What is repossession and how can bankruptcy help you avoid it?

Repossession is a legal process where a lender or seller takes back property that was purchased through a loan or financing agreement when the borrower fails to meet the terms of that agreement. Typically, repossession applies to items such as cars, appliances or other large-ticket items that are financed over time. 

While repossession may be a necessary step for lenders to recover their losses, it can be a stressful and disruptive event for borrowers. Understanding what repossession is and how bankruptcy can help you avoid it is important for protecting your financial future.

What is repossession?

Repossession occurs when a lender or creditor takes back property due to the borrower’s failure to fulfill the terms of the loan or lease agreement. This usually happens when a borrower falls behind on payments or defaults on the contract. 

Repossession laws vary by state, but in Tennessee, the following principles apply:

1. Default on loan payments: If you miss several payments or fail to adhere to the terms of your financing agreement, the lender may initiate repossession. In some cases, this can happen even if you miss a single payment, depending on the contract.
2. No need for court approval: In many instances, lenders can repossess property without going through the courts, as long as they follow the laws and do not breach the peace during the process. For example, they may send a repossession agent to take the property, but they cannot force entry or damage your property. 

Repossession can be detrimental to your financial well-being, as it not only results in the loss of essential property but can also negatively impact your credit score, making it harder to secure loans or financing in the future.

How bankruptcy can help you avoid repossession

If you are facing repossession due to missed payments, filing for bankruptcy may offer a solution. Bankruptcy provides several protections that can help you keep your property and avoid repossession.

1. Automatic stay: Once you file for bankruptcy, an automatic stay goes into effect, which immediately halts all collection actions, including repossession. This gives you time to catch up on missed payments, renegotiate your loan terms or explore other options for keeping your property.
2. Chapter 13 bankruptcy: If you are facing repossession and want to keep your property, Chapter 13 bankruptcy may be a viable option. This type of bankruptcy allows you to restructure your debts and create a repayment plan to pay off the arrears over a period of three to five years. By following this plan, you can avoid repossession and keep your property.
3. Debt discharge: In some cases, bankruptcy may allow you to eliminate unsecured debts that may have contributed to your financial hardship, freeing up resources to make timely payments on your secured loans and avoid repossession.

If repossession is looming over you, it is important to understand your options and seek legal guidance. Consulting with a bankruptcy attorney can help you determine the best course of action to avoid losing your property and to regain control of your financial situation.