Just as you want to know what happens to your home and car during bankruptcy, it makes sense to ask your attorney when can furniture be repossessed? Whether or not you lose your furniture during bankruptcy depends on agreements between you and creditors, the type of bankruptcy you file and what state you file it in.
Can Furniture Be Repossessed During Bankruptcy?
When a debtor purchases a product with credit, the creditor has a secured interest in the property. What that means is that anything you buy with credit, including furniture, vehicles, jewelry, electronics, computers, clothes and books can be treated as a secured item during bankruptcy. For example if you purchased a $3,000 laptop using your credit card, the credit card company could technically as for that particular item back, or ask you to reaffirm it in bankruptcy. This basically rarely happens; but it is a risk with certain items such as high-priced electronics, furniture and especially jewelry.
Local merchants are more likely to go after household goods than a large national chain or credit card company. For example, if you purchased a couch at your small local furniture store on credit a year before filing bankruptcy, they might want the couch back or demand that you pay it off especially if it is high-end and has a high resale value. It’s not likely to happen; but it is possible.
What Can You Do About Household Goods Purchased With Credit?
Here’s what a debtor in bankruptcy can do about household goods purchased with credit:
- Return the items to the creditor during bankruptcy.
- Reaffirm the debt and agree to pay off the balance after bankruptcy. The balance is often negotiable.
- Pay off the creditor during bankruptcy so that they can keep the item.
- Take no action and count on the high probability that the creditor will not attempt to get the property back.
- Usually, the creditor (even a small one) will not attempt to get the property back unless it is very valuable and has a high resale value.
- It’s usually safe to take no action; but speak with your bankruptcy attorney first. This is especially vital if you have purchased high value items with credit such as computers and jewelry.
Is Your Furniture Collateral?
To determine whether your furniture can be repossessed during bankruptcy, your attorney will first want to find out whether the furniture is “collateral” on a loan for its purchase. The creditor has a legal right to repossess the furniture if the terms of the contract that governs the purchase is an “enforceable security agreement” between you and the creditor concerning the collateral.
If you purchased your furniture with a credit card, the creditor has an enforceable security agreement with you and a secured interest in it. In that case, the creditor could repossess the collateral — your furniture — during bankruptcy.
Will the Collateral Really Be Taken?
If your attorney determines that your furniture can reasonably be seen as collateral on a debt, you will need to think about whether the lender will bother to assert their rights to that collateral by seizing and selling the furniture. Often, it’s not worth the time and money for creditors to repossess the furniture and make a profit.
Your furniture depreciates as soon as you take it out of the store and start using it. So, it costs creditors more to take back and sell the furniture than the amount of money they will likely see from selling it.
Instead, creditors will usually threaten to repossess the furniture unless the debtor “reaffirms” the contract with them. A reaffirmation agreement between you and the lender will commit you to paying the debt despite your bankruptcy. So, it allows the lender to repossess your furniture if you fall behind on your payments.
So what should you do if the furniture is collateral legally tied to the loan and a creditor threatens to take your furniture back unless you reaffirm the contract with them? Your options depend on whether you file for Chapter 7 or Chapter 13 bankruptcy.
Purchase Money Secured Debt in Chapter 7
If you are filing for Chapter 7 bankruptcy and don’t want the furniture, you can simply surrender it to the creditor and discharge the debt in bankruptcy.
If you want to keep the furniture, go ahead and enter into the reaffirmation agreement with the creditor. You could also keep the furniture without a reaffirmation agreement by continuing to make payments until the debt is paid off or you surrender the furniture at a later time. However, you risk repossession by doing this.
Another way to keep the furniture without a reaffirmation agreement is to pay for it in one lump sum. By “redeeming” the furniture, you release your debt through a one-time payment of no more than the furniture’s current fair market value. This might work for you if the furniture is worth less today than what you owe.
If you file Chapter 7, you can use exemptions under state law to keep your furniture and other property. Texas bankruptcy law allows you to protect $50,000 of personal property if you’re single. You can protect $100,000 of personal property if you’re a family. So, you’re likely to be able to file for Chapter 7 bankruptcy and retain all of your furniture in Texas.
If you’re in a state where the value of your furniture can’t be completely protected through exemptions, you could negotiate a deal with the bankruptcy trustee to keep your furniture. You could do this by either paying the amount above the exemption limit or convincing the trustee that the time and money to seize and sell your furniture will not result in any recovery for your creditors.
Purchase Money Secured Debt in Chapter 13
If you are filing for Chapter 13 bankruptcy and don’t want to keep your furniture, you can surrender it. However, you could end up paying creditors if they claim you owe a deficiency balance. That debt would go into the pool of your other unsecured debt, which will reduce what other creditors take without increasing what you have to pay.
If you want to keep your furniture and bought it at least one year ago, you can pay the creditor the current fair market value of the furniture or the loan balance. If you bought it less than one year ago, you will have to pay the full loan balance.
What Can You Do to Protect Your Furniture From Repossession During Bankruptcy?
If a creditor threatens to take your furniture unless you pay them what you owe, call a bankruptcy attorney immediately. We have worked with countless clients and helped them navigate bankruptcy while protecting their rights. Call Allmand Law Firm, PLLC today to find out how we can help you.