When you buy something on credit, usually you sign an agreement (contract) that lists the payment amounts and when to make the payments. Often this contract says that the creditor may repossess (take back) the item if you miss any of the payments or do something else which breaks the contract.
What the creditor must do for a repossession to be legal:
1) Signed contract - The creditor must have the legal right to repossess your property. This means that the creditor must have a written document that says that the creditor has the title to your property. If you signed a contract with the creditor, the contract will often say that the creditor has a "security interest" in certain property. The security interest must be in property that is described in the contract or document. Even though the creditor has a security interest in your property, you have the right to keep the property as long as you make the required payments in a timely manner.
2) Advance notice - The creditor does not have to, and usually won't, give you advance notice or take you to court before a repossession. But the creditor can go to court and get a court order that requires you to give up the property.
3) Use of Force - Creditors and their employees cannot themselves use force, even with a court order. If the creditor does use forceful actions in a repossession (such as entering your garage or house without permission if there is no court order, or driving or towing a car away with you inside even with a court order), you can sue to make the creditor pay you money damages.
4) Items you own - Any items that you own that are taken when something is repossessed should be returned to you. When a car is repossessed, you can keep any of your things that are in the car. If a creditor refuses to return your possessions after you contact them, you may be able to sue for damages.
Defenses to Repossession
Repossession is not allowed unless the creditor has a security interest in the property, and unless you have broken your contract. If an item is repossessed when there is no contract that allows this, you may be able to sue the creditor. You might also have a defense to a repossession if the creditor usually accepted late or partial payments from you, or if there is a disagreement over whether you owe payments. Contact a lawyer if you have questions about repossession.
Can a repossession be stopped?
If the creditor does not have a court order, you legally can stop a repossession attempt by refusing to let a creditor into your house. This will block repossessors from taking items such as furniture, appliances or a vehicle in your garage. You cannot stop repossession of a car parked outside your home simply by locking it. But the creditor cannot damage your other property, such as a gate, to get to your car. If you do refuse to allow repossession, the creditor can get a court order requiring you to give up the item they want.
Another possible way you can get out of a repossession problem is to sell the item on which you owe money before it is repossessed. You do not necessarily need the creditor's permission to sell the item. But, if you sell the item, you will have to pay the creditor the amount of your debt, since the creditor is still the legal owner of the item. If you do sell an item yourself, be sure you make enough money from the sale to pay off your debt.
Before making decisions about repossession, such as whether you should refuse a repossession attempt or sell an item yourself, you should get advice from a lawyer.
Repossessions with a Court Order
Creditors sometimes get a court order to carry out a repossession. With a court order, the creditor can get police officers or sheriff's deputies to help in repossessing an item. The creditor might also get a court order that makes you pay money penalties instead of returning the item.
You should obey any court order the creditor gets. If you do not, the court can "hold you in contempt," which could mean fines and/or jail time for you.
Sales of Repossessed Items
A repossessed item may be resold privately or at a public auction. Money from the sale is used to pay off the debt plus repossession and resale expenses. The law says you must receive any money that is left over.
You must be sent a written notice that gives the time and place of the sale. Any time before the sale, you can get the item back by paying off the entire debt (not just the missed payments) plus repossession charges. You may also make a purchase offer or bid when the item is sold. The time and place of the sale, as well as the price of the item, must be reasonable. If not, you can sue the company. But repossessed items are sometimes sold for less than fair market value in auctions and resales. A low selling price alone is not the basis for a winning lawsuit.
Can you be sued after a repossessed item is sold?
Yes. If the creditor sells the repossessed item, the creditor will take the proceeds of the sale and apply them to the costs of repossession, the costs (if any) to repair any damage to the repossessed item, and the unpaid balance of your debt. If the sale of the property does not generate enough money to pay the unpaid balance of your debt in full, you are liable for the remaining balance. This balance is often called the deficiency. Of course, if there is money left over after the property is sold and your debt is paid in full, the creditor must return this surplus to you.