Repossession Laws in Pennsylvania

 Falling behind on car payments is stressful. In Pennsylvania, a lender can repossess your car if you default on a car loan. Repossession also occurs for breaching other terms of the loan, including failing to maintain car insurance, unauthorized use of the vehicle, or using the vehicle for illegal purposes. In financially stressful situations, filing for a Chapter 13 bankruptcy is an option to protect the car and repay the loan on more favorable terms.

Car Repossession

Car repossession occurs when a lender takes possession of a vehicle from a borrower who has failed to meet the terms of their car loan agreement. After the repossession, a car lender will send notice of repossession to the borrower. After this occurs, the lender may sell the vehicle, either through private sale or public auction. You are then legally responsible for any remaining loan balance.

If you are at risk of car repossession, you should contact a bankruptcy attorney as soon as possible. An attorney can help assess the options available to help you protect your assets, including your car.

Voluntary Repossession

Voluntary car repossession occurs when a borrower chooses to return a vehicle to the lender or dealership. This is a proactive choice some people make when they are unable to continue making payments on their car loan. Through this option, they can reduce the amount of debt they owe to get back on track of their finances.

However, voluntary car repossession is reported to credit bureaus, which may negatively impact a borrower’s credit score. In addition, borrowers may still owe the lender the remaining loan balance after the sale of the car.

How Long Does the Repossession Process Take?

In Pennsylvania, the approximate time it takes to begin car repossession is when a borrower is about three payments behind. However, the actual time frame depends on a variety of factors, including the terms of the loan agreement, the lender, and the borrower’s payment history.

If you are at risk of car repossession, there are ways in which you can stop or delay the repossession. For example, when you file for bankruptcy, an automatic stay prevents lenders from repossessing your car.  Options for delaying or preventing repossession are best discussed with an experienced attorney during your consultation.

How Repossession Works

Pennsylvania lenders are required to include certain information in repossession notices to comply with the Motor Vehicle Sales Finance Act. This information includes:

• Details about the vehicle (ID, terms of the finance agreement, etc.)
• Reason for repossession
• Steps to redeem the vehicle
• Notification of potential sale or disposal of the vehicle, including the time frame and buyer rights
• Contact details for further questions

Statute of Limitations on Car Repossession

The statute of limitations for car repossession in the state of Pennsylvania is four years from the date that the debtor breached contract or defaulted on their loan. Pennsylvania’s statute of limitations for car repossession applies to written contracts, oral contracts, promissory notes, and open-end accounts.

How to Avoid Repossession

The simplest way to avoid repossession is by making up late payments. However, that may not be an option for those with an ongoing financial hardship. If your loan has gone into default, you may have the right to file a bankruptcy and restructure the car loan. In most instances, even if the car was recently repossessed, the lender may be forced to release it back to the borrower.

If you are struggling financially, filing for bankruptcy may be the best option to help avoid repossession. Chapter 13 bankruptcy allows you to protect your assets and file a repayment plan to pay the car lender on favorable terms, while Chapter 7 bankruptcy would protect your car for additional time and then allow you to return the car without having to pay the balance.   

File for Bankruptcy

There are two options for filing bankruptcy in Pennsylvania: Chapter 7 and Chapter 13. Deciding to file for bankruptcy can be a difficult decision to make, and it’s best not to do it alone. You should always consult with a bankruptcy attorney before filing. They can help you determine if there are any alternatives available to you before helping you determine which type of bankruptcy to file for, depending on your situation.

In terms of car repossession, filing for bankruptcy offers several benefits:

• Automatic stay: an automatic stay is a court-ordered injunction that prevents lenders from collecting debts or repossessing your car
• Negotiation time: with an automatic stay in place, you have more time to negotiate with lenders. Because you should always hire a bankruptcy attorney before filing, your attorney can also help negotiate on your behalf
• Buying the car back: under Chapter 7, debtors are able to buy back the car from the lender for the replacement value of the car
• Debt plan: through Chapter 13 bankruptcy, a debtor must create a plan to pay back the vehicle debt over a certain time frame. This allows debtors to reorganize their debts and create an affordable monthly payment plan to catch up within a certain amount of years

While Pennsylvania does not have a specific vehicle exemption, there are federal exemptions that may be used in almost all cases.  The federal vehicle exemption allows individuals to protect car equity up to $4,450.  It is rare that a car is ever sold in bankruptcy court.  

The route you take to protect your car depends on your unique financial situation and debts. A bankruptcy attorney will be by your side every step of the way to ensure that you are making the best decisions to protect your assets and discharge your debt.