Repossession

One of the most unpleasant consequences of failing to pay your bills is "repossession" of the thing you purchased on credit or gave as security for a loan. You do have some legal protection concerning repossession, but not much.

Can a creditor repossess my car or furniture?
After repossession, is the debt gone?
Stopping a repossession

Can a creditor repossess my car or furniture?

Yes, if you don't pay your bills on a "secured debt" - which may be created when you borrow money or pay for goods over time. You promise to pay the creditor and agree that if you do not, the creditor can take ("repossess") a specified item of property without the need for any formal legal action against you.

In many states, the creditor is not allowed to repossess the first time you miss a payment. Instead, the creditor must use that first mistake as an opportunity to teach you how a secured debt works. The next time you miss a payment, the creditor can and probably will repossess.

A creditor is allowed to repossess only if it can be accomplished without a "breach of the peace" (a violent act or an act likely to lead to violence.) Usually, a debtor can stop repossession simply by verbally objecting to it. This gives the debtor a lot of power, but in many instances thwarting repossession is not the best thing to do. You will get to keep your car or furniture longer, but you will have to pay the creditor for all the time and trouble you put him through. Many debtors who know they will not be able to make car payments decide to drop the car off with the creditor. This minimizes the costs of repossession that the debtor would otherwise have to pay.

After repossession, is the debt gone?

Maybe not. It sounds hard to believe, but in many states, you might not only lose the car, but also lose your down payment, lose the monthly payments you've already made, and still owe the creditor even more money.

If, after repossession, the creditor sells the car for less than the amount of the debt and the costs of repossession and sale, the creditor is entitled to sue you for the rest of the money and obtain a "deficiency judgment."

Stopping a repossession

It is not easy to stop a repossession, but to have any chance of doing so, you must take immediate action.

You might file for bankruptcy. Once you file your papers with the bankruptcy clerk, all creditors must immediately cease all legal actions against you - including repossession and foreclosure.

But bankruptcy is an extreme measure. Before you decide on that solution to your financial problems, be sure to consult an attorney who specializes in bankruptcy law, who might advise you regarding some other options.