If You Are in Default on a Car Loan in Colorado, You Need to Act Quickly to Avoid Repossession
You should worry about repossession when you are behind at all on paying for a loan when the car or truck is collateral for the loan. Essentially all lenders will require a lien on the car or truck title as a condition of giving a purchase loan.
Essentially the same laws applies to a lease as well as a purchase loan. If you get behind on the lease payments, the vehicle will likely be repossessed very quickly.
Not only will you lose the car or truck if it is repossessed, after the vehicle is sold at auction, you are liable for the balance of the amount owed on the loan if the sales price is not enough to pay off the loan. You also are liable for attorney fees, repossession costs, and other associated costs of the repossession and sale.
How Repossession Works
In Colorado, we are subject to self-help repossession. “Self-help” means that the lender can seize and sell your car or truck without court permission.
This means that a lender has the right to seize the vehicle and sell it even if you are only a few weeks behind in your car loan or lease payments.
All the lender has to do is give you notice that you are in default and the right to cure or catch-up on your payments.
If you cannot catch up on your payments, you may be able to enter into a work-out agreement where you pay the delinquent payments over time, in addition to keeping the monthly payments current. Or, you may be able to get the lender to delay a repossession to give you some time to sell the vehicle and pay off the loan.
The lender must wait until the debtor is in default for at least 10 days before the lender can send a “right to cure” the default. Except if the debtor has already been in default during the prior 12 month period and the lender has already sent one “right to cure” notice, then such notice does not have to be sent again. The debtor has the right to get the notice just once per 12 month period.
Then, the lender must wait for an additional 20 days for the debtor to cure the default.
If the debtor has not cured the default by the end of the 20 days, the lender may then repossess the vehicle.
After repossession, the lender can either elect to retain the vehicle in full satisfaction of the debt or re-sell the vehicle. If the lender elects to retain the vehicle in full satisfaction, then there is no right to a deficiency and the borrower is relieved of any additional obligation. However, if the re-sale option is selected by the lender, then the lender must comply with specific re-sale laws before it can go after the borrower for the balance due on the loan.
The borrower retains a right of redemption after repossession, up to the point of re-sale of the vehicle.
Creditor’s Collection of the Balance Due After Repossession (Deficiency Judgment)
In Colorado, unless you make an agreement with the lender pursuant to a work-out or some other agreement as to the payment of all of the loan, then it is almost certain that you will be required to pay the entire loan balance no matter what the sale price is in a sale or if you turn the vehicle over to the lender.
In many cases, the lender will hire a law firm to sue you and collect the deficiency judgment.
And you will likely be given an IRS 1099-C for the discharge of debt.
The Effect of a Bankruptcy Filing on a Repossession or Deficiency Judgment
The filing of Bankruptcy will give you the benefit of the automatic stay. The lender cannot repossess the vehicle or pursue a deficiency judgment until after the automatic stay is lifted. If you give the vehicle back in a Chapter 7, then there will be no deficiency judgment.
You may also be able to get the vehicle back if it has been repossessed before you filed bankruptcy.
Depending on what you do in your bankruptcy filing, you may be able to give-up the car or truck and totally avoid any liability for a deficiency judgment. And then you will not have any taxable income for the discharge of debt.