Under the terms of your agreement, the creditor may not have to tell you that your loan is accelerating. Most agreements have a provision waiving the consumer's right to notice of acceleration.

Accordingly, a creditor can demand that you pay the full amount of the loan and could repossess the car without ever notifying you. Check your agreement. If there is no waiver, the creditor must notify you after default to tell you that the loan will accelerate, and give you a reasonable opportunity to pay the defaulted amount before acceleration.

Even if you waived notice of acceleration in the agreement, you still may get some help from your state laws. Some state laws - usually called "right to cure" laws - require notice before acceleration, and these laws override the waiver provisions of your agreement. Under a right to cure law, the creditor must allow you to pay back payments plus delinquent charges and reinstate the loan within a particular amount of time before the note will accelerate. This means that your creditor would have to give you notice before acceleration AND give you the chance to correct the situation.

If your state does not have a right to cure law and you waived your right to notice in your security agreement, your creditor still may have to tell you about your right to cure the default. The waiver may not stand if there is any inconsistency about a right to notice in other provisions of the agreement. For instance, the waiver would be invalid if there are provisions in your agreement that mention "on demand," implying that you have the right to notice of a right to cure.

State laws may further restrict grounds for default and acceleration and may specify the number of times that you may have the right to cure.

Was the Creditor's Self-Help Repossession Lawful?

If there was a valid security interest, you defaulted on the loan, and the loan accelerated, you risk creditor repossession. In most states, a lender can seize a car without first having to go to court. This is called "self-help repossession." Creditors must comply with many technical requirements to repossess your car in this manner. Some state requirements that may protect you against self-help repossession include:

  • Express consent. Some states do not permit repossession without the consumer's express consent (usually in the signed agreement). You consent if you specifically knew of the creditor's right to repossession and specifically knew that the creditor could repossess your car without having to go to court first.
  • Military personnel or dependents. If you are in the military or are a dependent, you are protected by the federal Soldiers' and Sailors' Civil Relief Act. This law, however, provides only temporary and partial relief. If you bought a car before you entered the military service and default on your car payment while in the military, your creditor must take you to court to repossess the car. However, your creditor can still use self-help repossession to repossess a car that you bought while you were in the military. But you still may be protected in another way: standard military policy requires that any repossessor entering a base must be accompanied by military police. If you are present during a self-help repossession, a court may find that the presence of a military official forced you to consent to repossession, which is wrongful repossession.
  • Native Americans. Native Americans may be protected if tribal law prohibits self-help repossession.

Did the Creditor Breach the Peace During Self-Help Repossession?

A creditor cannot breach the peace when he repossesses a car. Breaching the peace includes many situations, such as:

  • Touching or pushing you.
  • Damaging your property during repossession.
  • Tricking or lying to you, in some states. A few courts have held that laws cannot encourage lying and trickery to repossess collateral. Courts are divided as to whether a repossessor can trick you to take your car. In one instance, a creditor breached the peace when he pulled the debtor's car to the side of the road, rode back with the debtor to the dealership and seized the car while the debtor was inside. In another case, a creditor breached the peace when he lied and said he was a government official. However, some courts have found that there was no wrongful repossession when the creditor lied and said he was taking the car for repairs.
  • Threatening you if you feel immediate fear. For example, a creditor's threat to seize your car at some future time does not put you in immediate fear, so there is no breach of peace.
  • Ignoring your objections. If you, your relative or your friend objects to the repossession but the creditor still repossesses the car, he breaches the peace. You should object at the time the creditor takes the car. If you object after the creditor took the car, it is too late. If a sheriff or other government official is present, don't resist his seizure of the car, but verify the official's authenticity.
  • Entering a closed garage. Even without physically breaking in, a creditor breaches the peace when he enters a closed garage. Generally, there is no breach of peace if the creditor takes the vehicle from the public street, a parking lot, a private driveway, an open garage or a carport. A creditor's trespass can be a breach if there is a potential for immediate violence.
  • Police presence. If the creditor brings a police officer not through a paper of the court and the presence of the officer so intimidates the debtor as to have "forced" him to consent to repossession, the creditor breached the peace.

Your state laws may further limit who can engage in self-help repossession. For example, a state law may permit self-help repossession by licensed personnel, employees of the creditor or automobile dealers only.

If your creditor wrongfully repossesses your car or breaches the peace, depending on your state and its laws, the court may not allow the creditor to keep the car or to collect a deficiency, may stop the subsequent creditor sale of your car and may force the creditor to pay you for the market value of the vehicle at the time of seizure, or pay for damages for your loss of use, mental anguish or inconvenience. You could also be reimbursed for attorneys' fees.

Note: Unsecured Property Repossessed with the Car. Cellular phones, stereos and other items attached to your car can be repossessed only if the security agreement specifically covers these items. The creditor must return personal property and is liable for any loss of use of property or any damages to property while in the creditor's custody. If your creditor seized unsecured property with the car, you should inventory the missing property and demand its return.

If your creditor refuses, you can sue the creditor for the property's value, for your loss of use or for any damages to the property while it was in the creditor's custody.

Did the Creditor Properly Dispose of the Car After Repossession?

After repossession, there are six possible ways that the creditor can dispose of your car.

  • Reinstatement. After repossession, your state law may give you the right to reinstate the contract by paying the amount past due. If this is the case, the creditor must give you notice of your right to reinstate and the amount due. You have a particular time period, usually 15 days following repossession, to reinstate the contract. You may only get one opportunity to reinstate a contract. If the creditor does not comply with reinstatement procedures, he may be barred from later obtaining a deficiency judgment and may even owe you money.
  • Redemption. Every state gives you a chance to redeem your car by paying off the entire loan plus reasonable repossession and storage charges at any time before your creditor sells or otherwise disposes of the car, even if you had voluntarily surrendered the car. A written waiver of the right to redeem is ineffective unless you signed a written waiver AFTER you defaulted on the loan. Unfortunately, this right to redeem does not help most consumers who have their cars repossessed due to money troubles and cannot come up with a large lump sum of money. Before you redeem, you should know the loan amount, repossession fees, costs associated with the sale, and reasonable attorneys' fees and legal expenses. If the debt has accelerated, the creditor is not entitled to unearned interest or insurance payments that are not owed because the note has been paid off early.

    Remember: you may be better off buying your car at the repossession sale than redeeming. The sale price at a creditor sale may be less than the amount you owe. However, you will still be liable for any amount of your loan obligation and repossession costs that are greater than the sale price of the car (the deficiency).
  • Strict Foreclosure. Your creditor could keep your car in satisfaction of your obligation, which is called "strict foreclosure." If your creditor elects strict foreclosure, you would not owe the creditor any payments, although your creditor can keep all prior amounts that you paid. If the creditor intends to elect strict foreclosure, he must tell you in writing. You can object to strict foreclosure in writing within a certain amount of time, depending on your state, usually within 21 days of the notice. You should object to strict foreclosure if you believe that you or the creditor could get a sale price that would cover the remaining amount that you owe plus any repossession, reconditioning and sale costs.

    If your creditor has repossessed your car but has not disposed of it in any way, it may no longer be worthwhile to sell the car. You can argue that the creditor, in effect, elected strict foreclosure because his holding onto your car for so long made a subsequent sale commercially unreasonable. This is called "constructive strict foreclosure." If you successfully argue constructive strict foreclosure, your creditor would not have a claim to any deficiency. Even if you live in a state that does not have laws on constructive strict foreclosure, many courts will treat the creditor's repossession as extinguishing the debt for the value of the car if they do not dispose of the car within a reasonable period. (See "delay of sale" under the discussion of Creditor Sale).

    If you have paid at least 60 percent toward the car, your creditor cannot elect strict foreclosure.
  • Judicial Sale. A creditor could dispose of your car though judicial sale. A creditor will rarely do this since it adds extra court costs and a creditor can generally sell the car without having to go to court first.
  • Consumer Sale. Your creditor may allow you to sell the car. You should take advantage of this if you believe that you can get a better price on your own. In fact, it may be unreasonable for a creditor NOT to let you sell the car if you can get a much higher price than your creditor.
  • Creditor Sale. The final way that a creditor can dispose of your car is by selling the car at a public or private sale. During the sale of your car, the creditor must follow certain rules. If the creditor does not, you can sue the creditor to stop the sale and to recover money damages. Two of the most important rules are: (1) the creditor must give you notice of the sale, and (2) the sale must be "commercially reasonable." Both of these rules are discussed in detail below.