If you make a major purchase, like purchasing a vehicle, you will likely be required to sign a contract. It is typical that this contract will include a clause which addresses repossession. The ability of a company to repossess your secured property will hinge on this contract and your state’s applicable law.
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.
Items which can be repossessed include, but are not limited to, your home (this process is usually referred to as foreclosure), vehicles, rent-to-own items, and any collateralized item. On the flip side, items which cannot be repossessed include, but are not limited to, credit card purchases, property which has not been collateralized, and secured property which is the subject of an unenforceable contract.
In addition, it is important to note that in many states a repossession can take place without your knowledge and can happen at any time or place. With regard to vehicles, in some states, creditors are legally permitted on your property to seize your vehicle. They do not have to obtain your prior consent! In other words, your creditor may not have to give you notice that the repossession will be taking place. You may walk out one morning and find that you will be walking to work 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 your creditor repossesses your property, he will likely sell the property. He can legally do so at either a public or private sale. He must sell the property in a “commercially reasonable manner.” You may have resigned yourself to this and think that the matter is now over. You will need to reconsider that thought! If, at the sale, your property sells for less than the amount remaining on the loan, you may well be responsible for the amount remaining, or the deficiency. For example, let’s say that you purchased a car for $5,000 and, when it was repossessed, you still owed $2,000 on the loan. Your creditor sold it at a public auction for $1,5000. This means that there is a $500 deficiency between the sale of the car and what was still owing on the loan. You may be responsible for the remaining $500. In addition to the deficiency, you may be responsbile also for the creditor’s repossession fees, such as storage, towing, etc.
Creditors sometimes request “voluntary repossessions.” When you voluntarily hand over an item to one of your creditors, it is called a “voluntary repossession.” You should not have to pay repossession fees with a voluntary repossession and this is the only real benefit that I see to a voluntary repossession. Even if you agree to a voluntary repossession, you will still be responsible for any deficiency following the sale of the item and your credit report will still contain a repossession entry. It would be smart to negotiate with your creditor that he will not report the repossession to the credit reporting agencies if you agree to a voluntary repossession. You should obtain this promise in writing!
Responsibility for any personal items inside respossessed property is normally laid at the creditor’s feet. In addition, creditors typically are required by law to use reasonable care in safeguarding personal possessions from damage or theft.
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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