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Can you go jail for defaulting on a car loan?

Ramon Kelly

in Student Loans

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Kaitlin Dean on February 9, 2019

No, unless you try to hide the car in order to prevent it from being repossessed, and even then not in all states.. when you finance or lease a vehicle, the lender has the important rights on the vehicle until you've made the last loan payment or fully paid off your lease obligation. These rights are established by the signed contract and by state law. If your payments are late or you default on your contract in any way, your creditor may have the right to take possession of your car.. Talking with Your Creditor it is easier to try to prevent a vehicle repossession from taking the place of the dispute after. Contact your creditor when you realize that you are going to be late with a payment. Many creditors will work with you if they believe you will be able to pay soon, even if a little late.. Sometimes you may be able to negotiate a delay in your payment or a revised schedule of payments. If you reach an agreement to modify your original contract, get it in writing to avoid questions later. Even so, the creditor may refuse to accept late payments or make other changes in your contract and may demand that you return the car. By voluntarily agreeing to a repossession, you may reduce your creditor expenses that you will be liable to pay.. Remember that even if you return the car voluntarily, you are responsible for paying any deficiency on your credit or lease contract, and your creditor still may report the late payments and/or repossession in your credit report. Seizing the Car In many states, the creditor has the legal authority to seize your vehicle as soon as you default on your loan or lease. Because state laws differ, read your contract to find out what constitutes a "default". In most states, not to make a payment on time or to meet your other contractual duties are considered defaults. In some states, creditors are allowed on your property to seize your car without letting you know ahead of time.. But the creditors usually are not permitted to "breach the peace" in connection with the recovery of the possession. In some states, the removal of your vehicle in a closed garage without your permission may constitute a breach of the peace. Creditors who breach the peace in seizing your car may have to pay if they harm you or your property. A creditor usually can't keep or sell any personal property found inside. State laws also may require your creditor to take reasonable steps to prevent others from removing your property from the repossessed car. If you find that your creditor can't account for articles left in your car, talk with a lawyer about whether your state offers a right to compensation. Selling the Car Once your creditor has repossessed your car, they may decide to sell in a public or private sale. In some states, your creditor must let you know what's going to happen with the car. For example, if a creditor chooses to sell the car at public auction, state law may require that the creditor tells you the date of the sale in order that you are able to attend and participate in the tender. If the vehicle is to be sold privately, you may have a right to know the date in which it will be sold.. In any of these circumstances, you may be entitled to buy back the vehicle by payment of the sum due, plus the expenses related with its repossession (such as storage and preparation for sale).. In some states, the law allows you to reinstate your contract by paying the amount you owe, as well as repossession and related expenses (such as attorney fees). If you reclaim your car, you must make your payments on time and comply with the terms of your reinstated or renegotiated contract to avoid another repossession. The creditor must sell a car repossessed in a "commercially reasonable manner" - according to standard custom in a particular business or an established market. The sale price may not be the highest possible price - or even what can be considered a good price. But a sale price far below fair market value may indicate that the sale was not commercially reasonable.. Payment of the Deficiency A deficiency is any amount that you owe on your contract after your creditor sells the vehicle and applies the amount received to your unpaid obligation. For example, if you owe $2,500 on the car and your creditor sells the vehicle for $1,500, the deficiency is $1,000 plus any other fees you owe under the contract, such as those related to the repossession and early termination of your lease or early payoff of your financing. In most states, a creditor who has followed the proper procedures for repossession and sale is allowed to sue you for a deficiency judgment to collect the remaining amount owed on your credit card or lease.. Depending on the laws of your state and other factors, if you are sued for a deficiency judgment, must be notified of the date of the hearing in the court. This could be your only opportunity to present any legal defense.. If the creditor breached the peace when seizing the vehicle or didn't sell the car in a commercially reasonable manner, you may have a legal defense against a deficiency judgment. An attorney will be able to tell you if you have grounds for objecting to a deficiency judgment.


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