Vehicle Repossession Rights (Philippines)

A practical, everything-you-need guide for car buyers and lenders. Philippine law in plain English. This is general information, not legal advice.

The big picture

Most financed cars are secured by a chattel mortgage. If you default, the lender (or its assignee) can take the car and sell it to pay the debt but only by following lawful procedures and without force or intimidation.
How the deal was structured matters:
- Bank/financing loan + chattel mortgage → lender may later claim a deficiency (any unpaid balance after auction), if foreclosure was lawful and commercially reasonable.
- Sale on installments from the seller/dealer (Recto Law; Civil Code arts. 1484–1486) → if the seller forecloses the chattel mortgage, the seller cannot still collect a deficiency. It’s one remedy only: either cancel the sale or foreclose, not both.
You have rights before, during, and after repossession: notice, peaceful recovery, proper foreclosure/auction, accounting, surplus return, and limits on deficiency depending on the structure above.

Key legal building blocks

Chattel Mortgage Law (Act No. 1508) – allows a creditor to foreclose and sell the vehicle at public auction upon default, subject to statutory notices and public-sale formalities.
Civil Code – “Recto Law” (Arts. 1484–1486) – governs sales of personal property on installments (e.g., buy-from-dealer, pay monthly). Seller has mutually exclusive remedies; no deficiency after foreclosure.
Rules on obligations & contracts – good faith, damages, liquidated damages reasonableness.
Criminal law – prohibits repossession by threats, violence, or taking by stealth amounting to coercion or other offenses.
Consumer protection & banking rules – fair collection practices; no harassment, doxxing, or shaming; data privacy applies.
Truth-in-Lending concepts – disclosure of finance charges and effective interest; hidden or unconscionable charges can be challenged.

What a lender must (and must not) do

1) On default

Default is defined by your loan or installment contract (missed due date, lapsed grace period, other events like bounced checks, lapsed insurance).
Lender must rely on the contract and the mortgage; oral promises by agents don’t override written terms.

2) Taking the vehicle (“repossession”)

Repossession must be peaceful. No threats, intimidation, force, or trespass.
Repo agents are not law enforcement. Police may witness to keep the peace but cannot seize the car for the lender without proper process.
If you refuse turnover and the lender lacks peaceful access, the proper remedy is a court case for replevin (to get possession) or to await you in a public place and request voluntary surrender without coercion.

3) After taking possession

The creditor must foreclose the chattel mortgage by public auction, handled by a public officer (e.g., sheriff), with statutory posting/publication and specific notice to you per the mortgage and law.
The sale must be commercially reasonable: right notices, proper venue, fair opportunity for bidders, no sham or “garage” sale.
Accounting: Creditor must account for sale proceeds, reasonable costs, interest, and fees authorized by the contract and law.

4) After the auction

Surplus (if the hammer price exceeds the debt + lawful costs) must be returned to you.
Deficiency (if price is not enough) depends on deal structure:
- Loan + mortgage (typical bank financing): deficiency may be claimed in court if foreclosure complied with law and the sale was regular.
- Installment sale from the seller (Recto Law): no deficiency—foreclosure fully satisfies the claim.
If the lender botches notice or holds a sham sale, courts can void the sale, deny deficiency claims, or award damages.

Your rights & options at each stage

Before repossession

Right to cure (if contract/grace period allows): Pay the arrears, including permitted charges; request a written payoff/reinstatement figure.
Right to verify: Ask for SOA (statement of account), interest breakdown, late fees basis, and proof of insurance/add-on charges.
Right to privacy & fair collection: No 9 p.m.–8 a.m. calls/visits (as a rule of thumb), no shaming on social media or contacting your employer beyond legitimate location/collection efforts.

During repossession

Demand credentials: Ask for company ID, written authority to repossess, copy of the chattel mortgage and default notice.
Insist on peaceful process: You may refuse turnover if there’s force or intimidation. Document the encounter (video), note names/plates.
Do not obstruct violently; call the barangay or police to record the incident if you fear coercion.

After repossession / before sale

Right to redeem (equity of redemption): Before auction, you can usually settle the account (arrears or full) as allowed by contract and get the car back; ask for the exact redemption figure in writing.
Right to notice of sale: You’re entitled to the legally required notices (posting/publication) and date/place of auction.

After the auction

Right to accounting: Request the sheriff’s certificate of sale, bid sheet, costs, and net computation.
Right to surplus: Claim any excess promptly.
Deficiency defenses:
- Challenge regularity of the sale (lack of notice, improper venue, sweetheart bid).
- Invoke Recto Law (no deficiency) if it was an installment sale by the seller.
- Question unconscionable charges or padded costs.

How to tell which rule applies to deficiency

Bank/Finance Company loan: You signed a loan with a bank/finco; dealer was paid upfront by the lender. You signed a promissory note + chattel mortgage. → Deficiency generally collectible (if foreclosure regular).
Dealer installment sale: You signed a sales contract with the dealer (seller remains the creditor), secured by chattel mortgage. → Recto Law applies → No deficiency after foreclosure.

Tip: If papers show the seller immediately assigned the installment contract to a bank, courts look at the true nature: If it began as a sale on installments, Recto Law protection can still apply against the seller, and assignment usually doesn’t worsen the buyer’s position.

Common traps (and how to respond)

“Voluntary surrender” forms with blanket waivers – Read carefully. Surrender does not waive rights to proper auction, accounting, or surplus.
Hidden add-ons (insurance, LTO, chattel mortgage fees) – You can seek an audit and dispute undisclosed or duplicative charges.
Harassing collectors – Keep a log of calls/visits, save messages; raise with the lender’s compliance office and, if needed, with the regulator or in a complaint for unfair collection practices.
Sham auctions – Ask for documentary proof: notices, sheriff’s return, bidding records. If irregular, consult counsel on annulling the sale, blocking deficiency claims, or seeking damages.

Practical playbook if you’ve fallen behind

Get the numbers: Ask for a dated payoff (good through date) showing principal, interest, penalties, repossession/storage costs.
Propose a cure: If repossessed but not yet auctioned, offer arrears + costs for reinstatement, or negotiate restructure (lower amortization/longer term). Get any deal in writing.
Protect the car’s value: If the unit is with you pending turnover, maintain/insure it; avoid deliberate damage (can trigger criminal/civil liability).
If repossessed: Demand auction details and accounting; consider attending the sale or sending a representative to monitor.
If sued for deficiency:
- Check if the transaction is Recto Law–type; raise no-deficiency defense.
- Attack sale irregularities (no notice, improper officer, unfair price).
- Challenge usurious/unconscionable extras; require proof of every peso in costs.

For lenders & dealers: compliance checklist

Paperwork: Properly executed promissory note/sales contract, chattel mortgage (with affidavit of good faith) and registration with the Chattel Mortgage Registry.
Pre-default: Written demand; allow any contractual grace; document attempts to restructure.
Repossession: Use trained agents, strictly no force; inventory the unit and accessories with photos; give the debtor a receipt/acknowledgment.
Foreclosure: Engage the sheriff/public officer, serve statutory notices, comply with posting/publication, hold a bona fide public auction, and document everything.
Post-sale: Issue complete accounting; release surplus; pursue deficiency only when legally allowed (and defensible).

FAQs

Can they take the car from inside my garage? Not by force or trespass. Peaceful recovery is required. If you refuse, the creditor should file replevin or wait for a lawful opportunity without breaching the peace.

Do I get a right of redemption after the auction like real estate? For chattel, there’s no statutory one-year redemption like in real property. You generally have an equity of redemption before the sale (settle before hammer falls). After auction, your remedies pivot to challenging irregularities or claiming surplus.

They say I owe a big deficiency after auction—do I really? Depends. If it’s a loan + mortgage, possibly yes—if the foreclosure was regular. If it’s a dealer installment sale, Recto Law can bar deficiency claims.

What happens to the accessories I added? If they became fixtures/accessions inseparable without damage, they usually follow the principal thing (the car). Removable add-ons not covered by the mortgage may be reclaimed—don’t remove anything without agreement; it can be disputed.

Can I negotiate even after repossession? Often yes—before auction, lenders may accept reinstatement/redeem & release terms. Get it in writing.

Bottom line

Repossession is legal only if done peacefully and followed by a proper public foreclosure sale.
Structure rules the outcome: bank loan → possible deficiency; dealer installment sale → no deficiency after foreclosure.
Your best protection is documentation: demand letters, notices, auction records, and a full accounting.
When in doubt, act promptly—cure the default if you can, or be ready to challenge an irregular repossession or an unsupported deficiency in the proper forum.