The Fundamentals of Repossession

It is widely accepted and acknowledged that you will be required to sign a contract in the event you make a major purchase, such as buying a vehicle. Many people don’t read the fine print because they are so excited about their new purchase; however, if they did, they would likely find a clause which sets out an explanation of default and the ramifications of default, namely repossession. This signed contract and the applicable state laws govern repossession.

Most people think of auto repossession when they talk or hear about an item being repossessed. It is important to note though that repossession can take place for any item which is used as collateral for a secured loan. In laymen’s terms, if you obtain a loan for one or more items and those same items are used to “secure” the loan, then the loan is called a “secured loan.” The items are considered “collateral” for the secured loan. This means that in the event you default on the secured loan by not following the contractual terms, such as following your payment plan, the items can be repossessed.

Homes (through foreclosure), rent-to-own items, and other collateralized items can be repossessed if the purchaser defaults on the contract terms. Purchases made with credit cards, uncollateralized property, and secured property which is subject to an unenforceable contract are examples of property which cannot be repossessed.

As distressing as this news may be, in many states repossession can take place at any time of the day or night and can even happen without your knowledge. In fact, in some states, it is legally permissible to enter upon a person’s real property with the express intent of seizing their vehicle. Your prior consent is not necessary in these states! This means that your creditor does not have to give you notice that the repossession will be taking place. You may walk outside to drive the kids to school, only to find that you will be walking them to school that day!

The one silver lining in all of this is that normally a creditor may not “breach the peace.” What does this mean? Well, it means that when attempting to repossess your property, the creditor may not use violence or threatening behavior to take control of your property. For instance, in many states, a creditor is legally restrained from entering a closed garage to obtain possession of your car.

If you have an item repossessed, your creditor will sell the item, either publicly or privately, for what it can obtain in a “commercially reasonable manner.” You may think this is the last of your troubles; however, you need to reconsider that thought. If your creditor does not obtain the full amount you owe from the sale of the item, you may be responsible for making up the difference, or the deficiency. For instance, let’s say, you purchased a vehicle a while back and, when the vehicle was repossessed, you still owed $5,000 toward the loan. The creditor then took your vehicle, placed it for sale, and was able to sell it for $4,000. You may still be liable for the $1,000 remaining on the loan. To add insult to injury, you will likely be liable for the creditor’s repossession fees as well, such as towing, storage, preparation for sale, etc.

Sometimes a creditor will ask for a “voluntary repossession.” A voluntary repossession is where you voluntarily give the requested item to the creditor. One advantage to a voluntary repossession (and it is the only advantage that I can see) is that you may not have to pay the repossession fee. Once the item is repossessed, you will still owe the debt and you will still be looking at a repossession entry on your credit report. If you do decide to agree to a voluntary repossession, you should negotiate with the creditor that the repossession will not appear on your credit report. If your creditor agrees not to report the repossession, make sure that you get this promise in writing.

Your creditor is normally responsible for any of your personal property which was inside the repossessed item at the time of repossession. Creditors are usually required by state law to use reasonable care to safeguard your personal possessions from theft or damage.

As tough as it may seem at the time, it is normally in your best interest to negotiate with your creditor to settle the matter before repossession actually takes place. Possible options include discussing a new payment plan and schedule or even settling the account for a smaller amount if you can come up with a lump sum payment.

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