Vehicle Repossession in Texas: Know Your Rights

Few financial emergencies feel as sudden or alarming as a vehicle repossession. One moment, your car is parked outside; the next, it’s being towed away because you missed a few payments. In Texas, lenders have the authority to repossess a vehicle if the borrower defaults on an auto loan. However, the law also provides certain rules and protections that must be followed during the repossession process. In this article, we’ll explain how car repossessions work in the Lone Star State, what creditors can and can’t do, and how options like bankruptcy may help you keep—or reclaim—your car.

Whether you’re slightly behind on payments or fully in default, it’s crucial to understand your legal standing. By knowing your rights and taking proactive steps, you may be able to avoid losing your vehicle, or at least mitigate the financial damage a repossession could bring.

Texas Repossession Basics

In Texas, when you finance or lease a vehicle, the lender retains a security interest, which allows them to take back the car if you fail to meet your loan obligations. This right is detailed in the Texas Business and Commerce Code, often referencing provisions similar to Article 9 of the Uniform Commercial Code (UCC). Once a borrower is in default—usually after missing a payment or failing to abide by other loan conditions—the lender can proceed with repossession.

Unlike home foreclosures, vehicle repossessions in Texas are generally nonjudicial, meaning the creditor does not need a court order. However, the law does prohibit a repossession agent from “breaching the peace,” such as using physical force or threats, breaking into a locked garage, or damaging property in the process of reclaiming the vehicle.

What Happens After Repossession?

Once the lender takes your vehicle, they typically sell it at auction or through a private sale. You’re entitled to notice of this sale, and in some cases, you may have the right to redeem the vehicle by paying the past-due amount—plus any fees—before the sale occurs. Unfortunately, this can be costly, and many people aren’t able to come up with the necessary lump sum.

If the sale price fails to cover the remaining loan balance plus repossession fees, you could be held responsible for the shortfall, known as a deficiency balance. For example, if you owe $12,000 on the car and it sells at auction for $8,000 (with $500 in costs), the deficiency is $4,500. The lender can file a lawsuit to collect that amount, potentially hurting your credit and leading to more debt-related challenges.

Avoiding or Reversing Repossession

The simplest way to stop a repossession is to communicate with your lender at the earliest sign of trouble. They may allow you to defer a payment or set up a short-term payment plan to avoid default. Ignoring your lender’s calls or letters often accelerates the repossession timeline.

If your car is repossessed, you may still get it back by redeeming the loan. Redeeming involves paying the entire loan balance—plus towing and storage fees—rather than just the missed installments. Another option, in some cases, is to negotiate a reinstatement, where you pay only what’s past due. Whether you can reinstate depends on the terms of your financing agreement and the willingness of your lender.

How Bankruptcy Can Help

Filing for bankruptcy under Title 11 of the U.S. Code activates the automatic stay, which halts most collection efforts, including vehicle repossession. If the car has not yet been taken, the stay prevents the lender from acting on a pending repossession, giving you time to work out a plan in bankruptcy court.

Chapter 7 may allow you to discharge unsecured debts (credit cards, medical bills, etc.), freeing up funds to keep current on your car loan. However, if you’re behind on car payments, you’ll generally need to reaffirm the debt—a legal agreement to continue paying—or the lender can ask the bankruptcy court for permission to repossess.

Chapter 13 provides a structured repayment plan over three to five years. As long as you include any auto-loan arrears in the plan and stay current on ongoing payments, the lender cannot proceed with repossession. In some cases, you can even reduce the principal owed if your loan meets certain criteria—a process called a “cramdown.”

References

1. Texas Business & Commerce Code, Title 1. (n.d.). Retrieved from: https://statutes.capitol.texas.gov

2. Uniform Commercial Code (UCC), Article 9 (Secured Transactions). (n.d.). Retrieved from: https://www.law.cornell.edu/ucc/9

3. Title 11 of the U.S. Code (Bankruptcy Code). (n.d.). Retrieved from: https://uscode.house.gov/browse/prelim@title11

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Specific cases vary, and the law may change. For individualized guidance, consult a licensed attorney in Texas.