Repossession

Repossession is the process by which a lender recovers collateral that secured a loan when the borrower defaults. It is most commonly associated with loans secured by personal property such as cars, boats, equipment, or consumer goods. Mortgages are a related remedy, but foreclosure is the term typically used for reclaiming real estate.

In many jurisdictions, repossession can proceed as self-help or with court involvement. Self-help repossession allows a creditor to take possession of the collateral without prior court action, provided the process does not breach the peace. If self-help is prohibited or risky, the lender may obtain a court order to seize the collateral. After taking possession, the lender usually sells the collateral, often at an auction or through a private sale, to recover the outstanding loan amount plus costs. Notice requirements and sale procedures vary by jurisdiction.

Proceeds from the sale are applied to the debt. If the sale price exceeds the balance and costs, the surplus is returned to the borrower. If the sale price is less than the debt, a deficiency may remain, potentially subject to a deficiency judgment under applicable law. Borrowers may sometimes redeem the collateral by paying the debt before sale or within a statutory period after repossession, depending on local rules.

Impacts and protections: repossession can seriously affect a borrower’s credit report and score. Borrowers may voluntarily surrender the collateral, negotiate payment plans, or contest improper repossession in court. Regulatory protections exist in many countries to curb unlawful methods and ensure fair treatment, with rules varying by jurisdiction. Repossession is distinct from foreclosure, though both involve creditor remedies to recover losses when borrowers default on secured loans.