If you make a major purchase, like purchasing a vehicle, you will likely be required to sign a contract. It is typical that this contract will include a clause which addresses repossession. The ability of a company to repossess your secured property will hinge on this contract and your state’s applicable law.

It is common for people to typically associate “repossession” with vehicle repossession. In most cases, vehicles are our second most expensive purchases, following behind purchasing a home. If a purchaser defaults on the payments for a home, the process whereby the mortgage company reclaims the home is called “foreclosure.” Likewise, when a purchaser defaults on his vehicle payments, the process whereby the loan company reclaims the vehicle is called “repossession.” It is good to note though that any item which has been used as “collateral” for a secured loan can be repossessed. This process is not limited to just vehicles.

Examples of other items susceptible to repossession include homes (called foreclosure), rent-to-own furniture, or any other item used for collateral. Alternately, items which are not eligible for repossession include purchases made with credit cards, uncollateralized property, 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 whatever manner an auto repossession takes place, a creditor normally cannot “breach the peace.” This means that a creditor cannot use violence or threatening tactics to obtain possession of your vehicle. For example, in most states, your creditor cannot enter your closed garage for the express purpose of repossessing your vehicle, unless you have given your consent.

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.

Responsibility for any personal items inside respossessed property is normally laid at the creditor’s feet. In addition, creditors typically are required by law to use reasonable care in safeguarding personal possessions from damage or theft.

No matter what your situation may be, it is always better (and normally less expensive) to try to negotiate with your creditor to settle the matter. If you don’t let the process get too far out-of-hand, creditors are usually open to negotiating a new payment schedule or possibly settling for a lesser amount if you have a lump sum payment you can offer.

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