It may seem as if a creditor has all the power in a loan agreement, but there are limitations as to what a creditor can and can’t take from you if you fall behind on loan payments. An article by Nolo breaks down what creditors can and can’t take when a loan defaults.
What Can Lenders Repossess?
Nolo explains that in some loan agreements, a possession or property is listed as collateral. Collateral means that the borrower has pledged something to serve as protection for the lender in case the borrower fails to make payments under the agreement’s terms. This collateral can be repossessed under the terms of the loan if payments aren’t made on time.
Vehicles are considered collateral in auto loan agreements. If the borrower falls behind on payments, the lender maintains the right to repossess the vehicle, usually without any prior notice. If the vehicle is sold for less than the remaining loan balance, the borrower may still be responsible for paying the outstanding amount.
The same is true for homes. If a borrower doesn’t make timely mortgage payments, the lender can repossess the home. This is known as foreclosure. The home is then typically sold as a means of recovering as much of the remaining loan balance as possible.
Rent-to-own items can also be repossessed. This could include items like furniture or appliances that were rented with the option of buying.
What Can’t Lenders Repossess?
Lenders can’t repossess property that isn’t specifically listed as collateral in the terms of the agreement. Credit card purchases also cannot be repossessed if you fall behind on payments. And even if some property is listed as collateral in the agreement, a contract can be void if it doesn’t comply with state legal requirements. It’s also important to keep in mind that a creditor can sue you in court to recover money that you owe if the loan agreement doesn’t list collateral.
If you think your consumer rights may have been violated with an illegal repossession, contact us.