If you have been unable to meet your monthly debt payments in their entirety, you may be wondering what is going to happen to your valuable assets. Perhaps you’ve been told that your creditor will be able to repossess all of your property because you have defaulted on the agreement of your loan. In reality, there are strict laws that dictate what assets a creditor is legally entitled to repossess.
When you were preparing to buy your house, you probably took out a mortgage loan. The terms of your mortgage likely assigned the house itself as collateral in the event of default, so your creditor will be able to repossess this asset if you are no longer able to make your monthly mortgage payments. The process of repossessing a home is known as foreclosure. Typically, the lender will sell the house as a means to recover the remaining balance of the loan.
If you used a car loan to purchase your vehicle, your lender is legally entitled to repossess the vehicle in the event of payment default. As with home repossession, your lender will most likely sell your car in an attempt to recover the outstanding balance left on your loan. If there is still a balance left on the terms of your loan after your lender sells the vehicle, you may be held accountable for paying the difference.
Your property pledged as collateral
Only property specifically pledged as collateral may be taken during the repossession process. If you haven’t named an asset as collateral in the terms of your loan, your lender won’t be able to take it. However, any personal property used to secure a loan may be repossessed if you fail to make your scheduled payments.