When taking on a secured loan, you anticipate that you will manage to pay back the loan in time. However, hard economic times and other life demands can result in your inability to repay your loan. When you are not able to settle your debt in time, you may begin to worry that the creditor may repossess the property you used as collateral for the loan. You may also be worried about how far the creditors can go in terms of the property and assets they can take away to pay the loan. The Los Angeles Bankruptcy Attorney is here to give you information on the property that the lender can and cannot repossess. We will also help you with any legal proceedings that arise from your inability to make your loan payments.
What is Repossession?
Repossession is the legal right for creditors to retake possession of property held as collateral, in case the debtor defaults on payment. Repossession can be voluntary or involuntary. Voluntary repossession is where you willingly give the property to the creditor when you realize you cannot afford to make a monthly payment. Involuntary repossession occurs when the creditor initiates the repossession process.
Defaulting on a loan could mean many things to your creditor. The most common default is failing to make a monthly payment. Even when you have made a payment, your creditor may mark your loan as default under the following circumstances:
- You sell the collateral
- You have become insolvent
- You refuse to let the creditor examine the collateral
- The collateral is destroyed or stolen
- There is a substantial decline in the value of the collateral
- You fail to renew the insurance on the collateral
- The lender is unsure of your ability to repay the loan. The creditor can doubt your ability to repay when they learn something worrisome about your finances.
Repossession is bad for your credit. It reflects your inability or lack of commitment to your debts. When you realize you may be unable to make your regular payment, you can notify your lender so that you restructure your loan. Restructuring enables you to make smaller monthly payments or enjoy reduced interests or both. It would be best if you also let your lender know of changes in your finances such as a layoff.
Before repossession takes place, your creditor gives you a short time to cure your default. They will provide you with a notice of default. The notice gives you time to correct the situation that led to your negligence. To cure a default, you must fulfill all your obligations that led to the default. This includes renewing your insurance, allowing the creditor to examine the collateral and discuss with your creditor your ability to repay the loan. For a mortgage, you have to catch on defaulted payments for the reinstatement of the lease.
Once the period elapses, and you are still in default, the creditor will proceed to repossess.
In most cases, creditors will often give you time to correct your default. For auto loans, some creditors will repossess after your first missed payment. For mortgages and real estate loans, lenders typically give you a notice of default after two missed payments (60 days). They will then initiate foreclosure after 90 days from the first missed period.
Understanding the repossession laws and requirements in California will help you learn of your rights in a repossession, which includes understanding what can and cannot be repossessed.
What Can A Creditor Repossess
Creditors can repossess a variety of items, including:
Vehicle repossession happens when you take out a loan to purchase a vehicle. Your creditor will take the car upon defaulting on your loan. The vehicle is sold to offset the loan. However, since a car depreciates, the recovered amount may be insufficient to cover your loan amount. You will be required to pay the remaining balance.
Since the car was the collateral used for an auto loan, the remaining balance becomes an unsecured debt, which can be discharged through a chapter 7 bankruptcy.
Your creditor needs to take note of personal items that were in the car and notify you on how to access them.
- Rent-to-own items
Rent to own items are those you purchase and make small regular payments until you offset the balance. A creditor can repossess the items when you default on your payment. Average rent to own items include TVs, refrigerators, and furniture.
- Property used as collateral
When taking a secured loan, the lender requires you to attach some of your property as security for the loan. Therefore, when you default on a payment, the property will be taken and sold off to offset the loan. A lender can also repossess property that has been used as collateral for another loan such as a mortgaged property.
Other items that can be repossessed include jewelry and artwork.
What Creditors Cannot Repossess
- Property not named as collateral
Property has to be named as collateral in securing a loan.
- Credit card purchases
Credit card purchases are a form of unsecured loans and therefore, not eligible for repossession.
- The property is named as collateral in an invalid contract
The lending contract must be legally enforceable for a repossession to be legal. Therefore, the lender must have a contract that meets the requirements of California for them to repossess any property. If a lender repossesses property named as collateral in an invalid deal, you will need the help of an attorney. Your attorney will help you in determining the validity of the agreement.
A wrongful repossession occurs when your creditor repossesses your property when a default has not happened. When applying for the loan, you and your creditor enter into a contract, which includes situations that constitute a default. When your creditor repossesses for a condition that is not in your agreement, then you have the right to sue them for wrongful repossession.
Instances of wrongful repossession include:
- Repossession of property on collateral even after the loan is paid in full
- Your creditor repossesses after agreeing to a late repayment date. You need to have the agreement in writing to make it legally enforceable and provide proof of the agreement.
- The repossession agent breaches peace during the repossession by using force or threats to repossess.
- The repossession agent uses law enforcement officials during the repossession. This becomes illegal when the officers actively engage in the repossession
- The creditor fails to follow the right procedure for repossession. The repossession procedure includes a notification of the intent to repossess.
- The creditor repossesses a property that is not part of the collateral
- The repossession agent destroys property during the repossession. The repossession agent is required to uphold peace during the repossession. The agent should, therefore, not break into the property of the debtor or disturb the peace of the neighbors.
- The creditor has no right to repossess; the creditor has the right to repossess if you default on your loan only, or fail to meet the conditions of your loan agreement. If you meet all the terms and have made all your payments, you can sue your creditor for wrongful repossession.
You should hire an attorney if you are the victim of a wrongful repossession. Your attorney will help in protecting your rights as well as your property.
How to Avoid Repossession
As mentioned earlier, a repossession impacts negatively on your credit history and credit score; therefore, it is best to avoid repossession. Here are some ways you can prevent repossession:
- Refinance the loan
Refinancing involves getting a new loan with low-interest rates, a more extended payoff period or both. Such loans have a longer repayment period and are affordable for most people. A refinanced loan will help you repay the existing loan, thus avoiding a repossession. Before refinancing, you need to take into account the associated fees and requirements for the payment of these fees.
Your current lender can refinance a loan, or you can use a refinancing product from another lender. The lender will pay off the outstanding loan, leaving you to pay them the new outstanding loan. Refinancing a loan is the best choice if you have a good credit score and do not have many debts.
- Repay the missed or late payments
Most lenders will not repossess immediately after a late or missed payment. They still give you some time to catch up on your payments. You can still make the late or missed payment in time to save your assets from repossession.
- Have the loan reinstated
Reinstating a loan means, you make all delinquent payments at once to bring your loan up to date. In a loan reinstatement, you will need to pay the back and current payments that are due, late fees, attorney fees, a recording fee and expenses incurred by the lender in protecting their interest in the property.
- Communicate with your lender
You may be going through a transition of events that may cause you to miss a payment or pay later. When you are experiencing a change that will affect your ability to pay your loan, you need to talk to your lender to negotiate new repayment terms and options available to you in your present situation.
Some lenders allow for a forbearance negotiation in which the lender gives you a temporary period in which you do not repay your loan. Forbearance on loan gives you time to reorganize your finances while avoiding repossession. It would be best if you restarted your loan repayment after the forbearance period elapses.
- Apply for a government assistance program
If you have a mortgage, you can apply for government-sponsored programs such as the Home Affordable Modification Program, the Department of Housing and Urban Development and the Home Affordable Refinance Program. The federal government helps homeowners avoid a foreclosure (repossession of mortgaged property) sponsors these programs
- File for bankruptcy
Bankruptcy provides a safety net and a relief for you if you are overwhelmed by your debt. Without the legal provision to apply for bankruptcy, most people would be unable to recover from the effects of unpaid debts.
In California, you can file for chapter 7 or chapter 13 bankruptcies. A chapter 7 bankruptcy discharges you from some debts. Also, you get an automatic stay on all your debts meaning that creditors cannot legally repossess your property or initiate any debt collection efforts without a court order. You qualify for a chapter 7 bankruptcy if you do not have the means to repay your loan. The means test calculates whether your income is above the median state income. If it is above the median, you need to calculate the amount of disposable income available after subtracting the necessary expenses. You cannot qualify for chapter 7 bankruptcy if you filed for a similar bankruptcy in the past eight years or a chapter 13 bankruptcy in the past two years.
Chapter 13 bankruptcy allows you to reorganize your finances. In this case, you get to keep your property on the condition that you repay a substantial amount of the debts within 3-5 years. During the repayment period, you will need to pay a certain amount to a trustee who will then allocate the finances to various obligations depending on their priority. After the 3 or 5-year period ends, all your outstanding debts will be discharged. You need to show your commitment to repaying your debts and make timely payments to avoid a dismissal of the bankruptcy.
When trying to avoid repossession, do not hide your vehicle from the lender. Hiding the car is unlawful and could lead to a lawsuit.
How to Recover Assets From A Repossession
When your efforts at avoiding a repossession fail, you still have a chance at redeeming your credit history and score.
- Find out whether you can get your property back
When a lender repossesses your property, they will most likely sell it through auction. You can speak with your lenders to determine whether you can recover the property before it is auctioned.
- Improve your credit
A repossession hurts your credit. A repossession stays on your credit history for seven years. When you go through a repossession, you can build your credit history within these seven years by repaying other debts and bills on time. This will add up to an excellent credit history.
After the repossession, you need to speak to your creditor to identify whether any arrears that need repayment after the auction of your property.
Can I Remove Repossession from my Credit History?
The mark of a repossession stays on your credit history for seven years. This means banks and other lenders will be reluctant to lend you money with the fear that you may fail to repay your debts. You can remove the repossession from your credit history by communicating with your lender immediately after the repossession. They will tell you what to do to reinstate the loan and clear the repossession from your history.
Sometimes, you can file a dispute with the credit bureau to which the lender should respond in thirty days. Failure to respond will have the repossession removed from your credit report.
When all fails, you have to wait for seven years for the repossession to be removed.
Facing a Lawsuit from a Creditor
Some creditors may resolve to go to the court to recover your debt or repossess your property after declaring bankruptcy. Before filing for bankruptcy, most debtors try to negotiate a repayment program. If your creditor doubts your ability to repay, they may file a lawsuit to recover their debt.
Some of the reasons a creditor will file a lawsuit include wage garnishment, repossession or foreclosure.
When a creditor files a lawsuit against you, you must show up in court if you hope for any positive outcome on your part. Failing to appear automatically defaults the case meaning the creditor wins.
As soon as your creditor issues you with a notice to attend court, you need to contact a lawyer to help you fight the case to get a favorable outcome. You can work with your lawyer to negotiate a settlement outside the court or challenge the lawsuit in court.
Whatever option you choose, your lawyer will dispute the creditor’s claims by providing evidence to support your argument. Evidence that can be used includes proof that the contract was invalid, proof of wrongful repossession, or proof that you did not sign the said documents.
When you successfully apply for bankruptcy, you should include a list of all creditors so that they are notified of your bankruptcy. The notification protects you from lawsuits a creditor may initiate to recover their debts. However, if you do not provide a list of all the creditors, the creditor can sue you for your debt.
Find A Bankruptcy Attorney Near Me
Repossessions can be a devastating time for you and your family. You may be facing economic hardships that are made worse by the repossession. The Los Angeles Bankruptcy Attorney will help you through this process by helping you protect your rights. This will include representation in court for wrongful repossession. You can contact our Los Angeles Bankruptcy Lawyer at 424-285-5525 for a free consultation.