Repossessions and Bankruptcy

Many consumers file for personal bankruptcy because they have a substantial amount of both secured and unsecured debt. When it comes to unsecured debt, there is no need to be concerned about the possibility of a repossession unless you have pledged your personal property as collateral in order to get the loan. With secured debt, however, the creditor may attempt to repossess the property for which you have the secured debt—such as a car or rent-to-own furniture. Yet understanding how repossession works with regard to bankruptcy can be complicated. Our experienced Oak Park bankruptcy attorneys want to provide you with more information about consumer bankruptcy and repossession.

What is Repossession?

When you have secured debt, which means there is an asset to secure the loan, the creditor often can repossess the property that secures the loan. Secured loans include auto loans, as well as loans for any tangible item that is in your possession that you are paying off over time (such as furniture, for example). In addition, secured debt can include a line of credit for which you put up collateral, which is personal property you offered in order to secure the loan. Repossession occurs when you default on a loan and the creditor takes—or repossesses—the property that secures the loan.

Creditors Cannot Repossess Simply Any Property

You should know that, if you default on a loan, a creditor is not allowed to repossess simply any property you own. The only property that can be repossessed is property for which the creditor has a security interest. Accordingly, if you default on an automobile loan, the creditor may be able to repossess the automobile. If you default on a rent-to-own furniture loan, the creditor may be able to repossess the furniture. Or if you offer property as collateral and default on the loan, the creditor may be able to repossess the property specifically identified as collateral.

A creditor cannot repossess, for instance, items purchased on a credit card if you cannot afford your credit card payments. The creditor may be able to take other actions against you, but repossession is not typically one of them.

Automatic Stay in Bankruptcy Prevents Repossession

Once you file for consumer bankruptcy, the automatic stay attaches. The automatic stay prevents a creditor from taking any action against you to recover debt, including filing or moving forward with a lawsuit against you, taking action on a foreclosure, attempting to garnish wages or accounts, and repossessing security interests. To be sure, once you file for consumer bankruptcy, a creditor cannot then repossess your property. However, creditors can ask the court for relief from the automatic stay in order to repossess a vehicle, for example. A bankruptcy lawyer can help you to negotiate with the creditor to avoid having the bankruptcy court lift the automatic stay for a particular creditor.

Assets Repossessed Before a Bankruptcy Filing are Not Protected

The recent U.S. Supreme Court decision in City of Chicago v. Fulton clarified that a creditor likely does not have to return property that has been repossessed prior to a bankruptcy filing. The automatic stay only applies to property that could be repossessed or impounded once the bankruptcy petition is filed.

Contact Our Oak Park Bankruptcy Lawyers

If you have questions about your rights concerning repossession in a bankruptcy case, one of our experienced bankruptcy attorneys in Oak Park can speak with you today. Contact the Emerson Law Firm to learn more about how we can assist you.



See Related Blog Posts:

Top Reasons for Hiring a Consumer Bankruptcy Lawyer

If a Family Member Cosigned a Loan, Can I Still File for Bankruptcy?

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