Education for Justice

FACT SHEET C-5

Fall 2010

 

YOUR RIGHTS IN REPOSSESSION

 

 

 

WHAT IS A CREDITOR?

A creditor is a person or business who you owe money to.  For example, if you buy a car and are making monthly payments to the car dealership, then the dealership is your creditor.

 

 

WHEN CAN A CREDITOR REPOSSESS?

  • The creditor must have a paper, usually a loan signed by you, which describes the property and gives the creditor the right to take it if you do not pay (default on) the loan.  The property is the “collateral,” and the creditor’s right to take it is the security interest.

 

  • A default is usually a missed, partial, or late payment.  But it can also be the violation of other parts of your loan – for example, if you do not buy insurance and the loan said you had to.

 

  • Paying part of what you owe usually will not stop a default – unless you make a new, written agreement with the creditor.  But if a creditor regularly takes late or part payments from you, they may give up the right to repossess.

 

  • If you have filed for bankruptcy, the creditor cannot repossess without permission of the bankruptcy court.

 

 

WHAT PROPERTY CAN MY CREDITOR REPOSSESS?

·        The creditor can only take what your agreement with them allows.  For example, they cannot keep your TV just because it was in the trunk of the car they repossessed.  If they take anything extra and won’t give it back, send them a letter right away demanding it back.  Keep a copy of the letter.  You can sue to get it back. 

 

·        Some things cannot be repossessed, unless the creditor lent you the money to buy them.  For example, all of your family’s clothing, food, utensils, and one watch are protected.  The first $9,450 of your family’s household furniture, appliances, stereo, radio and TV are also protected unless the loan was to buy these items.   But if you bought them on a charge card from a store, and you didn’t pay the bill, then the store might be able to repossess them.

 

 

 

 

WHAT METHODS CAN A CREDITOR USE TO REPOSSESS?

  • The creditor can use self-help.  They can take back the property without the sheriff if they do not “breach the peace.”  This means they can ask you for the property, but if you won’t give it back, they have to leave.  If you are not there to object, they can take the property back.  But they cannot break into your home or garage to do it.  For example, they can tow your car from your driveway or the street.

 

OR

 

  • They can start a court action called “replevin.”  In a replevin, the sheriff does the repossession with a court order.  You must obey the sheriff.  If you do not think the repossession was correct, you can file papers with the court asking for the property back.

 

 

WHAT IF A CREDITOR THREATENS REPOSSESSION?

  • If possible, talk to a lawyer.  A lawyer can look at the loan papers to see whether the creditor really has the right to repossess.  If you also have other debts, you need to think about an overall strategy – like setting up payment plans or filing bankruptcy.

 

  • Remember that you can bargain with the creditor.  Repossession costs them money.  They might not repossess if they can help it.  You may be able to set up a payment plan that will work for you.  Do not ignore the problem.  Talk to them and get any agreement you make with them in writing.

 

 

SHOULD I LET THEM REPOSSESS?

You have to think over the good and bad side to this based on your case:

  • Good side – giving them the property back might save you money in the long run.  They spend less money getting it back, and can re-sell the item more quickly.  This means less costs they will charge you.  Also, you can bargain for some things in return for giving back the property.  Ask if they will lower the amount you owe if you return the property.  Get any agreement in writing.  It must be dated and signed by you and the creditor.  Keep a copy.

 

  • Bad side - If you do not give up the property they have to file a court action to get the property.  A court action can be good if you have some legal defenses to the repossession or the loan.  The problem with it is that the creditor can charge you for their legal costs.

 

If you do not let them repossess be firm but polite.  Do not get into a fight or make threats.  If you have any trouble, call the police.

 

 

WHAT HAPPENS AFTER THEY REPOSSESS?

·        They can sell the property and apply the money they get to your debt.  The sale must be “commercially reasonable”.  This means they must try to get a fair price.  They must give you notice of the time and place of a public sale.  Often, they use private sales.  If it is a private sale, you must get reasonable notice of a date after which it will be sold.  Before any sale, you can get the property back by paying the loan and repossession costs.  You may also be able to work out a payment plan, or find another buyer who would pay a good price.

 

·        The creditor may keep the property and cancel the debt.  They must notify you first.  If you think a sale of the property would bring more money than you owe, you can object within 30 days and force a sale.  This can be risky, so talk to a lawyer first.

 

 

CAN MY CREDITOR STILL SUE ME AFTERWARD?

Sometimes.  If you owe them more than they got from the sale, they can sue you for the difference if the loan you signed said they can do this.  But state law says they cannot do this if the loan was $6,300 or less when you got it.  This means how much the loan was at the time you got the loan, not how much you owed when they repossessed.  You may have other defenses too, so call a lawyer right away if you get sued.

 

 

WHAT CAN I DO IF MY RIGHTS WERE VIOLATED?

If you think your creditor acted illegally, seek legal help.  If you have a low income, call your legal aid office.  If the creditor broke a law, they may not be able to win a judgment against you.  You might also be able to sue for money damages and to get the property back.

 

 

 

  

 

 

 

 

Minneapolis Legal Aid – CLE

MN Legal Services Coalition

2324 University Avenue W. – Suite 101B

St. Paul, MN 55114

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