Repossession Laws - A Review of the Legality of Self-Help Repossession

State and Federal Courts have long struggled with balancing the interests of debtors and secured creditors when it comes to the issue of self-help repossession. Self-help repossession refers to a creditors seizure of property that is the security interest (or collateral) of a loan. For example, when a bank seizes a persons car because he was delinquent on the car loan, the bank has performed self-help repossession.

Generally speaking, section 9-503 of the Uniform Commercial Code gives a secured creditor the right to take possession of collateral if the debtor falls delinquent on the loan. However, there are some limitations. For example, a21DB creditor cannot repossess collateral if doing so involves a breach of the peace. A breach of peace is somewhat of an ambiguous term, however, the use of physical force to repossess a car for example would be considered unlawful.

Aside from litigation over whether a creditor has breached the peace, there has been a considerable amount of case law on the issue of whether a debtor is entitled to a hearing prior to repossession. The concerns to both parties are significant. The creditor is motivated to take possession of collateral quickly and inexpensively since delay could result in damage to the collateral, depreciation to the collateral, and/or time for an embittered debtor to thwart future repossession attempts. On the other hand, depriving a debtor of property without first being heard poses serious risks to the debtor. Often such surprise tactics leaves debtors without necessary housing or transportation. Further, repossession without a court hearing deprives a debtor without his day in court.

This is a similar argument to the one the plaintiff made in the Supreme Court case of Fuentes v. Shevin. That case involved the issue of whether repossession without judicial intervention violated the Fourteenth Amendment to the United States Constitution as a deprivation of property without due process of law. However, the Supreme Court ruled that the Fourteenth Amendment only protects against state action. Since a secured creditor is considered a private party, it is immune from those Constitutional provisions. The subsequent case of Flagg Brothers v. Brooks contained a similar decision and creditors rights to self-help repossession have generally been immune against federal attack.

If you are a debtor facing repossession, you may want to be hasty in trying to resolve the issue with a creditor. Do not expect a court hearing first or you may find yourself without transportation.

Ben Moskel is an attorney and a member of the New York State Bar Association. He publishes articles on the issues of car repossession, debt collection, and other debtor creditor issues.