Repossession: What Creditors Can and Can't Take

If you're behind in payments for a debt or loan, you might be worried about the creditor repossessing something you own, like your car. Strict rules control what a creditor can—and can't—take if you default on a debt.

What Creditors Can and Can't Repossess (In a Nutshell)

While credit agreements differ and laws vary from state to state, generally, creditors can repossess:

• motor vehicles, including cars and motorcycles
• rent-to-own items, and
• any secured personal property you pledged as collateral for a debt.

They can't, however, usually take:

• property you haven't designated as collateral
• things you bought with a credit card, and
• property named as collateral in an unenforceable contract.

What Is Repossession?

When you default on a secured loan, like by not making your car payments, the lender can take the vehicle (the collateral) from you. Taking the collateral is called "repossession." Repossessions are usually "self-help," which means the creditor takes the item without getting a court order ahead of time.

How Does Repossession Work?

Many states allow repossessors to enter private property to complete a repossession, so long as the taking is without breaching the peace. That is, the creditor can't use or threaten to use physical force against you to repossess the property.

If the creditor or its agent breaches the peace during a repossession, like by pushing you aside and breaking into your locked garage to repossess your vehicle, you can file a lawsuit against that creditor. But it's usually legal for a repossessor to, for example, hotwire a car or use a duplicate key to take a car.

What Happens If a Creditor Can't Find My Car to Repossess It?

If a peaceable retaking isn't possible—again, say you locked your car in the garage so the repo company can't get it—the creditor may use a replevin process to get possession of the item. With replevin, the creditor goes to court to get an order requiring you to hand over the property.

What Items Can Be Repossessed?

If you fall behind in payments for a secured debt or fail to comply with an important term of the security agreement, you've "defaulted" on the debt. In some cases, like if you let insurance lapse or you become insolvent, the lender might have the right to declare a secured debt in default, even if you're current on payments.

Under most security agreements, the creditor may then take the property you pledged as collateral without going to court and getting a judgment beforehand. Here are a few items that creditors can generally repossess if you default.

Your Car Can Be Repossessed

Most auto loan contracts give the creditor the right to repossess the vehicle if you default. It doesn't matter if you got the loan through a dealer, a bank, a credit union, or another lender. And the lender usually isn't required to give advance notice before taking the car.

After repossessing your motor vehicle, the lender will sell it to recover the money you owe. If the outstanding loan balance is more than the sale price, you might be held responsible for paying the deficiency plus the creditor's repossession expenses.

You Can Also Lose Rent-to-Own Items to Repossession

Items you rent with the option of purchasing, like furniture, electronics, and appliances, can be repossessed. But the creditor can't just go into your home and take your sofa, television, or other rent-to-own items. The creditor has to get a court order or permission from someone in your household to enter your home.

But if you leave the property sitting in the backyard, perhaps a new gas barbecue and lawn furniture, it's likely fair game. However, the repossessor can't break down a fence to get into your backyard or toss you off the lawn furniture to get it.

Property Used as Collateral Can Be Repossessed

Again, a debt is "secured" if a specific piece of personal property (called "collateral") is used to guarantee repayment. If you don't repay the debt or are in default on a loan for some other reason, most states let the creditor take the secured property without first suing you and getting a court judgment.

Example. You have a car that you don't owe any money on, and you offer it as collateral for a loan to start a new business. If you fail to fulfill the terms of that loan agreement, the lender can take your car.

If you're unsure about whether a particular debt is secured, check your credit agreement. The agreement will also detail what would put you in default on the loan, like being behind on your payments or not maintaining proper insurance.

What Items Can't Be Repossessed?

Creditors who don't have a security interest in an item of property can't take it without a judge or court clerk's approval. Be aware, however, that the creditor can sue you in court to recover the money you owe. If the creditor wins the lawsuit, it might be able to garnish your wages, put a lien on property you own, or seize and sell your personal property.

Here's what creditors can't repossess if you default on a loan.

Creditors Can't Repossess Property Not Specifically Named as Collateral

If something isn't specifically named as collateral for a debt, it can't be repossessed. For example, say you have an unsecured personal loan and a car loan. You default on the personal loan. As long as you continue to make payments on the car loan, the bank can't repossess your car because it wasn't explicitly named as collateral for the personal loan.

Credit Card Purchases Can't Be Repossessed

Credit card debt is unsecured, which means the credit agreement doesn't name anything as collateral for the loan. So, items you purchased with a credit card can't be repossessed.

Creditors Can't Repossess Property Named as Collateral in an Unenforceable Contract

A contract that doesn't comply with your state's legal requirements might be void and unenforceable. If the contract is unenforceable, the creditor might not be able to repossess the collateral named in the agreement. A lawyer can review a contract for validity and advise you of your consumer rights.

How Can I Avoid a Repossession?

If you're behind on your payments for a secured debt, it's a good idea to communicate with your lender. Your lender might be able to offer you a solution, such as a reduction in payment amount or interest rate, that can help you catch up on your payments and avoid repossession.

Talk to an Attorney About Repossession

If you think a lender didn't comply with the law when repossessing an item from you, consider talking to a lawyer. A lawyer can help you raise the issue directly to the lender or help you file a lawsuit in court.

Also, you might want to consider talking to a lawyer if the lender comes after you for a deficiency following a repossession. You might have a defense to the deficiency or have options to avoid paying it.