Repossession and bankruptcy laws

On Behalf of | Mar 31, 2022 | Wrongful Repossession

When financial times become tough, making regular payments on cars, motorcycles, consumer electronics, and other items could become challenging. If a Minnesota customer falls behind on payments, the lender may initiate a repossession. Not everyone understands how repossession laws work, and they may also be unfamiliar with how bankruptcy statutes intend to protect debtors and creditors.

Explaining repossession to customers

Repossession refers to the seizing of property by a lender when someone misses payments. So, if someone had a deal with an electric bike store to pay $50 a month for 18 months, repossession occurs when the customer misses a set number of payments. The same would likely be the case when someone uses a collateral bank loan to finance any purchase.

That does not mean repossession necessarily starts after one missed payment or immediately after the first payment. Repossession happens based on state laws and rules and the terms stipulated in the loan contract.

The lender may intend to sell any repossessed property to recover the loan funds. A lender often becomes lenient with a borrower or customer, knowing that repossessing property comes with costs. Sometimes, giving the troubled person enough time to catch up seems better for all parties. Not every debtor can become current, though.

Bankruptcy and repossessions

When someone files for bankruptcy, collection actions stop. That means someone won’t likely continue with repossession actions without the court’s approval. The court might review the case and allow the debtor to keep certain items.

The court could look at the equity remaining in a vehicle and determine if it is worth returning to the creditor. Essentially, an exemption amount could come into play, allowing the filer to keep a certain amount of personal belongings. However, don’t expect the court to show much leniency towards unnecessary, high-value luxury items.

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