Nine Strategies To Protect Household Goods
This section lists nine strategies that can help you keep your household goods when a creditor threatens to seize them.
Determine whether the threat is false.
The first thing to realize is that a creditor threatening seizure is usually bluffing. The value of most household goods after deducting repossession, storage and selling expenses, is negligible. The creditor has no economic interest in the goods and therefore is unlikely to pursue repossession.
The creditor is using the threat of repossession to frighten you into paying off that creditor's debt first, even though it is in your overall best interest to pay off other debts instead. Sometimes creditors also make these threats to build up their reputation as being tough on defaulters.
Several factors help tip you off that a threat to seize your goods is false. A threat to seize household goods is false if the debt doesn't fall within any of the four categories of allowable seizures listed in "Understanding Creditor Threats To Seize Household Goods."
Even if one of these four situations does apply, the threat is still usually false. This is particularly the case where the creditor is threatening to execute on household goods under a court judgment, since state laws usually protect most common household goods from execution.
Beyond that, evaluating a threat will often depend on the value of the collateral, the difficulty of seizing it and the nature and reputation of the creditor. For example, a consumer electronics store is more likely to seize $2,000 worth of the stereo and video equipment it sold you a few months ago than a loan company is to seize a 5-year-old refrigerator.
If the threat is false, obviously you shouldn't worry about it. False threats are illegal, and you may be able to recover as much as $1,000 plus your attorney fees even if you aren't injured.
Determine whether the creditor can take the household goods as collateral.
Federal law prohibits creditors from taking "non-purchase money security interests" in most household goods. This rule is particularly important in dealing with finance companies, but usually not helpful in dealing with furniture or appliance dealers that are seeking to seize the goods you purchased from them.
A creditor can take household goods as collateral if you use the loan to purchase those particular goods, although it may not choose to do so. The only way to tell is to check your credit agreement to see if the lender is claiming a security interest in the goods purchased.
Under federal law, a creditor cannot take the following household goods as collateral for a loan that isn't used to purchase the goods: clothing, furniture, appliances, one radio, one television, linens, china, crockery, kitchenware and other personal effects such as your wedding rings and photographs.
Sears, Circuit City and other merchants sometimes try to take a security interest in all goods you purchase in their store with their credit card. (This applies to the stores' own cards, but not to other cards accepted by the stores, such as Visa or MasterCard.) A store may or may not be successful in taking purchased items as collateral, depending on how they comply with various technical requirements as to signatures, contract language and record-keeping. You will have to ask an attorney whether the security interest is valid.
Don't consent to the creditor entering your house.
This strategy pertains only if the person coming to your home works for the creditor or a collection agency. No creditor, collector or hired repossessing agent may come into your home without your express permission. You can easily stop them by politely, but firmly, refusing permission to enter. Repeat your objection to entry each time a repossession threat or effort is made, and instruct landlords, spouses, children and/or roommates not to consent to repossessors entering your residence. This protection also applies to a locked garage on your premises. If you have property outdoors, consider bringing it inside or placing it in your locked garage.
Don't physically resist the entry; just politely and firmly object to the entry. Even walking uninvited through an open door makes the repossession illegal. If repossessors do force themselves in or break a lock to gain entry, your first concern should be for the safety of individuals in the house. After the repossession, contact the police and an attorney, because the repossessor's action was an illegal breach of the peace.
Do cooperate with the sheriff.
In rare cases, it won't be the creditor who is seizing the goods, but a government official, the sheriff or constable. This situation is unusual because the creditor would have had first to get a court order to arrange for the sheriff to come. Obtaining a court order is likely to cost more than the goods are worth. If it is the sheriff (and not the creditor claiming to be the sheriff), ask for identification and then comply with any order the sheriff makes.
Claim the household goods are exempt.
When a sheriff is seizing the goods, it's important to determine which creditor has asked for the seizure: a creditor who has taken the property to be seized as collateral or some other creditor. Furniture and appliance stores are the most likely creditors to obtain a court order sending a sheriff to seize collateral. If the creditor had not previously obtained your agreement that the goods will be collateral, but is attempting to seize the goods after obtaining a court judgment, you have important rights under state law. Almost all states protect certain household goods from seizure to satisfy a court judgment.
The state laws offering this protection are usually called "exemption laws." They may provide blanket protection for all household goods, for household goods under a certain dollar figure or for certain types of household goods. It's important to know the exemption law for your state.
Challenge the creditor in court if you have defenses.
Some sheriff seizures aren't to enforce a judgment on a debt, but a creditor's right to recover its collateral. If you gave a creditor a security interest in certain goods, the creditor can go to court (sometimes without even telling you) and claim that you are behind on your payments and that the sheriff should seize the collateral.
State law generally doesn't exempt any of your property from seizure by a creditor if you have given it as collateral to that creditor. Sometimes you will be given notice and the opportunity to contest this seizure before it happens, and sometimes you can only do so after it happens. (If your hearing isn't until after the seizure, the creditor won't get permanent custody of the property until after the hearing.) In either case, just as in other types of lawsuits, the creditor isn't expecting you to contest the matter or to be represented by an attorney.
Negotiate an agreement.
Since the goods the creditor is seeking are likely to have very little value if seized, the creditor may be willing to agree to very fair terms to facilitate your voluntary repayment. You should approach this negotiation based on what you can reasonably afford, and with a thorough understanding of what you can do to prevent repossession if the creditor doesn't accept your offer. You should never agree to make voluntary payments in an amount larger than you can afford or if you have other higher priority debts which will remain unpaid.
Preventing RTO repossessions.
Rent-to-own (RTO) contracts give you ownership of rented goods after you make all the payments. If you stop making payments, the RTO company has the right to take the rented property. But most states prohibit the RTO company from repossessing over your objection or entering your home without permission. This is true even if you gave permission in the small print of the sales agreement to the repossession or entry into your home. Be careful of the "switch out" technique, where the RTO company claims it is taking a item in for repair, maintenance or upgrading when it's really repossessing it.
RTO companies may also threaten criminal action if you do not return rented goods. But failure to let RTO personnel into your home is not a crime, and the RTO company usually has no intent to pursue a criminal action.
File for bankruptcy.
The cost and other complications of filing bankruptcy may not make sense merely to protect certain household goods. But a bankruptcy filing also offers you benefits in dealing with other debts, so that bankruptcy may make sense for other reasons. It is thus important to know how bankruptcy can protect your household goods. Filing for bankruptcy provides immediate relief by automatically stopping any threatened seizure of the household goods. This applies to seizures of collateral and even to rented items. Bankruptcy can usually protect your household goods in the long run as well.