. The plan lets you decide how and when to spend
- Begin to put aside three to six months of living
expenses in an emergency savings account. This will take time,
but it will help you avoid using already committed money such
as your car payment for emergency expenditures.
- Determine your debt- to-income ratio. If you are
spending more than 15 percent of your gross monthly income to
satisfy unsecured debt payments (credit card or personal loans),
do your best to pay down the debt as quickly as possible.
- Stop all credit card purchases unless you have
a plan in place to pay off the balance.
There, I feel better already. The rest is up to you!
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: May 30, 2003