What Creditors Can or Can’t Repossess

Are you delinquent on your loan payments? Do you worry that your creditors might repossess something you own?

If you offered your personal property as collateral on a loan then your creditor might be able to repossess the property depending on the type of property it is. 

Not all loan agreements include collateral and laws governing repossession vary by state. But there are general guidelines governing what a creditor can or can’t repossess. 

What Can a Creditor Repossess?

The most common loans, that involve collateral, are loans where you borrowed the money to buy the property that acts as collateral. This is known as a purchase money loan.

Vehicle loans and home mortgages are also examples of loans where the property is pledged as collateral. Rent-to-own loans on items such as furniture and electronics also fall into this category. Defaulting on making the payments on these loans gives the creditor the right to reclaim ownership of the property.

Repossession can also occur if you take out a loan for an alternate purpose but use other properties as collateral. Taking out a loan to start a business and using your home as collateral is an example of this type of loan. 

What Can’t a Creditor Repossess?

A creditor cannot repossess a property that is not listed as collateral in a loan agreement. For example, if you take out a loan to start a business and use your home as collateral, the creditor can only repossess the home, if you default.

Likewise, if you have two separate loans with the same creditor, the creditor cannot repossess the property named as collateral in one agreement if you default on the other loan.

Credit card companies cannot repossess any items you buy with the credit card before defaulting. Credit card debt is unsecured, meaning there is no collateral securing the loan.

It is important to remember that although a creditor cannot repossess the property in these cases, they can sue you in court to collect the money you owe. If the creditor wins the lawsuit, they could garnish your wages or put a lien on the property.

Getting Help to Protect against Repossession

If you are behind on your loan payments and fear repossession, bankruptcy could offer protection. Depending on your financial situation, bankruptcy could stop your creditor from repossessing the property and allow you time and means to get current on the loan. Chapter 13 bankruptcy might also allow you to reduce the payments on the loans.

For over 20 years, Brock & Stout’s bankruptcy attorneys have assisted clients in fighting against losing their property to repossession. Contact us for your evaluation of your situation to see if we can help you.