My car was repossessed after 6 months of missed payments during a hospital stay. I still owe $20,000 on a 5-year loan with 4 years left — am I responsible for the full amount?

What happens when your car is repossessed?

While having your car repossessed can lead to big financial problems, you should know that you would be far from alone if this were to happen to you. More than 1.2 million cars were repossessed in 2022, according to Consumer Affairs.

Typically, lenders don't start repossessing until you are in default, which means you need to be about 90 days behind on your car payments before you face a serious risk of repossession. If you fall a full six months behind, it should come as no surprise when the lender takes your vehicle back.

When your lender repossesses your car, they often sell the vehicle at auction to try to recoup the money you owe on it. You have the right to be notified of the sale or if a lender intends to keep the vehicle as compensation for the debt you owe. You should get written notice of the date, time and place if your vehicle is being sold at a public sale.

Unfortunately, many people are underwater or owe more than the car is worth. In fact, Edmunds reports as many as one in four people have a loan balance that's higher than the market value of the car. If your vehicle is sold for less than what you owe — including any fees the lender incurred for repossession — you are responsible for paying the outstanding balance due.

This doesn't mean that if you owe $20,000 on a car loan, you'll have to give your lender the full amount after they take your car, though. It depends on whether your car sells, and for how much. Let's say your lender incurred $500 in costs for the repossession and sale, and your car fetches $15,000 at auction. There's going to be an outstanding balance of $5,500 you'll have to pay back.

On the flip side, if your car sells for more than you owe, the lender has to give you back the excess cash minus their costs. You'll need to reach out to your lender here to find out what happened to the car, and whether there is a surplus or a balance due.

Of course, all this damages your credit — both the late payments leading up to repossession and the repossession itself. The repossession will stay on your credit record for up to seven years, but if over time you develop a positive on-time payment history, it will eventually become less important when your credit score is calculated.

Earn cash back on what you buy most

Maximize your spending and earn up to 6% cash back on groceries, streaming, gas, and more. Whether it’s everyday purchases or splurges, this card puts money back in your pocket.

Learn more

Can you do anything to fix the situation?

Although it's too late for you in this situation, the best way to deal with repossession is not to end up having your car taken in the first place.

Ideally, you should have some emergency savings to pay bills in the event of a health emergency — and should have instructions in place, including a durable power of attorney, to name someone to manage your financial affairs if you're hospitalized and incapacitated. You, or your agent, can also reach out to the lender if you're in the middle of a health scare. Your lender may be able to work with you to temporarily pause payments.

When you are faced with repossession, your state's laws may include a set time when you're allowed to make up overdue payments and get your car back. You also have the right to try to buy your vehicle at auction. Unfortunately, once your car is sold to another buyer, these options are no longer available. You'll have to pay the balance due or see if you can negotiate with your creditor to settle for less.

Chances are good that your car has already been sold so getting it back isn't likely to happen. If that's the case, talk with your creditor about your options: find out what you owe, work on paying it off and start to move forward on cleaning up your finances for a brighter future.