If you are having a difficult time paying your bills in this turbulent economic climate, you may be concerned about creditors repossessing something you own. Repossession occurs when a creditor confiscates property put up as collateral for a loan after a person defaults on the debt by not making payments or not making them on time. Creditors must follow both federal and state laws when it comes to repossession, and they can only repossess certain types of property.

Property Creditors Can Repossess

In California, creditors can repossess some types of personal property. The most commonly repossessed property includes cars, motor vehicles, and motorcycles. Creditors can also repossess any secured personal property that you put forth as collateral for a debt. In other words, if you have a coin collection worth $20,000 and that coin collection as collateral for a $15,000 personal loan, the creditor can repossess your coin collection if you do not make your payments.

Property Creditors Cannot Repossess

Creditors cannot repossess property that you have not used as collateral for a loan. For example, suppose you owe the creditor $5,000, but you used a co-signer for the loan and did not use any item as collateral. In that case, the creditor would not be allowed to repossess your vehicle that is worth $5,000 to apply to cover the debt. Additionally, creditors cannot repossess things that you purchased was your credit card, even for failure to pay your credit card bill. 

Finally, a creditor cannot repossess property used as collateral when the contract itself is unenforceable. Courts try to honor contracts whenever possible. However, some requirements make contracts so unfair that they are unconscionable. If the loan’s interest rate is extremely high, courts will not enforce the contract, and creditors cannot repossess the collateral.

Losing Your Car in a Repossession 

Many of our clients are concerned about losing their vehicle in repossession. In most auto loans, the creditor has the right to repossess the car if you default on the loan. Typically, the lender does not even have to give advance notice before they take the vehicle. Once they repossess your vehicle, they will sell it and then keep the money that you owe. If they sell your vehicle and do not recover enough money to pay the outstanding loan balance, they could sue you for the difference as well as their expenses for repossessing your vehicle.

Losing Rent-to-Own Property

You can also lose property that you are renting to own, such as electronics, appliances, and furniture. However, the creditor cannot just enter your home and take the items. They must obtain the court’s permission to enter your home. 

As Featured on BadCredit.org

Bankruptcy Law Center Fights to Improve Clients’ Financial Situations. If you are wondering how you are going to pay your bills and you are concerned about repossession, speaking to an experienced bankruptcy lawyer can help you create a plan. Contact Bankruptcy Law Center today to schedule your initial consultation.