Kinds of Property that Creditors Can And Can't Take
Creditors may threaten to take everything you own to try to scare you into paying your debt. However, there are limits on the kinds of property creditors can take and when they can seize it. And there are things creditors can't take from you, no matter how deeply in debt you are.
Let's learn what they can and cannot take from you when you're behind on payments or going through bankruptcy.
Property that Creditors Can Take
Creditors can seize the property that secures the debt you owe. If you haven't paid your car payment, the lender can seize the vehicle. Fail to pay the title loan, and the title loan company can seize your car. Don't pay your first mortgage, second mortgage or HELOC payments, and you could lose your home.
Creditors can seize property that you owe money on though you don't currently have possession of it. For example, you can't sell your boat to your brother for a dollar to avoid having it seized by creditors. Nor could you give it to someone as a Christmas present to prevent the lender from seizing it.
Property Creditors Cannot Take
Creditors cannot take property you need to live or earn a living. For example, they can't take your oxygen machine or CPAP machine if your life depends on it. By so doing, they would be violating the creditors rights, which can get them into trouble with the law. They'll only seize furniture and jewelry as part of a liquidation bankruptcy unless you purchased those items via an installment loan. This means that they can also not take the big screen TV that's on payments. They cannot take other property in lieu of your debt. For example, if you haven't kept up on payments for your living room furniture set, they can't take your child's bed too.
Creditors cannot seize “tools of the trade”, those items you need to earn a living. For example, if you're a carpenter, they can't take your woodworking tools. If you're a landscaper, you can argue that they cannot take your lawnmower and landscaping tools.
Property Creditors Could Take but Rarely Do
Creditors are going to go after property that has tangible value because their goal is to get their money back. This means creditors will seek to seize boats, trailers, cars and bank accounts. At the same time, they'll leave your clothes, the children's toys and the family photo albums alone. You can, of course, try to sell these items in a garage sale to raise money to pay your debts.
Creditors can sue in court to garnish your wages or drain your bank account, but they probably won't go after the small savings account in your child's name. Creditors generally cannot seize your retirement account. They could demand money back that you recently contributed that should have gone toward your debts.
Creditors can file what is called a mechanic's lien against real property if you haven't paid your debt to them. And a mechanic's lien can be filed against any property you own. For example, if you haven't paid the car repair bill, your mechanic can file a mechanic's lien against the car. However, they could file that same lien against your boat or house, too. The lien is typically paid when you sell the property. It is hard for them to leverage that lien to force the sale of the property.
If you don't pay your debts, creditors can seize the property secured by the loan. They cannot take everything you own even in bankruptcy, and there are limits on what they can take and when in any financial dispute.