Repossession

A creditor with whom a debtor has a written contract, which includes an agreement to repay a loan for the purchase of certain property, has the right to take back, or repossess, the property when the debtor falls behind in the loan payments. Generally, repossessions occur where the purchaser of a vehicle fails to make payments on the car note. The contract gives the bank or company that financed the vehicle the right to seize it from the purchaser.

Sidebar: The property is the collateral, and the creditor's right to take it is the security interest.

TIP: Failing to make payments on a note or loan puts the debtor into default. When default occurs, the creditor can repossess the collateral.

How many payments do I have to miss before I have defaulted?

Depending on the loan, one missed payment may be considered a default, although usually, the creditor does not act until the payments are several months overdue.

I have been making partial payments every month on my car note. Am I still in default?

Yes. Partial payments are equivalent to no payments at all under a default provision. Although you will be credited for making the payments, you are still in default.

TIP: Consistent late payments, although the full amount, can also put the debtor into default.

Sidebar: Creditors who consistently have accepted partial or late payments from a debtor may have waived their right to repossess because they ignored the default for a period of time.

I have made all my car payments but my vehicle is still being repossessed because I never got auto insurance. Can the bank take my car?

Yes. You have defaulted on the loan by not taking out auto insurance. Defaults can occur for reasons other than missed, late or partial payments. For example, most car financing companies and banks require purchasers to obtain auto insurance. If you fail to get the insurance, you defaulted under the contract.

I filed for bankruptcy because I cannot make my car payments. Can my car be repossessed?

No. The creditor is automatically stayed from repossessing the car. Of course, the creditor may ask for relief from the stay because the collateral (the car) is diminishing in value. If you are unable to make the payments, it is likely that the court will allow the car to be repossessed.

I had equipment on my trailer when it was repossessed. Can the equipment be repossessed as well?

No. The creditor can only repossess the property described in your agreement. In this case, the creditor has the right to repossess the trailer only. You have a legal right to have the equipment returned.

Can a credit card company repossess the bedroom furniture I charged?

No. The credit card company is loaning you money for purchases in general. They have no right to repossess specific items. However, if you charged the furniture on the furniture or department store credit card, the furniture company may have the right to repossess, as credit was extended for a specific purpose and only in that store.

A creditor is threatening repossession. Is there anything I can do?

Yes. Typically, creditors want their money rather than the collateral. You may be able to work out a different payment plan than is called for in the contract. You can also request an extension of time for payments.

TIP: Filing bankruptcy will stop a creditor's repossession efforts immediately. Send the creditor a copy of the bankruptcy petition if the court has not yet notified it. Under the automatic stay, the creditor cannot repossess the property.

My vehicle is locked in the garage. Can the bank repossess it?

No. Although the bank has the right to "self-help" or repossessing the car on their own, they cannot do so if they "breach the peace." Breaking into your garage or going in without your authority is a breach of the peace. The bank must get a court order and have a police officer reclaim, or replevy, the car.

TIP: If your vehicle is in plain sight and accessible, it may be repossessed, even though it is on your property. For instance, a car sitting in the driveway can be towed.

What happens to my vehicle once it is repossessed?

The creditor can sell the vehicle and apply the money to the amount you still owe on it. If the vehicle is worth the amount owing on it, the note may be cancelled.

Sidebar: If the vehicle is worth more than what you owe on it, you are due any funds from the sale that exceed the debt. You also have the right to force a sale if the creditor tries to simply cancel the debt when the vehicle is worth more than the amount owed. Forced sales should be discussed with an attorney.

TIP: The sale of repossessed property must be "commercially reasonable"; that is, the creditor is required to attempt to get a fair price. A vehicle, for instance, cannot be sold for $1; otherwise, the debtor would still owe the entire amount on the note plus be out a vehicle.

How will I know if my repossessed vehicle is going to be sold?

The creditor must give you notice of the time and place of a public sale or auction. If the creditor intends to sell the vehicle to a private party (not offer it for auction), you are required to receive reasonable notice of a date when the vehicle will be sold.

Is there any way to get my car back once it has been repossessed?

Yes. Before the vehicle is sold, you are permitted to pay off the loan and repossession costs in order to have your car returned to you. It is not uncommon to negotiate with your creditor after repossession and attempt to set up a new payment plan.

Is there any reason to let the bank repossess my car without trying to fight it?

Allowing the bank to take the vehicle may mean a bigger credit to your debt. The bank will be able to sell the car more quickly and spend less money repossessing it (expenses that would be charged to your debt) if you voluntarily allow the bank to take it.

TIP: Do not just give back the car without attempting to negotiate some reduction of the debt. Your actions are saving the bank money and time and it is reasonable for them to lower the amount you owe. If there is an agreement, get it in writing, signed by a bank officer and dated. Keep a copy.

My creditor repossessed my boat and sold it. Can I still be sued for the amount I still owe?

Yes. Because you still legally owe for the remaining debt (after credit for the sale), the creditor has the right to sue for recovery. Laws in some states limit the creditor's ability to sue on the basis of the amount of the loan. You should consult a lawyer if you are sued because you may have some defenses to the suit.