Most Americans have debt of some kind such as a home mortgage, car loan, credit card debt or other type of debt. All of our creditors have the legal right to be repaid for loaning us money. However, the way in which they can enforce their right to collect money from us differs according to the type of debt that needs to be repaid. Some creditors may be able to repossess certain property, without a court order, for example. Other creditors do not have the right to collect money or property from us absent a direct order of the court.
Property That Can be Repossessed
Generally, property that is used as collateral for a loan may be repossessed without the permission of the court. Your loan must specifically describe the collateral and the lender’s security interest in that collateral, otherwise the property cannot be repossessed. Some common types of loans that are issued with specific collateral that may be repossessed include:
· Property used as collateral for the purchase loan: if you have a car loan then your lender likely required you to use your car as collateral for the loan. That means that if you stop paying your loan, the lender can take ownership of your car to satisfy your debt.
· Property used as collateral for a different loan: if you have property that you own outright such as a home or car and you decide to take out a personal loan for other reasons, then your lender may request that you use that property as collateral. A lender may also take an interest in property that is already used as collateral, such as your mortgaged home. However, the lender’s interest would be subordinate to any lenders who already have a security interest in that property that was properly filed according to the requirements of state law.
Property that is not specifically named as collateral in a loan agreement cannot be repossessed. This includes credit card purchases. Credit cards are unsecured loans. Your credit card lender does not have the right to repossess property simply because you purchased the property using a credit card issued by the lender.
When Can the Property be Repossessed
Property that serves as collateral on a loan can only be repossessed if you default on loan payments or violate specific provisions of the loan agreement. Typically, the terms of your loan agreement will describe when a loan is considered to be in default and, therefore, when the lender would have the legal right to take possession of the property. Default may be defined as being behind in payments by a certain amount or not maintaining the required insurance on property such as a car or house.
If your property has been repossessed, or if a property repossession is being threatened, then you may have important legal rights and defenses to your repossession. It is important that you do not accept a repossession as inevitable – it may be possible to keep your property even in the threat of a property repossession.