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What is repossession?

Produced by South Coastal Counties Legal Services, with funding from American College of Bankruptcy Foundation
Reviewed February, 2021

"Repossession" is when a lender that has a security interest in property takes that property.  A security interest means that you gave a lender rights to your asset like a car or a home when you got your loan. 

In your loan, you probably made three promises:

1) to pay back your loan, personally; and,

2) that if you do not pay back the loan, the lender can take the item and sell it to pay back the loan; and,

3) if the asset the lender took is not worth enough to satisfy the debt, you still owe what is left of the debt.

Usually, repossession happens with cars or trucks. If the lender wants to take back your house it is called “foreclosure.” There are laws just about foreclosure that a lender must follow. 

Look at your loan contract. If you signed a contract that says, “if I default the lender can repossess or take my car or truck,” you gave them a security interest in that car or truck. "Default" means missing payments. See Am I in default?

Most vehicle loan contracts say that there is a default even if you only miss one payment. If your contract says they can, the lender can take your car or truck back without going to court. Many loan contracts give lenders this power. 

After the lender takes the car back, it will sell it at an automobile auction. Usually, the lenders get a price lower than you would expect at the auction. Any money it gets for the car goes to pay off the repossession and storage costs, the costs for the auction, and the amount of the loan you owe. If your lender sells your car for less than the total amount you owe, you will still owe the lender money. The lender may still try to make you pay the loan. You could lose your vehicle and still have to pay for it!  See Can they sue me?

Or the lender may "write off" the amount you owe.  If they forgive you your debt, not having to pay that money back makes it income for you.  It may be "taxable income."  This means you may have to pay taxes on the amount they forgave. 

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