California Repossession Law: What to Expect and How to Avoid It

When a creditor comes to repossess your car, boat, or other property, do you know what to do?

Creditors generally retain the right to repossess the property you acquire with a purchase money loan. Keep in mind that the same applies to any property that is collateral for a loan. So, you borrow money to buy a car and the car secures the debt. If you stop paying, the lender can reclaim the property. The lender may choose to sue and get a judgment against you, but it’s not required as long as the repossession doesn’t breach the peace.

Here’s what you need to know about California repossession laws.

California Repo Laws: When can a creditor repossess my property?

In California, the lender may repossess your car as soon as you default on the loan, even if the payment is just one day late. The specific terms of your loan agreement may give you a grace period, so read it carefully. (Details here: Cal. Com. Code §§ 9601, 9609). In addition, the lender is entitled to repossess after default of any kind on the loan agreement. That means that not only is your car at risk if you miss a payment or pay late, but if you break another term of the loan agreement. For example, auto loans typically require that you keep the car insured. If you allow your insurance to lapse, your lender has the right to repossess.

How Does Repossession Happen?

You don’t have to be present for the lender to repossess your car. They can take the property from any publicly accessible area, including your driveway. However, repossession must be done without “breaching the peace” (no force or threats, and they can’t take the vehicle over your oral objections). A repossession agent also can’t break into a closed garage or other secured area or cut locks to get the vehicle without permission from the legal owner of the property (you or your landlord).

Of course, just because the lender has the right to repossess doesn’t necessarily mean that it will do so. It’s much easier and cheaper for the lender if you simply continue to make your payments. They’ll usually only act to repossess if they believe that you’re not going to pay or that you’ll destroy the collateral.

Who can repossess property?

In California, two different types of individuals may repossess your car. First, your lender may hire a repossession agency. Repossession agencies must be licensed by the California Department of Consumer Affairs’ Bureau of Security and Investigative Services (BSIS). They must show you a BSIS ID if you ask for it. You can verify the license online or call BSIS at (916) 322-4000. An employee of the legal owner (probably the bank or the dealership) may also repossess the property. They don’t have to be licensed by BSIS.

What Happens after Your Car is Repossessed?

After repossession, the repossession agency must inventory and store your personal effects, and you generally have the right to retrieve them. The agency may charge a storage fee for personal effects only if that fee is disclosed on the required Notice of Seizure. Some loan agreements may also require you to pay the costs of repossession and storage of the car itself.

After repossession, you may have a short time in which to redeem your vehicle. If you don’t do so, the lender will sell your car at auction. If the amount they receive isn’t enough to cover your outstanding loan balance plus any costs you’re responsible for, they may be responsible for the difference. This is called a deficiency balance.

See also: Voluntary Repossession: Is It a Good Idea?

Is there a statute of limitations on repossession?

You’ve lapsed on your payments, but no action has been taken by your lender to actually repossess your property – does this mean you’re in the clear due to a statute of limitations? Not quite.

In California, lawsuits on written auto loan contracts generally have a four-year statute of limitations (Cal. Code Civ. Proc. § 337). That means if more than four years have passed since your last activity on the account, the lender can’t compel you to pay the debt. But that defense is only relevant if the lender attempts to sue you for payment of the debt. Repossession of a vehicle can happen at any time during which you have an active lien on the account, even years later. And the lien typically stays in place until you have paid the loan in full.

How can I avoid repossession in California?

If you honor all of the terms of your loan agreement, the lender cannot repossess your car. If you default on one or more terms, you are at risk for repossession. There are, however, steps you can take to prevent it.

Reinstate the Loan

If you’ve missed one or more payments, the best option is pay all of the missed payments and all applicable late fees at once. This is called “reinstating the loan” or “curing the default.” Your loan agreement may or may not include provisions for reinstatement, but California law generally provides a right to reinstate even after repossession, as long as you act within the reinstatement period (typically at least 15 days after the lender’s Notice of Intent to Dispose). If you falsified information on your loan agreement, hid the car, used it to commit a crime, damaged the vehicle, or threatened violence against the repossession agent, you lose the right to reinstate the loan. In addition, you can only reinstate a loan once every 12 months and a maximum of twice over the course of the loan.

Contact Your Lender

If you can’t afford to pay all of your missed payments and late fees at once, you may reach out to your lender to ask for other options. Repossession is time-consuming and expensive and many lenders will be willing to work with you to avoid that option. You may be able to negotiate a longer grace period or a lower interest rate, which will make payments easier. Or, your lender may allow you to skip a payment or two and move them to the end of your loan.

Sell the Property

You may choose to sell the car yourself. If your car is repossessed, the lender will dispose of it at auction. If the car sells for less than you owe, you’re liable for the difference. If you organize a private sale, you’ll probably get a better price than you would at auction. Selling the car may be difficult, though. It will require the approval of your lender and they can refuse the sale for any reason or no reason at all. However, you may be able to use the lender’s refusal to protect yourself from liability for the deficiency if they receive less at auction than your private buyer offered.

Surrender the Property

You can also choose to surrender the car. You still lose it, but you may be able to negotiate a surrender as full payment of the loan. Then you won’t have to worry about a deficiency after the auction.

Refinance Your Loan

You can offer to refinance through the original lender or through a different lender. A refinanced loan will usually have a longer term, which means you’ll be paying more interest overall. If you choose to refinance, make sure that you can afford your new loan. Make sure it has a lower interest rate than your current one and don’t forget to check the fees. Consider also whether it’s worth refinancing. A new loan may last three to five years or more. If your car is already older, it may not be worth refinancing.

How long does a repossession stay on your credit report?

Repossession is scary enough on its own, but when you figure in the idea that this could have lasting credit implications, the pressure can seem higher than ever. A car repossession will stay on your credit report for 7 years. This 7-year figure is determined by the date at which the account first became delinquent and was never brought current.

In the event of a car repossession, this means that the credit mark will be removed 7 years from the date of the first missed payment that leads to the car ultimately being repossessed. Considering there’d be no account activity (and by extension any opportunity for the account to become positive again), the entire account that the car loan was handled through would be deleted from your credit score as a whole after those 7 years had passed. You won’t need to submit any requests to have this information removed, the process is handled automatically.

Your lender will more than likely do their best to try and get you to make a payment, but be warned: while a payment generally does not restart the 7-year credit reporting period for the repossession/charge-off — that timeline is tied to the account’s original “date of first delinquency” that led to the negative event–making a payment can re-set the statute of limitations clock.

If you’re considering paying, ask the lender/collector to confirm in writing how the account will be reported, and consider speaking with an attorney before making any moves.

File for Bankruptcy

If you’re having trouble with more than one loan, bankruptcy may be a good option for you. When you file for bankruptcy, you get the protection of the automatic stay. The automatic stay temporarily stops all collection actions against you — including repossession. The bankruptcy process will give you some time to organize your finances without worrying about waking up and finding your car has been repossessed.

Most debtors can keep their cars and other property through bankruptcy. In addition, you may only have options that will allow you to save money. For example, if you’re underwater on your loan, you may be able to reduce the amount of the loan in Chapter 13 bankruptcy.

Bankruptcy is a serious measure for serious debt problems, so reach out to an experienced bankruptcy attorney to discuss whether it’s the right choice for you.   If your car has been repossessed, but not yet sold at auction, you may still be able to get the vehicle back through a Chapter 13 bankruptcy.

Don’t let repossession take you by surprise.

Whenever you take out a loan, read the entire agreement carefully, and make sure you understand everything in it. It will include details about a grace period and the steps your lender will take if you miss payments. If you are going to fall behind on your payments, start considering your options for avoiding repossession. The earlier you act, the easier it is to keep your car.

If you have missed several payments on your loan and are facing repossession, contact one of our qualified Los Angeles attorneys at Borowitz & Clark.

Frequently asked questions regarding repossession in California