Before a lender can repossess your car you must have used your car as collateral for the loan and you must have defaulted on your contract with the lender. Usually, when you borrow money to buy a car, you have to use the car as collateral. If you do so and get behind on your payments, your contract will say that you have defaulted and your car may be repossessed. Although your contract with the lender governs the default and the repossession, you still have certain rights under state and federal law.
First, read your contract carefully, especially the part that talks about default. Usually, default is defined as the failure to make a payment when it is due, but many contracts also say that other things may be a default. The most common of these things are: taking the car out of state permanently without permission from the lender, or failing to keep insurance on the car, or damaging the car so that its value is reduced.
Before the contract can be declared in default for not making your payment on time, you must be at least ten days late and the lender must send you a "Notice of Right to Cure" the default. This Notice gives you 20 days to catch up your payments. The Right to Cure requirement is found in Title 37 of the Code. Please note that federally-chartered credit unions are exempt from Title 37, and many federal credit unions will not send a Right to Cure in all cases.
If you do bring the payments up to date, the default has been cured, and you can continue making regular monthly payments. You only have the right to get one "Notice of Right to Cure" for the entire term of the contract. So, if you get behind in payments again, the lender does not have to send you another "Notice of Right to Cure." If you do not bring your payments up to date after you have received the "Notice of Right to Cure," the lender can repossess your car. The lender can repossess the car in either of two ways: by using self-help or by filing a Claim and Delivery lawsuit. If the contract says that the lender can use self-help to repossess the car, he can tow your car from your driveway, the street or your place of work. The law allows the lender to use self-help in repossessing your car, but the law does require that the self-help be peaceful. If you see someone from the lender hooking up your car to tow it away, you can tell the repossession people to stop. When you tell them to stop, any further attempt to tow the car is not peaceful. If the repossession continues, the repossession people risk liability for wrongful repossession.
Besides self-help, the lender can bring a claim and delivery lawsuit to repossess your car. Usually, the lender cannot repossess your car under a claim and delivery lawsuit until the papers are served on you. Also, you usually have a right to a hearing in court before your car is repossessed. However, if the lender has a good reason to believe that you may destroy or hide the car, he can get the judge to allow immediate repossession whether the papers have been served or not.
If your car has already been repossessed, the lender must send you a notice of your Right to Redeem the car and a notice of what the lender intends to do with your car. Both notices usually are included in one letter. Although you have a right to redeem your car from the lender, he can require that you pay off the entire balance of the loan, plus any costs for repossessing your car. Usually you only have about ten days to two weeks to arrange to pay off the car. If you cannot do this, the lender can sell the car and apply the money to your loan.
In the notice of what the lender intends to do with your car, the lender tells you that the car will be sold at private or public sale or that the car will be kept as full payment of the loan. If you have paid 60% of the original loan amount, you have a right to make the lender sell the car within 90 days of the repossession. This is important when you have nearly paid off the car before the repossession because if the lender sells the car, he must use the money received to pay costs of the sale and to pay off the loan. Anything left over must be paid to you.
If your car has been repossessed when the loan is still rather new, sale of the repossessed car may not bring enough money to pay off the loan. The money that is still owed on the contract is called a deficiency balance. A lender can sue you for the amount of the deficiency balance. If the lender sues you for a deficiency balance, he may also be able to require you to pay attorney's fees, repossession costs, repair or clean-up costs, and court costs. If the lender gets a judgment against you for the deficiency balance, the judgment will appear on your credit to pay off the deficiency judgment.
If a claim and deliver or a deficiency action is brought against you, you may be able to raise certain defenses. These defenses include the failure of the lender to give you one of the required Notices, the failure of the lender to sell the car in a commercially reasonable manner, or even a breach of warranty by the manufacturer or seller in some cases. If you do not have one of these defenses, you may still be able to file bankruptcy and keep your car until the bankruptcy court says otherwise. Even if you file bankruptcy, in order to keep the car, you must pay for it.
This information was prepared to give you some general information on the law. It is not intended as legal advice about any particular problem. If you have questions about the law you should consult a lawyer. If you do not know a lawyer, you can call the South Carolina Bar Lawyer Referral Service weekdays between 9 a.m. and 5 p.m. The number is 799-7100 in Richland or Lexington Counties, and 1-800-868-2284 from other parts of the state.