Repossession of property is the process by which a creditor recovers possession of the property when the debtor defaults on the debt by failing to make the required installment payments on time. Repossession is often used by a creditor who has extended credit to a debtor for the purchase of personal property, such as a motor vehicle, boat, machinery, equipment, tools, artwork, jewelry, or rent-to-own furniture or electronics.
The creditor’s right to repossess the property usually comes from the credit financing agreement the debtor signs when purchasing or renting-to-own the property.
Laws governing creditor and debtor rights and obligations—including the right to repossess property—vary from state to state and are usually located in a state’s statutes—often in the state’s adopted or enacted version of Article 9 of the Uniform Commercial Code, governing secured transactions.
In Texas, repossession of property is governed by the state's version of Article 9 of the Uniform Commercial Code (UCC), which regulates secured transactions. When a debtor defaults on a secured loan by failing to make timely payments, the creditor has the right to repossess the collateral, such as vehicles, boats, or other personal property, without judicial process if it can be done without breach of the peace. The credit agreement signed by the debtor typically includes a security interest that allows for repossession. Texas law requires that the repossession be conducted in a manner that does not involve violence, physical force, or disturbance of the peace. After repossession, the creditor may sell the property to satisfy the debt, but must provide notice to the debtor and conduct the sale in a commercially reasonable manner. If the sale proceeds exceed the debt and expenses, the surplus must be returned to the debtor. If the proceeds are insufficient, the creditor may seek a deficiency judgment for the remaining amount owed.
