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Car repossession

What is repossession?

A repossession, or repo, is the legal process by which a lender takes possession of personal or real property, usually because a loan hasn't been paid.

How does repossession work?

When you sign secured loans or rental agreements, there is typically a clause in the agreement that states what assets or property is being kept as collateral. For example, with a mortgage, your home is usually kept as collateral. As long as you honor the terms of the agreement you get to keep the collateral. This could mean making payments in a timely manner. Once you pay off your loan and honor your contract till the end, the collateral is yours to keep. However, if you fail to make your payments on time and fall into arrears, the lender has the right to take the collateral and sell it in order to receive the money owed.

What is collateral?

Collateral is an item or asset that ensures a lender is repaid. If a borrower can no longer pay their loans, lenders can resell the collateral and their money isn’t lost. Collateral can be:

  • A home
  • A car
  • Commercial property
  • Business equipment (stoves, machinery)
  • Farm products (livestock, crops)
  • Inventory
  • Paper property (stocks, bonds)
  • Personal property (watches, jewelry, paintings)

Your Repossession Rights

Secured creditors have the ability to repossess your property without a court order as long as there is no “breach of the peace.” This means a creditor cannot do something outside of the court that will likely produce violence or provoke others. For example, if a lender breaks into your garage in order to repossess a vehicle, that is against the law. If the creditor breaches the peace, you can ask the creditor to stop and leave, calling the police if they refuse. However, you may not use or threaten to use force to stop the repossession.

Vehicle Repossession

Every state has individual laws outlining the rights of lenders, but usually late car payments or having inadequate auto insurance can result in the repossession of your car. In these instances, a creditor can take your car without warning you or obtaining permission from the court. Once the car is in their possession, they can either keep it as compensation or resell it in a public or private sale, providing that it’s in a “commercially reasonable manner.” However, creditors have no right to the items inside the car, which must be returned to you.

How can I get my car back?

Reinstate your loan: This involves paying off the amount you were behind on your loan plus repossession costs. However, for this method to stick, all your future payments must be timely and paid in full.

Redeem the car: Redeeming your car means paying the entire remaining loan balance and repossession costs.

Buy it back at auction: If the creditor is selling your vehicle in a public manner, they are required to tell you the time and place in order for you to bid. However, if the car doesn’t earn enough to pay off the loan, which is called a deficiency balance, you will have to pay that balance along with the price of the vehicle.

File for bankruptcy: This stops the lender from selling the vehicle until they have court permission. While this will not earn you your car back, it will buy you more time to raise the money.

How can I avoid repossession?

As soon as you fall behind financially, talk to your lender or possibly other lenders. No one really wants to repossess because the process is as much of a hassle for the creditor as it is for you. The lender may be willing to give you more time to repay your loan or may be willing to offer you more affordable terms. Investors may also be willing to buy your property from you so that you can repay the lender and start fresh.

Repossession Articles

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