One of the most unpleasant consequences of failing to pay your bills is “repossession” of the product you purchased on credit. You do have some legal protection concerning repossession, but not much.
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. A secured loan is when you promise to pay the creditor and agree that if you default on your payments, the creditor can take back (“repossess”) the item of property without the need to sue you first.
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, depending on your states laws, repossess the secured item.
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 in the end you will likely have to pay the creditor for all the time and trouble you put him through to collect the debt. 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 incur.
After repossession, is my 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 what is known as a “deficiency judgment.”
Can I stop a repossession?
It is not easy to stop or delay a repossession, but to have any chance of doing so, you must take immediate action.
One option is to file for bankruptcy. Once you file your papers with the bankruptcy clerk, all creditors must immediately cease all legal actions against you – including all forms of repossession including garnishment of wages or any attempt whatsoever to collect a debt. This is known in Bankruptcy law as a “Automatic Stay”.
But bankruptcy is an extreme measure. It may not be worth filing for bankruptcy to stop the repossession, especially since you will likely be ordered to return the vehicle in the Bankruptcy proceeding. Before you decide on that option, be sure to consult an attorney who specializes in bankruptcy law and debtors rights.