Summary of Indiana Repossession Laws
To begin with, repossession laws in Indiana refer to the rules that a creditor must follow if they want to repossess your collateral. Repossession usually happens when you can no longer make payments on your loan or lease. In Indiana, repossession laws are set forth in Indiana Code § 26-2.5-1 et. seq. As you will see, there are certain legal definitions that are extremely important to the use of the term "repossession" in both Indiana and the country as a whole:
- Collateral – Property that is subject to a security interest or lien.
- Debtor – A person who owes payment or other performance of an obligation secured by a security interest .
- Secured Party – A person who holds an interest in property which secures payment or other performance of an obligation.
As a rule, endorsement of any contract that requires payment of money will give creditors the ability to repossess property secured by that contract. In other words, take back property, such as, cars, machinery, boats, etc. So long as the retail installment contract or lease specifies that default gives the seller, lessor, or lender a security interest in the goods, the creditor can repossess the collateral. In addition, and as set forth by Indiana Code § 26-2.5-2(c), creditors can hire a third-party vendor to perform a lawful repossession of their collateral.
Borrower Rights During Repossession
"Reasonable notice" is a legal term of art in UCC Article 9. In essence, a secured creditor has to provide "reasonable notice" to the guarantor of a debt and any other persons with an ownership interest in the collateral to be repossessed of the public or private sale of the collateral. In private sales, such as under a repossession scenario where a lender is going to take possession of property for debt payment purposes, a secured creditor can do an online auction or a physical sale by geocode, i.e. physically go into a given neighborhood and sell the property. In either case, upon completion of sale of the secured collateral, these creditors are required to provide notice of the sale to all of the aforementioned parties described above and explain the foreclosing secured creditor’s plan for disbursement of the proceeds.
Borrowers have certain rights under Indiana law when their collateral is repossessed for purposes of recovering the unpaid debt in the event that they cannot make their loan payments on time, unless the collateral is grain, in which case the protections are limited in scope. These rights include the following: Sufficient notice must be provided to both the borrower and any other known parties with interest in the security, and if the lender disposes of the collateral and fails to make reasonable efforts to obtain its value, the debtor has a right to receive the difference between the actual proceeds from the sale and the amount owed under the security agreement.
Additional protections are in place for certain categories of collateral, such as consumer goods repossessed by merchants. The rights discussed above are limited in the case of grain collateral. Agricultural liens under Indiana law do not give the owner of an agricultural lien the right to possession of grain owned by the debtor. Additionally, farm products that are sold from a farm operation are typically not covered by these legal protections, although federal laws and regulations may apply, too.
Repossession Process After Default in Indiana
When an Indiana repossession occurs, it generally entails a lawful retaking of personal property pledged as security. While most such repossessions occur post-default, they can also take place pre-default. Where the debtor consents to the repossession (thereby avoiding litigation), these are voluntary repossessions. But where the debtor does not consent, this type becomes an involuntary repossession. Both methods are lawful in their own right.
The first step in a voluntary repossession is to establish that the debtor is in default under the terms of his or her contract with the secured party. Upon doing so, the secured party may request that the debtor voluntarily return the property to avoid the costs and inconvenience of an involuntary repossession.
Should the debtor fail to and continue to retain possession of the property, he or she may be held liable for wrongful detention. The secured party may file an action for damages, which typically includes at least a recovery of the accrued interest. This kind of action also allows the debtor to seek recovery of the property, thereby essentially returning it to the secured party without any further delays.
Where the debtor chooses to voluntarily ship back the property or where the secured party seizes it himself, a notice must be sent to the debtor advising him or her of the location of the repossession.
Involuntary repossessions involve a different process, as there is no consent from the debtor. In the case of consumer goods, the secured party has the right to take possession of the property whether or not the borrower is present. In other situations, the secured party for commercial goods may use a self-help remedy, but if such action leads to a breach of peace, the secured party may become liable for damages.
During an involuntary repossession, the secured party may hire a third party to help recover the property. In other instances, the secured party may be able to go it alone. Self-help repo strategies rarely come into play with consumer debtor accounts, as the secured party does not want to lose the trust of his or her client. Moreover, even where the borrower is a business, most still do not want to bring in a third party, as a repossession can have an adverse impact on the goodwill of the business, including negative reputational harm.
No matter whether the repossession is voluntary or involuntary, the secured party is usually required by state law to provide proper notification of the sale of the repossessed property to the debtor. He or she must also provide the general public notice, including the name of the debtor and the property in question.
Remedies for an Unlawful Repossession
Though repossession can be a risk with any kind of secured loan, it tends to come with auto financing and is a potential for creditors to violate consumer protection law. This is because repossessions involve a violation of certain state laws, including notification and right to cure laws.
The most popular form of illegal repossession comes from creditors failing to follow proper procedure in notifying the consumer about missed payments, repossession and subsequent sale of the repossessed property. Debt collectors must provide debtors "in writing" a notice of default and a right to cure the default.
Creditors are also required to provide debtors a list of all their rights, including the right to redeem their vehicle after repossession. They must also provide a detailed list of all the costs associated with the repossession and sale of the property. Creditors are not allowed to take advantage of debtors and push them into courts by failing to provide proper notices .
Laws in Indiana also require creditors to follow all the proper procedures for re-plevin of property. Relying on Indiana’s re-plevin statute instead of some form of private repossession process or self-help repossession method is often the right course of action for creditors to take. Any creditor failing to follow the re-plevin process could face civil liability. Any creditor performing a judgment without following the proper re-plevin process has committed fraud.
Civil liability can be severe. It is possible for a creditor to lose the right to any deficiency that they may have had the right to pursue, and they can be liable for actual damages to the debtor, either in equal measured value of the repossessed property or a replacement property. A creditor may also be liable to pay the debtor’s attorney’s fees and court costs in response to illegal repossession.
Borrowers’ Options and Remedies
In the event a borrower believes the creditor did not adhere to the statutory regulations and procedures surrounding the repossession, they may take the following actions:
• The borrower may file a complaint with the Consumer Credit Division of the Indiana Department of Financial Institutions. The complaint should be submitted in writing, explaining the nature of the complaint. The Department will attempt to mediate the complaint and take appropriate action if necessary.
• In addition to a Department complaint, the borrower may also contact the creditor directly, particularly in cases where the creditor engaged in prohibited conduct (i.e., theft, assault, intentional infliction of emotional distress, etc.). A qualified attorney may assist the borrower in the process of contacting the creditor and can negotiate any settlement resulting from such conversations. Such violations may not only provide avenues for recovery under relevant statutes, they may also support additional claims against the creditor under tort law.
• Creditors that collect or attempt to collect debts on a national basis may also be subject to federal laws. The borrower may file a complaint with the Consumer Financial Protection Bureau.
• The borrower may be able to recover damages for improper repossession from two (2) sources: Fair Department Practices Act and the Indiana Deceptive Consumer Sales Act. Both acts allow for the recovery of additional actual damages. A borrower may also be able to recover punitive damages to punish and deter egregious conduct by the creditor.
Borrowers should consider contacting a qualified attorney immediately to preserve their potential causes of action and all available remedies. Failure to promptly contact an attorney to discuss your case may result in the loss of your rights or available remedies.
How Borrowers Can Safeguard Assets
Being proactive and taking preventative measures can go a long way in helping you avoid Indiana automobile repossession. First, try to avoid getting too far behind on your payments. If you cannot afford the payment, contact your lender to discuss options such as reducing your monthly payments, extending the length of the loan or possibly refinancing your loan . If you are unable to keep up with the payments due to an unexpected life event such as illness, unemployment or divorce, contact a financial counselor or speak with the housing authority or local government or charitable agency which may provide services or guidance to explore bankruptcy options under the Indiana state and federal laws. Second, you may be tempted to hide your car in an effort to prevent the lender from exercising their right to repossess the collateral if you are behind on your payments. However, that is not a recommended course of action. Failure to pay your bills can and will take a toll on your credit score and severely impact your credit history and rating.