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Repossession: What It Means For You

car on tow truck

“Repossession” is probably the scariest word in the financial lexicon this side of “bankruptcy.” Basically, if you bought something with a bank loan and they have a lien on it, and you stop making payments, the bank can take it back.

That means your car or your house might not be your car or your house for much longer if you fall behind. However, you’ll have more than ample warning when it comes to repossession. Here’s your guide to what repossession is, how to avoid it, and what to expect if it’s about to happen to you.

Why Was Your Property Repossessed?

If you haven’t been making payments, well, there’s your answer. In some cases, however, it might not be quite that obvious.

For example, in some states, if you fail to maintain adequate insurance on your car, that can be grounds for repossessing the vehicle. This is especially true if you car is loaned or leased rather than owned in tandem with the bank.

Can You Get It Back?

In most cases, yes, you can get it back. However, there are a number of stipulations to this “yes” that might turn the answer into a “no.”

For example, let’s continue talking about cars. If you have had your car repossessed, you’re going to need to pay back any missed and late payments before you get the car back. You’ll also have to pay fees and costs associated with the repossession, which likely cost your lender a pretty penny. And, in may cases, the repossession will remain on your credit report.

Before you even start negotiating with your creditor to get your property back, you need to ask yourself some hard questions about why you had your property repossessed in the first place.

If you get your property back, can you actually afford it? In the case of a car, this means not just the payment, but also the insurance, the gas, the upkeep, and everything else associated with car ownership. If the answer is no, then you’re just going to end up back where you were before. In this case, there’s not much point in trying to get your property back. You should look into other options, like public transportation or carpooling.

Another question to ask yourself is if you’re going to declare bankruptcy. Because, oddly, if you are, then it does make sense to get your car back. This is because you’ll be restructuring your debts, so you might be able to afford the car once you’ve done that. Your lender might also work with you during bankruptcy to change your payment plan to something more manageable.

You Have Rights

Your lender can repossess a vehicle, but they can’t keep your other property that’s inside of it. You’re allowed to get all of your stuff out. They can’t sell your possessions to make up for what you owe them. This protection does not apply to things you’ve installed in the car, like nice rims or a world-class stereo system. In some states, the repossessing company has a duty to furnish you with a list of items in the car and the procedure to get them back. In other states, you have to ask.

What’s more, a repo agent can’t destroy your property to get your property. That means if you have the car garaged, they’re not allowed to break in for the purpose of repossessing your property. That’s against the law, and if they do so, it’s time for you to contact a consumer protection attorney and seek damages.

What Happens After Repossession?

After repossession, you might still owe money on the car. And, of course, your credit rating is going to take a serious hit either way. But it’s going to take an even bigger hit if you owe money and don’t repay it.

Here’s how it works: You owe another $10,000 on the car, which sells at auction for $7,000. Guess where the lender is going to come looking for the $3,000 it lost?

The best advice is to stay on top of the terms of your loan. Then you won’t have to worry about seeing the repo man.

This post was originally posted on The Simple Dollar and was written by Nicholas Pell.