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Know the Limits of Repossession

Sep 5, 2008
Repossession is always a dreadful event. You may now be financially stable in general but once you are faced with monetary setbacks, you may fall behind your loan payments. When you do not pay your loan on time or in full, your creditor can take the properties that you used as collateral for your loans. They can do so without the need for a court judgment.

However, you have to note that not everything can be repossessed in case you fail to pay your loans on time. There are some possessions that lenders cannot take even if you used the loan to purchase properties. However, they can always sue you.

Properties that can be Repossessed

Your Home

When foreclosure occurs, the lender can repossess your home. Since you purchased your home using a mortgage, your home is actually the collateral for your loan. As such, if you do not pay for your mortgage payments, the lender can evict you and sell your home.

Your Car

If you have a car loan from a dealer or a bank to purchase your car, you actually have given the creditor the right to automatically repossess the vehicle if you fail on your installment payments. The lender can sell your car. Worse, if the sale price cannot cover your loan balance, the lender can ask you to pay for this balance notwithstanding the fact that you have lost your car.

Items that were Purchased with Rent-to-Own Arrangements

Any item that you acquired through a rent-to-own agreement is considered the security or collateral for the debt. The examples of these items are furniture, appliances, and tools. If you fail to pay for the "rent" on time, the lending company can easily repossess the rent-to-own items.

Off-Limits to Repossession

Non-Collateral Properties

Anything that you did not declare as security or collateral for a loan cannot be repossessed. For example, you have a car loan and a home mortgage from a lending company. Now, if you fail to pay for the car loan but you were able to pay on time and in full for the monthly house payment, the company can repossess your car but cannot take possession of your house.

Properties that You Purchased Using Your Unsecured Loans or Your Credit Card

If a loan is unsecured such as a payday loan or a credit card debt, this means that you did not declare any property as collateral for that loan. As such, according to the credit agreement, no property can be repossessed once you default on your loan payment. Regardless if you used the money to purchase home appliances, furniture, and other properties, the lender cannot take possession of anything.

Collateral for Unenforceable Credit Agreements

If you have properties that you declared as collateral for credit agreements that are otherwise unfair or unreasonable, you can actually ask your lawyer to review the contract. In some cases, credit agreements can be declared as unenforceable contracts. This means such contracts cannot be implemented since they do not comply with your state's legal statute. They can be classified as void and you may not suffer from repossession.
About the Author
Real Claims and Consumer Credit Claims are a group of solicitors dedicated to miss sold loans and payment protection insurance.
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