Maybe. It all depends on whether there is an enforceable security agreement between you and the lender concerning the collateral. In most cases, either the security agreement is not enforceable, and even if enforceable, it is simply not economically viable to repossess the assets and make a profit.
Despite the uniform nature of Bankruptcy Laws across the United States, each state has their own laws with respect to what may be an enforceable security interest. Generally speaking, if the creditor always remained in possession of the property, they will probably maintain their security interest. The same holds true if they filed a UCC financing statement with the secretary of state. But even in those situations, its sometimes possible to “avoid” the security interests using special bankruptcy laws, and permanently remove the security interests.
The most common situations debtors experience in a Bankruptcy are where they might have purchased jewelry at a jewelry store, electronics at an electronics store, furniture at a furniture store, etc. In those situations, Daniels Jewelers, Circuit City, Best Buy, Jeromes, Wells Fargo, etc., usually threaten to repossess the property despite a bankruptcy, unless the debtor “reaffirms” the contract with them. A reaffirmation agreement essentially removes the debt from bankruptcy and makes the debtor liable again.
But if no reaffirmation agreement is executed and the debtor still has the merchandise, what are the odds that that the merchandise will really be repossessed? Slim to None! I have filed over 5000 bankruptcy petitions since 1995 and have never seen this happen, despite thousand of threats over the years, and which I continue to receive each day. The main reason is that the property to be recovered will never turn a profit back to the creditor after a later sale.
First of all, to get the property back, the debtor must be sued, unless the debtor unknowingly and voluntarily gives the property back. To sue, requires paying additional money for an attorney and court filing fees in most cases. Upon a successful lawsuit, a writ of attachment usually must then be give to the local sheriff’s office for execution. Once the sheriff serves the writ, the next step is getting it from the debtor assuming they still have it. Assuming the debtor has it and the sheriff gets the property back to the creditor, the creditor must now rehab the used goods into marketable condition and sell for a profit. Hmmmm, lets put this tall order in action.
Purchase a DELL computer for $4000, which is top of the line. 1 year later a bankruptcy is filed when value has now depreciated to $2000. Assuming Dell immediately sues for possession and wins, paying attorney fees and costs, they now expended over $1000 to repossess the used computer, but which has now depreciated even further since it took 6 to 12 months for the lawsuit. Dell then attempts to sell the computer and receives $500. So in the forgoing case, Dell would have created a net $500 loss for simply pursuing the property($1000 attorney fees spent less $500 money received). And this assumes the property even can be sold and in a timely fashion in the first place.
Moreover, depending upon the laws of your state, the creditor may not have a security interest in the property to start with. Where I practice in California, the sales receipt on its face must disclose that there is a security interest, it must be signed by the debtor, and it must sufficiently describe the merchandise. Miss any of the forging and pursuit of a security interest would subject the creditor to debt collection violations under California and Federal Laws. Whenever, we see an American General, Best Buy, Daniel’s Jewelers, or other similar creditors attempt to repossess a security interest after Bankruptcy, we bring suit against those creditors for unlawful debt collection practices.
So what should you do if a creditor threatens to take your property back unless you pay them money? Call your attorney immediately. Chances are, that creditor has engaged in unlawful debt collection practices which may entitle you to just compensation!
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Last modified: June 6, 2013