It is widely accepted and acknowledged that you will be required to sign a contract in the event you make a major purchase, such as buying a vehicle. Many people don’t read the fine print because they are so excited about their new purchase; however, if they did, they would likely find a clause which sets out an explanation of default and the ramifications of default, namely repossession. This signed contract and the applicable state laws govern repossession.
Most people think of auto repossession when they talk or hear about an item being repossessed. It is important to note though that repossession can take place for any item which is used as collateral for a secured loan. In laymen’s terms, if you obtain a loan for one or more items and those same items are used to “secure” the loan, then the loan is called a “secured loan.” The items are considered “collateral” for the secured loan. This means that in the event you default on the secured loan by not following the contractual terms, such as following your payment plan, the items can be repossessed.
Items which can be repossessed include, but are not limited to, your home (this process is usually referred to as foreclosure), vehicles, rent-to-own items, and any collateralized item. On the flip side, items which cannot be repossessed include, but are not limited to, credit card purchases, property which has not been collateralized, and secured property which is the subject of an unenforceable contract.
In addition, it is important to note that in many states a repossession can take place without your knowledge and can happen at any time or place. With regard to vehicles, in some states, creditors are legally permitted on your property to seize your vehicle. They do not have to obtain your prior consent! In other words, your creditor may not have to give you notice that the repossession will be taking place. You may walk out one morning and find that you will be walking to work that day!
In the majority of states, it is unlawful for a creditor to “breach the peace.” Put simply, this means that neither violence nor threatening tactics may be utilized by a creditor when attempting to repossess your vehicle. To take this a step further, creditors are normally not allowed to enter your closed garage in order to repossess your automobile.
If you have an item repossessed, your creditor will sell the item, either publicly or privately, for what it can obtain in a “commercially reasonable manner.” You may think this is the last of your troubles; however, you need to reconsider that thought. If your creditor does not obtain the full amount you owe from the sale of the item, you may be responsible for making up the difference, or the deficiency. For instance, let’s say, you purchased a vehicle a while back and, when the vehicle was repossessed, you still owed $5,000 toward the loan. The creditor then took your vehicle, placed it for sale, and was able to sell it for $4,000. You may still be liable for the $1,000 remaining on the loan. To add insult to injury, you will likely be liable for the creditor’s repossession fees as well, such as towing, storage, preparation for sale, etc.
Sometimes a creditor will ask for a “voluntary repossession.” A voluntary repossession is where you voluntarily give the requested item to the creditor. One advantage to a voluntary repossession (and it is the only advantage that I can see) is that you may not have to pay the repossession fee. Once the item is repossessed, you will still owe the debt and you will still be looking at a repossession entry on your credit report. If you do decide to agree to a voluntary repossession, you should negotiate with the creditor that the repossession will not appear on your credit report. If your creditor agrees not to report the repossession, make sure that you get this promise in writing.
If your creditor repossesses an item and some of your personal property remained in the item repossessed, your creditor is normally responsible for the safety of the personal property. State laws normally require that your creditor use reasonable care to prevent someone from taking the personal property and/or for preventing damage to the personal property.
You should consider negotiating a resolution of the matter with your creditor. This is normally in your best interest and can be the least expensive solution for you. Creditors are typically willing to discuss a revision to your payment plan as well as settlement of the debt for a lesser amount, provided you have a lump sum amount you can offer.
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