When financial difficulties arise, the thought of losing your car, furniture, or other valuable property can be distressing. The possibility of repossession can feel like an immediate and overwhelming threat, leaving you wondering what your options are. It’s a position many people find themselves in, and it's important to know that you're not without legal recourse. By understanding your rights and how legal tools like bankruptcy can help, you can take control of your situation and work toward a more stable financial future.
If you are facing repossession, you need to act quickly. To discuss your legal options and how to protect your assets, contact RHM LAW LLP today by calling (213) 344-0043 or filling out our online contact form.
What Is Repossession and How Does It Work?
Repossession is the process by which a creditor takes back property that was used as collateral for a loan. This most often applies to vehicles, but can also involve other items like furniture, appliances, or even a boat. When you take out a loan for a specific item, you're entering into what's known as a secured debt. This means the item itself "secures" the loan. If you fail to make your payments as agreed, you are considered to be in default, and the lender has the right to repossess the property to recover their losses.
In California, a lender can repossess your vehicle without advance notice once you have defaulted on the loan. Default can mean just one missed payment, depending on the terms of your contract. They do not have to give you a warning before taking the car, and they can do so as long as they do not "breach the peace." This means they cannot use force, threats, or break into a locked garage to take the vehicle. If you're present when the repossession occurs, you have the right to object, and the repossession agent must stop the process to avoid a breach of the peace.
Your Rights After Repossession in California
Even after your property has been repossessed, you still have important rights under California law. The lender must follow a specific process, and understanding these steps can help you determine your next move.
After a vehicle is repossessed, the lender must send you a written notice within 48 hours. This notice should include:
- A statement of your right to get your personal belongings back. Any personal items that were in the vehicle (like a phone or keys) must be returned to you. However, items that are permanently attached to the vehicle, such as a stereo or upgraded rims, are considered part of the car and will not be returned.
- The total amount required to "reinstate" the loan. Reinstating the loan means paying all the past-due payments, along with any late fees and repossession costs. This allows you to get your vehicle back and continue making your regular payments as if the default never happened.
- A deadline for reinstatement. This notice must give you at least 15 days to reinstate the loan and get your vehicle back.
If you can't or don't want to reinstate the loan, the lender will sell the vehicle, usually at a public auction. The proceeds from the sale are then applied to your loan balance, but this often doesn't cover the full amount you owe. The remaining balance is called a "deficiency," and the lender can then sue you to collect it.
The Immediate Power of Bankruptcy: The Automatic Stay
If you are facing the threat of repossession or have recently had your property taken, filing for bankruptcy can offer immediate and powerful protection. This is because a bankruptcy filing triggers something called the "automatic stay."
The automatic stay is a court order that goes into effect the moment your bankruptcy case is filed. It immediately stops creditors from taking any collection action against you. This includes:
- Harassing phone calls and letters
- Lawsuits and wage garnishments
- Foreclosures
- And, most importantly for this discussion, repossession.
The automatic stay provides a critical window of time. If your car or other property has been repossessed but has not yet been sold by the lender, the automatic stay may be able to force them to return it to you. This gives you a chance to breathe, evaluate your financial situation, and work with your attorney to create a plan for moving forward.
How Different Types of Bankruptcy Can Help
The type of bankruptcy you file will determine how you can use the automatic stay to protect your property in the long term. Each chapter of bankruptcy offers a different path to financial relief and asset protection.
Chapter 7 Bankruptcy
Chapter 7 is a liquidation bankruptcy, meaning it can wipe out a wide range of unsecured debts, such as credit card debt and medical bills. When it comes to a secured debt like a car loan, Chapter 7 provides a few options:
- Reaffirm the Debt: You can sign a new agreement with the lender, called a reaffirmation agreement, that allows you to keep the property and continue making payments under the original loan terms. This makes you personally liable for the debt again, so it's a decision that must be made with careful consideration.
- Redeem the Property: You can pay the lender the current market value of the property in a single lump sum payment. This is often a good option if your car is worth much less than the amount you owe on the loan.
- Surrender the Property: If you can no longer afford the payments or simply don't want the property anymore, you can surrender it to the lender. The remaining deficiency balance would then be discharged, or wiped out, in the bankruptcy case, freeing you from that debt.
Filing for Chapter 7 bankruptcy can give you the time you need to decide which option is right for you, and it can eliminate the deficiency balance if you choose to surrender the property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization bankruptcy. Instead of wiping out debts, it creates a structured repayment plan over three to five years. This can be an excellent option if you want to keep your property and are struggling to catch up on missed payments. Here is how Chapter 13 can help with repossession:
- Catch Up on Payments: Your past-due payments on the secured debt are included in your Chapter 13 repayment plan. You can make smaller, more manageable payments on the arrearage over a three-to-five-year period, alongside your regular monthly payments.
- Reduce the Loan Balance (Cramdown): If you purchased your vehicle more than 910 days (about 2.5 years) before filing, you may be able to reduce the loan principal to the vehicle's current market value. This is known as a "cramdown." The difference between the loan amount and the car’s value is then treated as unsecured debt, which you may only have to pay a small portion of through your plan.
Chapter 13 is a powerful tool for stopping repossession, catching up on missed payments, and in some cases, even lowering your total debt on the property.
Taking the First Step Toward Financial Stability
The threat of repossession is a serious and stressful situation. It’s easy to feel like you are out of options, but that is not the case. Understanding your legal rights and the protections that exist under the law is the first and most important step toward regaining control. Bankruptcy is not an end, but a new beginning—a structured path to help you get back on your feet and protect the assets that matter most to you.
If you are a resident of Los Angeles or a nearby Southern California community and are concerned about repossession, it is crucial to speak with a knowledgeable attorney who can assess your unique situation. Our team at RHM LAW LLP is here to provide you with the information and guidance you need to make an informed decision.
We are committed to helping you understand your rights and exploring all available options, including bankruptcy, to secure your property and build a more stable financial future. Don't wait until it’s too late. Reach out to us for a confidential conversation and let us help you find the right solution for your needs.
Schedule a Repossession Rights Consultation
If you are facing the risk of losing your vehicle or other valuable property, don't hesitate. A delay could cost you your assets and your peace of mind. The attorneys at RHM LAW LLP are here to help you navigate this challenging time. We serve individuals throughout Los Angeles and Southern California, providing clear, transparent, and supportive legal counsel.
To learn how bankruptcy can help you protect your property and stop repossession, contact our firm today by calling (213) 344-0043 or by filling out our online contact form to schedule a consultation.