If lender repossesses RV can they also take my truck?
Recently on our legal forum a user asked, “If I own an RV and I cannot make the loan payments can the creditor repossess another truck I own?”
For more information about what will happen if you fail to make payments for your RV you will need to review your loan documents. Loan documents should clearly spell out what steps the credit union, bank, or other lending institution will take if you fail to make a debt payment.
Generally speaking, however, if you obtained an RV loan, that loan was probably secured by the RV, not by another car. An exception to this rule is when a lender uses cross-collateralization, a concept we will discuss in more detail below.
What can I do to avoid RV repossession?
If the loan for the RV is secured only by the RV than you have several options. The first option (and probably the best) is to try to find a private buyer for the RV who will purchase it for a price close to the amount remaining on the outstanding loan.
If this is not possible and you absolutely cannot make the payment, you can contact the lender and discuss how to surrender the RV. Surrendering the vehicle allows the lender to take the RV and sell it to another customer.
While surrendering the vehicle is generally better than repossession, it can be detrimental. First, it will be reported to the credit agencies and will lower your credit score. Next, if the lender is not able to sell the RV for the loan price, a deficiency will occur.
The lender then has the legal right to file suit against you to collect the deficiency amount. If they receive a judgment from the court they have several collection options. These options may include garnishing your wages, placing a lien on your house, or reposing your property.
Keep in mind, however, state laws may protect certain types of property from repossession up to a specified value, certain types of property regardless of their value, or provide wildcard exemptions to apply to any types of property. Review your state laws for more information.
Collateralized Loans and Car Repossession
Now, let’s discuss another issue…cross collateralization.
Although most lenders will issue contracts which separate loans and will not reference different loans within the lending documents, this is not always the case with credit unions. In fact, it is not uncommon for credit unions to cross collateralize loans, allowing a loan for one car to act as collateral or to secure the loan for another vehicle within the same credit union.
To determine if this is the case for your RV, you will need to review the terms of the contract. Wording that you will need to search for can include statements such as, "All loans are secured by any property specifically pledged and shared on deposit with the credit union.”
Unfortunately, cross-collateralization is not something many borrowers think or care about until they are unable to make payments and the credit union decides to start repossessing their property.
The good news is that if you have a car loan with a large banking institution the practice of cross-collateralization is less common. Discuss your car loan agreement with your lender for more information about the default terms of your loan.
The best option is generally to privately sell your RV before you default on the loan. If this is not possible and you fail to make payments for your RV, it’s likely the lender will repossess it. You also have the option of contacting them and offering to voluntarily surrender the RV to them.
A repossession or a voluntary surrender are both likely to create a deficiency, which the lender may decide to collect by taking you to court and getting the court to issue a deficiency judgment.
If you fail to pay the judgment the lender may be able to repossess certain property or garnish your wages, although state laws may protect certain exempt assets.
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