Car Repossession in Alabama: An Overview
In the context of automobile financing, repossession refers to the process of a lender reclaiming a vehicle due to nonpayment by the borrower. This process typically occurs after the borrower defaults on the loan agreement, typically by failing to make timely payments. Once deemed in default, the lender has the right to take back the vehicle, usually without any further notice or legal action, pursuant to the Replevin section of the Alabama Code of 1975, Section 6-6-221, which allows for the repossession of collateral upon default, so long as there is no breach of the peace. Other breaches of the retail installment sales contract (the Acknowledgement Form)(such as excessive mileage) could also cause default . At the point of repossession, the lender may take the vehicle back and then proceed with selling it at auction.
Because the laws regarding repossession can differ dramatically from state to state, both financial institutions and borrowers should educate themselves about the specific regulations that apply in their jurisdiction. In Alabama, for instance, the repossession process is largely governed by two statutes. The aforementioned Replevin section of the Code, helps define what constitutes default and the repossession process, while the Alabama Commercial Code, Article 9, governs other aspects of secured transactions and creditor’s rights that could have an impact on the repossession process.
Legal Authority for Auto Repossession in Alabama
Generally, a creditor must have a "secured interest" in your vehicle to repossess it. This usually means that you have a purchase money security interest in your vehicle, which simply means that you still owe money on the purchase price of your vehicle. Also, a creditor must have a written security agreement, which states that the creditor has a security interest in your vehicle. A typical security agreement will provide that in exchange for you borrowing a certain amount of money, the creditor will loan you the money, and they will obtain an interest in the vehicle you are buying.
The creditor may become entitled to pledge of your vehicle if you default. The common standard if you default is that you have missed one payment – 10 days for a monthly installment and 3 days for a payroll deduction to be made. However, your loan documents may provide another timeframe. Your documents also may provide that the creditor can take your vehicle following a bankruptcy or other event, but this is less common. In addition to not making your payments, the creditor may be entitled to repossession if you do something else to make them "feel insecure" about whether you will make your loan payments. In other words, if your creditor has reason to doubt that you will continue making your loan, then it may be entitled to repossess your vehicle even if you are current on your payments. violating some other provision in your loan documents (other than your payment terms) about your vehicle: for example, if you let someone borrow the vehicle who doesn’t have the necessary insurance, or if you take the vehicle out state without permission.
Your creditor must give you some notice, typically 10 days, that you have the right to redeem the vehicle to have the loan reinstated. This means that if you pay off your past due monthly installments on your vehicle, your creditor will let you keep your vehicle. Your creditor does not have to provide any type of notice beyond your loan documents explaining the right to redemption, unless your loan documents specifically require a notice beyond what those documents already provide.
Your creditor may be entitled to sell your vehicle at a private sale or public auction, but they can only keep what is owed to them. For example, if you owe the creditor $10,000 on your vehicle and your vehicle sells for $12,000, then you are entitled to the $2,000 excess. If your vehicle sells for $8,000 but you owe $10,000, then you are still responsible for paying an additional $2,000. If your creditor sells the vehicle less than 10 days after sending you your right to redeem notice, they cannot keep the vehicle, but they may be able to keep some of the funds from the sale to cover selling costs. If you never received your right to redeem notice, you are entitled to receive your vehicle back, plus some proceeds from sale of your vehicle, but you are not entitled to the entire proceeds from the sale.
While any creditor has the right to collect a loan, there are bad repossessions as well. A bad repossession can occur when the creditor repossesses the vehicle without complying with the secured transaction laws, such as not sending you written notice of your right to redeem your vehicle. A bad repossession also occurs if the creditor commits an unlawful act, such as breaking into your property to seize your vehicle.
Rights of Consumers in Alabama
Consumers in Alabama have certain rights when it comes to the repossession of their vehicle. First and foremost, repossessions must be carried out lawfully. This means that a creditor cannot breach the peace while recovering their collateral, meaning that the creditor cannot cause a breach of the peace as they repossess the vehicle. The most notable example of this may be instances where the vehicle is physically taken from the consumer’s property or driveway. In addition, creditors who repossess a vehicle must still act in accordance with the law, including notifying the consumer if a backup car is included in the repossession (as the client may want to seek the return of that vehicle), and are not allowed to break into a garage or a locked gate to take the vehicle.
Additionally, except in certain situations regarding small vehicles, creditors must notify the consumer of the repossession within a certain amount of time. If an individual’s vehicle has been repossessed, creditors must provide them with a written notice within 10 days of the repossession informing them that the vehicle has been repossessed, providing them an opportunity to redeem the vehicle. Then within 30 days after the repossession, the creditor must provide a second notice informing them how to redeem the vehicle if the person has not yet done so. Alabama law requires creditors to provide a redemption period of at least 30 days. However, creditors can choose to auction the vehicle to the public as soon as it is repossessed. An auction may occur prior to the redemption period, or it may occur after the redemption period has closed. In order to effectuate the sale at auction, a notice of the auction must be provided to the consumer at least 15 days before the auction, at the address of the person responsible for the loan. Once a motor vehicle is sold at auction, the creditor must within 60 days after the sale be able to show the consumer the amount received from the auction, as well as (if applicable) how any proceeds from the auction were applied toward debt beyond the loan amount. The consumer is entitled to receive a copy of the release of lien within 30 days after the payment is completed (the car loan is paid).
Consumers also have the right to challenge the repossession of their vehicle through certain legal actions. For example, consumers have a right to bring a lawsuit claiming conversion for improper repossession, or they may assert violations of the Fair Debt Collection Practices Act against the creditor(s). However, Alabama has several statutory defenses – such as the "commercial unit" defense or the "cancellation" defense – against the repossession of a vehicle in a repossession lawsuit. These defenses become extremely important when determining whether the repossession was even lawful.
Understanding the Repossession Process
The Repossession Process begins at default, when a borrower has failed to make their car payments. When a lender agrees to loan money for the purchase of a vehicle, they usually retain a security interest in that vehicle until paid in full, regardless of whether there is a purchase money security interest in the collateral. A purchase money security interest gives the lender an extra layer of protection in that they have a greater priority over the vehicle if it is sold or repossessed, but even if the lender does not have a purchase money security interest, they still have the right to repossess their collateral after default. Even if the borrower files for bankruptcy protection, the vehicle is still property of the estate, but the lender will have an allowed secured claim and can get relief from the automatic stay to repossess the vehicle.
Once the borrower has defaulted on their loan, the lender must notify the borrower that their account is past due. The notice must contain the name and address of the creditor, the name and address of the person to whom payment should be sent, the amount due, and a statement that they can cure the default by making their payments. When servicing a borrower’s loan, creditors must grant a grace period each month by failing to report the borrower as being in default.
Once the lender has established that the borrower has defaulted, they can then repossess the car without notice. This is where most debtors see repomans as being a big and bad thing. However, if the debtor is behind in their payments the lender is well within their right to repossess the vehicle out of the blue. In Alabama, self-help repossession has a very strict regulation in that the repossession agent/company must repossess the vehicle without committing a breach of the peace.
There are two ways a lender can sell a vehicle after it has been repossessed. The first way is by a public sale in which the vehicle is auctioned off to the highest bidder as long as the borrower receives proper notice. The notice must be provided to both the borrower and any lien holder with a superior security interest in the property not later than 10 days before the sale. The second way to dispose of the vehicle is by private sale. Neither the borrower nor the lien holder with a superior security interest in the property, needs to be notified of a private sale, however a public sale leaves out any room for ambiguity. If the lender sells the vehicle for too much or for too little they might run the risk of getting sued by the debtor. Ultimately, the lender must obtain commercially reasonable value for the vehicle. After the lender has recovered their account through repossession and sale of the vehicle, they must then apply the proceeds to their account and give a proper accounting. If the sale results in an overage, the lender has an obligation to pay that overage to the borrower. If the lender has not fully satisfied their account and the sale of the vehicle results in a deficiency, they have the right to seek a deficiency judgment against the debtor.
Credit Impact of Car Repossession
When you entered the auto finance agreement, you likely felt confident in your ability to meet your future obligations. Financial hardships happen to most all of us at one point or another. Unfortunately, hardship is also a common reason for car repossession. When a lender takes back a vehicle, they report the repossession to the credit bureaus. If you have fallen behind on your payments, your credit score has been negatively affected. The extent of the damage to the credit score depends on the credit rating of the borrower before the repossession.
The delinquency noted on the credit report will stay on the record and be visible to prospective creditors for up to seven years. After the original account has been charged off, the lender places the outstanding balance on the debtors credit report as a collection account. The collection agency will then take over attempts to collect the debt. Having a repossession on your credit report or credit history negatively impacts creditworthiness. However, a spouse with bad credit may find that a joint auto loan borrower may negatively impact their credit history.
It may seem as though the news is all bad, but fortunately for consumers, there are some ways to recover from repossession and get a better credit score. First, recovering from repossession does not mean you need to pay the remainder of the loan. The key is communicating with the lender and doing everything in your power to come to an agreement . When the debt collector contacts you regarding the repossession, which may be resurfacing after being sent to outside collection, do not ignore them.
If you still have the funds needed to meet payments, continue to pay. If you prefer to be proactive, make sure you request a statement so there is a paper trail to prove your attempts to settle the accounts. There are protective measures that the U.S. Federal Trade Commission has set in place to protect debtors from abusive collection practices.
When you have finally sorted out the auto loan situation, there may be options available to help you recover from a negative credit score. By redeeming the vehicle through a chapter 7 bankruptcy, the debtor will reclaim full ownership. Unfortunately, a chapter 7 can only help in a limited number of circumstances. The debtor must have disposable income available high enough to pay off the loan in full, a luxury that not all debtors possess. In order for redemption to occur, the debtor must be able to pay off the vehicle with cash in full.
Fortunately, there are other ways to improve your credit worthiness and credit score after repossession. When you have satisfied the arrears on the original auto loan or charged off the debt, you can begin the process of getting an auto loan repair after repossession. It is common to have a tough time getting approved for an auto loan again; however, sometimes this works in your favor since lenders who expect the worst make adjustments to entice clients. When you apply for a subprime auto loan, you may be pleasantly surprised what you are approved for.
Preventing a Vehicle Repossession
Avoiding Car Repossession in Alabama
The law in Alabama strongly discourages auto lenders from taking back cars for small delinquencies unless there is no other alternative. If your lender is pushing you toward repossession it is likely because they want to seize your car and sell it at auction. That would allow them to recoup their loan and then some.
Some lenders will try to negotiate a payment or schedule for you if you are falling behind, but others just want you to give up the car so they can resell it. If you are facing repo and want to keep the car, you should take steps to protect yourself such as:
Dealing with a repossession can be a hassle. Companies with contracts that include large dollar amounts will often hire repossession firms to recover vehicles more aggressively than necessary. If you believe your lender is using unlawful tactics that are unreasonable and unfair, you should consider your legal options.
Seeking Help and Guidance
For individuals facing car repossession, legal aid may be available. The Alabama State Bar provides a comprehensive list of free resources that people can access depending on their income and situation, such as those who are elderly, disabled, facing foreclosure or eviction, or residing in rural areas. The Alabama Lawyer Assistance Program also connects individuals with substance abuse issues to the right resources.
Additionally , organizations such as the Financial Counseling Association of America hosts an online debt advice tool to help Alabama bankruptcy lawyers assess whether a client should seek bankruptcy protection, while the U.S. Bankruptcy Court Middle District of Alabama provides a variety of court-based resources.