Auto Repossession Laws and Credit Reports
I am often asked about auto repossession laws, as a credit attorney, and how a repossession affects credit scores. Well, once your car is repossessed, it can remain on your credit reports for up to 7 years and may significantly lower your credit scores.
Although some may try to dissuade you from doing anything to legally improve your credit, it's important to know that even after repossession you still have rights under the auto repossession laws. Remember, legal credit improvement is not about credit repair scams. It's about using your credit rights.
Legal credit improvement is about exercising your rights to require the credit bureaus, debt collection agencies, and creditors to prove their compliance with the credit laws when reporting your personal credit information. Learn how to fix your own credit or choose a reputable credit repair organization, but don't leave it to chance.
Given the widespread use of credit scores today, your financial future is too important to take for granted. When considering whether legal credit improvement is ethical or not, it's important to note how the Big 3 credit bureaus earn over $4 billion annually from your personal credit information.
Also take note that credit laws were enacted to protect you from inaccurate, unverifiable, and untimely reporting of your credit information. So the credit bureaus, and furnishers of your credit information, are legally obligated to verify its accuracy when reporting data about you.
With this in mind, let's discuss your rights under the auto repossession laws and how you can use them to legally improve your credit.
What happens when a Car gets repossessed?
When your vehicle is repossessed due to non-payment of an auto loan, per the auto repossession laws, the lien holder (lender) may sell your automobile to try to pay off the balance owed. Before the sale of your vehicle, the lien holder, per the auto repossession laws, must send notices to you communicating certain rights, including your right to redeem or buy back your vehicle.
Then, per the auto repossession laws, they must wait a certain amount of time before they can sell your vehicle. Usually the vehicles are sold at auctions. If the lien holder sells your vehicle for less than the total amount you owe, they can charge you the difference between the amount owed on the auto loan, and the amount for which the car was sold. This difference is called a deficiency balance.
The Auto Repossession Laws are on Your Side!
Most State Motor Vehicle Installment Acts and the Uniform Commercial Code provide that a deficiency balance cannot be claimed if the required notices were not given. So if the lien holder doesn't send you the required notices of your right, under the auto repossession laws, to buy back your vehicle, or wait the specified amount of time, then the deficiency balance may be deemed "uncollectible"!
The FTC has rendered opinions that the reporting of a debt on a credit report is considered an attempt to collect a debt. But attempting to collect a debt that is legally "uncollectible," is deemed an unfair debt collection practice per the Fair Debt Collection Practices Act.
Basically, if your creditor did not provide you the proper notices after your vehicle repossession, they may not legally report the repossession on your credit reports. You have the right to require the lien holder to prove they are in compliance with the auto repossession laws or delete the noncompliant negative credit item from your credit reports.
Steps you can take
So if you have a repossession and deficiency balance on your credit reports, you can send a written request to the lien holder asking for proof that the proper notice was sent telling you of your right to redeem your vehicle.
Many times, especially after 2 years, the lien holder may not be able to provide you with the required communications proving that you were given proper notice in compliance with the law. Consequently, they cannot legally collect the deficiency balance or continue the unfair debt collection practices for a debt deemed not legally collectible.
Don't assume you were given the proper notice. You have the right to require proof of compliance with the credit laws enacted to protect you. So learn how to fix your own credit or choose a reputable credit repair organization to help legally improve your credit.
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