What happens if you stop paying on your loan?

Answer 1

This depends entirely on why you stop paying. I am assuming that your vehicle is security for a promise to pay...either a loan or a retail sales finance contract. But let's say you purchased credit disability insurance on the debt and you got sick and cant work, and therefore can't pay. In this case the insurance should pick up the payments and the creditor cannot declare the debt in default. THEY CAN'T PUT YOU IN JAIL FOR NOT PAYING. On the other hand, let's say that you have just run out of money and can't pay the monthly payment. The creditor will probably write you a letter saying you are behind and threatening to pick up the car through repossession. If you owe less on it than it is worth, it might be possible to find a buyer who is willing to buy it and pay it off, leaving you with perhaps a little money to boot. But you are not allowed to sell it without either paying it off or getting the creditor's agreement to take the buyer as the debtor and release you from the contract. SELLING COLLATERAL WITHOUT THE CREDITOR'S PERMISSION IS A CRIME IN MOST STATES. If you can't sell it and remain in default for non-payment the creditor has the right to ACCELERATE the remaining payments, which means to call the remainder of the contract due and payable. The creditor has the right to repossess the vehicle without a court order IF THIS CAN BE ACCOMPLISHED WITHOUT A BREACH OF THE PEACE, or may proceed through the courts in what is known as a PERSONAL PROPERTY MORTGAGE FORECLOSURE, REPLEVIN, OR SIMPLY A JUDICIAL REPOSSESSION. If the interest or "time price differential" has been precomputed, acceleration of the balance means that the creditor must refund to the account all of the unearned finance charges, which will reduce the outstanding balance. The refund method may be actuarial, rule of 78ths, or perhaps pro rata, depending on the law and the contract language. The rule of 78ths cannot be used on contracts longer than five years. What is a BREACH OF THE PEACE? Most states say that all you have to do to stop a non-judicial repossession is, in the words of Nancy Reagan, JUST SAY NO, and that will force the matter into court. Most repossession agents will tell you otherwise, but that's the law I always recommend to my clients that if they dont want the vehicle taken without a court order and don't have time to stand watch over it 24/7 they should chain it to a tree or utility pole. But you cannot simply HIDE the vehicle, because that is called "concealment" and may be a crime in your jurisdiction. What if the repo man calls the police and complains that you won't give him the car? Most policemen will properly refuse to get involved because they know that a policeman, being an arm of the State, cannot act without DUE PROCESS OF LAW which means a court order. But some policemen do not know the rules and may side with the repo agent in violation of your rights. Ask the cop to call his supervisor. DO NOT GET IN A FIGHT WITH THE POLICE. THEY MAY BE WRONG, BUT THEY HAVE WEAPONS, AND SOMEONE MAY GET HURT. A VEHICLE IS NOT WORTH YOUR LIFE. If the repo man insists that you be arrested and the cop arrests you the repo company will have to pay through the nose. Unfortunately most repo people live from hand to mouth and a judgment against them plus fifty cents might buy you a doughnut. If you have a claim for wrongful repossession, therefore, you must make it against the CREDITOR, because most states hold that the creditor is responsible for the repo man's wrongdoing and injury to you. If they can't take the car without a court order they will soon file in court and you will have an opportunity to dispute the taking if you have any defense. Once they take the vehicle you will have a choice of a public or private sale. They usually use private (wholesale, dealers only) sales unless you notify them promptly that you want a public sale. At a public sale you can attend and bring bidders. Once the vehicle is in the creditor's (or the sheriff's) possession it must be sold at a COMMERCIALLY REASONABLE SALE. If the vehicle does not bring enough to cover the debt whether you owe a deficiency depends on state law...not federal law. One thing to remember to do if you want to reduce the risk of a deficiency is cancel all non-compulsory services bought with the car, such as credit insurance, extended warranties, GAP insurance and the like.