Repossession of Your Property

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What is repossession?
Repossession is when the creditor takes property from you when you are behind in your payments for that property, or for some other property.

What gives someone the right to repossess?

In most cases, a creditor’s right to repossess comes from a contract with the purchaser or debtor. The contract can be an installment purchase, a loan, or other type of contract. The property, known as “collateral,” may be the property you are purchasing, such as cars, trucks, appliances or furniture. Sometimes, a creditor will require you put up property you already own as collateral in exchange for a loan.

When may a creditor repossess?
In general, a person must be in default before the creditor can repossess. “Default” normally means late payments, but it may also mean other problems such as a lapse of insurance. For example, if the contract with your lender requires you to keep insurance on the car you are purchasing and you do not have insurance, you may be in violation of the contract. If you are in violation of the contract, the creditor might be able to repossess the car.

They’ve let me pay late before – so now they can’t repossess. Right?

Wrong! Under most contracts, if you are late the creditor may repossess. This is true even if the creditor has accepted late payments in the past.

I’m falling behind – how can I avoid repossession?

The best way to solve the problem is to contact your creditor and work out a schedule to catch up payments. Occasionally, the creditor will allow you to defer payments to the end of the contract. Contact the creditor before the due date, whenever possible. Some creditors won’t work with you, but many will. If you make arrangements, write the creditor a letter describing the arrangements you have made. Keep a copy of the letter for your own records.

Does the creditor have to go to court before it can repossess my property?
No, not necessarily. The creditor (usually through a repossession company) can repossess property without a court order. For example, it can repossess a car from a driveway or public street, or even your yard. The person repossessing the property generally cannot "breach the peace." This is generally interpreted to mean that he/she not may not enter your home, garage, or enclosed area, without your permission or a court order, nor may it use force or threats of force.

What if my belongings are in the car?

A creditor is not allowed to keep, sell or get rid of personal belongings that are not part of the vehicle. However, you should contact the creditor or repossession company immediately in order to get the property back – otherwise, they may claim you “abandoned” the property.

What happens after the creditor repossesses my property?
In most cases, the creditor will sell the property and apply the sales proceeds towards the debt. You are entitled to notice of the sale. The notice must state either the date, time and place of sale, or the date and time after which the sale will be made. At any time before the sale, you may try to negotiate with the creditor to get your property back. However, the creditor can demand full payment of the debt before it returns the property. If the creditor sells the property, it applies the sales proceeds towards costs and fees of repossession, and towards the debt. In most cases, the sale will not be enough money to pay off the debt. You are then liable for a “deficiency.” For example, if the amount you owe (plus fees and costs) is $4,500, and the car sells for $2,500, you still owe $2000. Under most contracts, you will also be liable for attorneys’ fees, if the creditor hired an attorney to collect the deficiency. The creditor can sue you in court to collect this money. If a judgment is entered against you, the court will normally allow the creditor to charge additional interest on the amount of money owed.

What if I turn over the property voluntarily?

The creditor can still sell and collect a deficiency balance, although you may save some costs (such as repossession fees) by turning over the property. If the property was defective, returning it will not necessarily clear you of the debt – seek legal advice.

Can bankruptcy stop repossession?

Bankruptcy can temporarily stop a creditor from repossessing, and in some cases, allow you to recover property that has been repossessed (as long as it hasn’t been sold yet). You may still have to eventually work out payments with the creditor to keep the property. There are several possible options, and an attorney can advise you of your alternatives.

When might I have a legal remedy against the creditor?

You may have a legal remedy if:
  • The creditor wrongfully repossessed your property.
  • The creditor used force, threats, lies or damaged your property.
  • Notices of resale weren’t done properly.
  • The resale price was outrageously low.
  • The creditor tries to collect a deficiency in a situation where the law does not allow that.

You may also have a remedy if there were legal defects in the contract, or if you were subject to fraud or deceptive conduct at the time of purchase or afterwards. Your remedies may include reduction or elimination of the debt, monetary claims against the creditor, return of the property, and recovery of costs and fees.



Reviewed August 2009