Foreclosure – Repossession – Defaults Outcomes of Missed Obligations

In any credit card contract or contract for the purchase of personal property on a time payment basis, you are responsible for payment of the total specified in the contract. You cannot avoid or evade that obligation by refusing to pay or by offering to return the goods nor by the seller’s repossession of the goods. If the goods are repossessed, you may have the right of redemption within a certain time, but your liability for the total is not eliminated.

This simple fact “tricks” many borrowers when they have a car repossessed, settle a credit card debt for .30 cents on the dollar or have a home foreclosed on. Unless the lender signs off on the “owed balance” you still owe the money or may need to claim the difference as “profit” on your taxes.

If you default in your financial obligation, the seller may take action to collect the balance due; or he might repossess and charge you with any loss and with legal fees and collection or other costs. For example, an automobile repossessed for non-payment, might be sold at a ridiculously low price – and then you have to pay the difference between that price and the amount due, – plus costs. On the other hand, the laws generally provide protection to the customer in default or repossession proceedings.

However, no reputable dealer or lender wants to go through the procedure of legal action or repossession. He would prefer to work out a difficulty with his customer, if possible.

The contract should show any provision for extra charges in event of delay in payment or delinquency. Ordinarily, late charges are designed as a penalty to encourage fulfillment of terms, and they can be strictly enforced. Delinquency may be due to poor management, changes in circumstances, emergencies. A reputable creditor will aid in analyzing the situation, recommend changes in a program, adjust payment requirements or re-write a contract if necessary, or otherwise try to help a trustworthy debtor in honest difficulties.

Certain types of contracts, as for example on home repairs, might contain provision for penalty or liquidated damages of a certain amount or percentage, if you fail or refuse to go through with your contract. This may seem harsh, and sometimes it is, and sometimes it is part of a high pressure selling scheme. Under certain circumstances, enforcement of such a penalty might be prevented by legal action, but the best way to avoid such trouble is not to make a contract you do not intend to keep, or not to make a contract containing such a provision.

Again it comes down to understanding the contract, credit terms and conditions of an agreement before signing any contract or credit application.