Repossessed Cars: How Do They Work and What Laws Should You Know?

It's easy to get a car loan these days; however, paying it off is another thing. Once your financial burden becomes so great that paying off your loan is extremely difficult--or even impossible to do--then you're in danger of having your car repossessed.

There are two main reasons why car repossession happens:

First, many car buyers are tempted by those "low-down-payment" schemes that car dealers give. And while they do have the money to pay for the down payment, they neglect to consider the remaining months that they have to pay for their monthly amortization.

Second, some car buyers lose their jobs, affecting their ability to pay off their monthly payments.

How far can creditors and loan holders go, legally?

The balance of power shifts when you can't pay your car loans. The bank or creditor often calls most of the shots here, and is legally allowed to do the following:

They can seize your vehicle.

The Philippines, unlike other countries, doesn't have laws that support "fair debt collection". This means they have the authority to seize your vehicle as soon as you fail to meet your agreed lease or loan as written in the contract (called a default). They are also allowed to trespass your home, although you can talk to your bank and ask them to be more discreet when taking your vehicle.

Whatever the case, it all depends if you will voluntarily give your car up--or not. In the event of a default, the lender can charge against you either of the following:

1. Extrajudicial foreclosure under the Chattel Mortgage Law (Act No. 1508) - if you will voluntarily surrender your car.
2. Judicial Foreclosure of the Chattel Mortgage - if you refuse to give your car up. Initially, the lender or bank can file for a Replevin Case, where the court issues an order and the corresponding Writ of Replevin that allows the  sheriff  to repossess your vehicle under any circumstance. This gives him the power to forcefully remove your vehicle even if it's inside your enclosed property.

They can sell your vehicle.

Your bank or creditor can sell your car at a public auction once they've repossessed your car. Still, you have the right to know what's going to happen to your vehicle, and even take it back once you pay your loan and other expenses incurred in the process of repossessing it.

They can slap you with a "deficiency" charge.

A "deficiency" is any amount (said in the contract) that you still owe your creditor once your vehicle has been sold. There will be a "deficiency hearing", and the bank or creditor has the right to use any of your assets (like your home, saved money, or other valuable possessions) to pay off the remaining amount you still owe them.

That said, while there are many things that a lender is legally able to do, there is one thing that they cannot do, and that is:

They cannot use force against you.

The lender or "repo man" cannot use any form of violence or physical force against you while repossessing your vehicle; neither should they insult or use obscene language at you. They are also forbidden to forcefully seize your personal belongings inside the car-- only car-related accessories are allowed to be taken away.

Process of vehicle repossession

Having your car repossessed undergoes a process. They simply can't just go to your house and get your vehicle as soon as you skipped your monthly payment. The law states they do the following first:

Phase 1: You get a notice from the bank that your car is about to be repossessed, and they're giving you 21 days to act on it.

Phase 2: You will get another reminder notice after 14 days. At this point, you can either pay what you owe, return the vehicle, or allow the bank to undertake through the repossession process.

Phase 3: If no payment is received, your bank or creditor will start the process of repossessing your vehicle. It will be sent to the bank during this phase.

Phase 4: You'll get another notice from your creditor. Still, you're given the chance to take your car back if you fully pay all your debts or find another person to buy your car.

Final Phase: Once no action is taken either from you or a guarantor, then your car will be sold to a public auction after 21 days.

Can you fight your repossession?

The answer to this question is an astounding "YES!"

At any point of the repossession process, you can do any of the following to make sure they don’t take away your vehicle:

• Pay the remaining amount in full
• Work with your lender on a repayment plan
• Get a new loan from another lender and use it as payment for the car.

Even after the car has been removed from your possession, you can still go after the car at the foreclosure auction as long as you have the money to pay for it.

Final Word

Having your car repossessed can be stressful, since you will be pressured to pay off your entire debt. Still, knowing its legal jurisdictions and processes can be valuable, since you will know which options work better for you. Hopefully, your choices will give you the best advantage in the end.

Updated by Wilbert Tan on July 12, 2020

Also read:

What You Need to Know About Bank-Repossessed Cars

How to Negotiate Your Car Loan Rates at the Dealership