When you start to fall behind in your loan payments, it is a slippery slope. When finances are tight, it can be very difficult to regain your footing in your payment schedule. Many people fear losing all of their belongings when creditors come to repossess your property to recoup their losses on their loan, but fortunately, there are very strict rules in place for what creditors can and cannot take.
Safe From Creditors: Your Items That Cannot Be Repossessed
One of the most important things to remember when it comes to repossession is that creditors cannot take what has not been expressly named as collateral in your loan agreement. Many people confuse repossession with bankruptcy, assuming that they have to give up anything to settle their debts with creditors.
Fortunately, this is far from the truth. Even if you have multiple loans with the same bank—say you have both of your cars and your home financed through Bank of America—the bank could only repossess the collateral for the specific loan you defaulted on. So, should you default on the loan for your second car, the bank can only repossess that car; your first car and home are immune unless you default on those loans.
Another common misconception is that your credit card company could repossess items that you bought with your credit card. Credit card debt is unsecured, which means it is not attached to collateral.
What Is at Risk for Repossession
You probably sense the trend—anything named as collateral for a loan can be repossessed if you default on that particular loan. These loans commonly involve mortgages, car loans, and car title loans; this means that cars and homes are often repossessed to recover the lender’s losses on the loan.
While defaulting on loans is not a sure-fire sign that you should file for bankruptcy, it is often a red flag for the financial conditions that may lead you into further trouble. Many times, filing for bankruptcy can help alleviate your overwhelming debt. For more information about what bankruptcy could do for you, contact our firm today for a free consultation.