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Collections

Popular culture abounds with images of tenacious bill collectors and "repo men," but the legal underpinnings of these activities are not always well understood. Collections and repossessions are remedies sought by creditors against debtors who have defaulted on their obligations. Collection refers to efforts to recoup money by proceeding directly against the debtor. Repossession allows secured creditors to seize the property that constitutes collateral for a debt, and sell it to satisfy the debt. If the collateral sale does not cover the debt, the debtor is personally responsible for the delinquent amount, i.e. the leftover difference, and the creditor may resort to collection techniques to receive the remaining money.

Creditors start collection efforts by contacting debtors to encourage payment. Many creditors will strike a deal with a debtor rather than pursue harsh collection strategies in order to keep the debtor as a customer. Often, however, creditors turn their delinquent accounts over to collection agents who work for a percentage of the amount recovered. Collection agents must abide by legal guidelines for their activities. The Federal Fair Debt Collection Practices Act (FDCPA) bars collection agencies from using unfair collection practices such as harassment and intimidation when the debt arose from an expenditure for personal, family, or household purposes. Collection agencies also cannot contact third parties except in an attempt to locate the debtor. If the debtor requests in writing that communications cease, the collection agency must break off contact except to notify the debtor that collection efforts have ended or that the agency is pursuing a new remedy, such as suing the debtor. Some states also have laws forbidding threatening behavior by these agencies.

Creditors may also repossess goods if a debtor defaults on loan payments. The goods that may be repossessed are those that are pledged as collateral for a secured debt. Typically, the collateral is the item for which the financing was secured (for example, a car dealer may repossess a car when the car loan payments are not made). Financing agreements and state laws expressly grant this right to the creditor. In most states, the creditor may repossess default property without getting a court order or giving the debtor notice as long as the repossession does not breach the peace. By way of illustration, peaceful means of repossessing an automobile include taking the car whenever the debtor is not in it or standing guard over it; it is generally legal to hot-wire the car, or take it from an unlocked garage or carport.

In most instances of repossession, the collateral is a motor vehicle. But other financed items may also be repossessed, it's just that these usually involve difficulties that are not involved with repossessing a car. First and most obvious, most other items are kept inside a residence, requiring a breach of the peace for access. Second, most other items are worth far less than a vehicle and depreciate rapidly, so repossession may be an inadequate remedy for the creditor. If, however, the collateral is located outside and may make a substantial reduction in the debt, it may be repossessed. For example, a gas grill left outside may be a good target for repossession.

If property is repossessed, the debtor may redeem the property by paying the balance due. Creditors must give debtors notice of this right. Some creditors allow redemption by reinstating the contract after payment of late fees, past due amounts, and the creditor's costs. A debtor may not redeem property in certain instances. False statements on a credit application, concealment of the collateral to avoid repossession, destruction or neglect of the collateral, and violence against the creditor are all valid reasons to deny redemption.

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