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.
It is common for people to typically associate “repossession” with vehicle repossession. In most cases, vehicles are our second most expensive purchases, following behind purchasing a home. If a purchaser defaults on the payments for a home, the process whereby the mortgage company reclaims the home is called “foreclosure.” Likewise, when a purchaser defaults on his vehicle payments, the process whereby the loan company reclaims the vehicle is called “repossession.” It is good to note though that any item which has been used as “collateral” for a secured loan can be repossessed. This process is not limited to just vehicles.
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.
It can be very stressful to learn that, in many states, a repossession can occur without your prior notice and can take place at any time, day or night. Further, it is legally permissible in some states for a creditor to enter your premises for the express intent of repossessing your car. It is often the case that your prior consent is not required for your creditor to take this action! It can happen totally without your knowledge! You might walk out one morning to drive to the airport for a family vacation, only to find that you will be spending your family vacation at home!
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.
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!
If your creditor repossesses an item and some of your personal property remained in the item repossessed, your creditor is normally responsible for the safety of the personal property. State laws normally require that your creditor use reasonable care to prevent someone from taking the personal property and/or for preventing damage to the personal property.
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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