Your Car Was Repossessed. What Happens Next, and What About the Insurance?

The day it happens

1. Call the lender and confirm the car was repossessed, not stolen, and where it is.
2. Ask how to recover personal belongings left inside.
3. Do not cancel the insurance yet. If you reinstate or redeem, you will need coverage the day the car comes back, and the lender will want proof.
4. Keep every paper the lender sends, with the envelope or delivery record.

What the law requires of the lender

For a car bought on a conditional sale contract, which is what California's Automobile Sales Finance Act calls a dealer installment contract, Civil Code section 2983.2 requires at least 15 days' written notice of intent to dispose of the car, to everyone liable on the contract. The period is 20 days where the notice is mailed from or to an address outside California. The notice must, among other things:

• state your right to redeem the car by paying the contract in full within the period, with an itemized balance including any credit for unearned finance charges or cancelled insurance;
• state whether there is a conditional right to reinstate the contract, and the conditions, or why not;
• say that on written request the period will be extended by 10 days, and include the form to ask;
• warn that you may be liable for a deficiency if the sale does not cover what is owed.

Section 2983.3 adds that the reinstatement right can be used no more than once in any 12-month period and twice during the contract, that filing for bankruptcy is not by itself a default, and lists situations, such as concealing the car, in which the lender may refuse reinstatement. After a sale, you can request a written accounting, and any surplus must be returned within 45 days.

Voluntary surrender is treated the same way

If you return the car to the lender yourself because you cannot keep up, section 2983.2 covers "a repossessed or surrendered motor vehicle," so the same notice and redemption rules apply. The section also says that, except as provided elsewhere, you are liable for a deficiency after the sale only if the lender gave the required notice within 60 days of the repossession or surrender. Keep the notice; its date matters.

Within the notice period

Decide between three paths, and match the insurance to the decision:

If the repossessed car was your only vehicle and you will still drive, ask about a non-owner policy so you stay covered in borrowed or rented cars.

Within 30 days

• Watch for the accounting and any deficiency claim, and request the accounting in writing if it does not arrive.
• Insure any replacement car before you drive it.
• Know what a repossession does not do. It is not a driving-record entry, and credit score is not among the rating factors California's regulation allows insurers to use for auto rates.

At renewal

Make sure the policy describes the cars you actually have. A car that is gone but still listed is money wasted, and a replacement not listed is a gap. If finances are tight, a carefully chosen policy is better than none; you can compare quotes here.