A recent question on Avvo caught my attention. The questioner had taken out a loan with a local finance company. He defaulted on the loan because his hours at work were cut from 40 to 26 and he couldn’t afford to make the loan payments. When he took out the loan he pledged his car as collateral. He also pledged some of his household items, such as an xBox gaming system, a TV, a computer, and other miscellaneous items. When he defaulted the finance company repossessed his car. The repo man asked where the household items were. The questioner said that they had been sold. He was worried about going to jail. Here was my response:
As an Asheville bankruptcy attorney, I see this type of situation quite a bit. First of all, it appears that you took out a loan with a finance company (“the creditor”), who had you offer some of your personal items as collateral. This is called a “non-purchase money security interest” (or “non-PMSI” for short) because the creditor did not provide you with the money to purchase the items. Rather, you already owned the items. They were merely pledged as collateral for a loan. It also sounds like you have defaulted on the loan by not making the payments.
Defaulting on a loan is NOT a crime and you cannot go to jail for failing to pay it. Although it is usually advisable to attend civil court hearings, there is usually no requirement that you do so. Typically, failure to make an appearance in a civil case results in a default judgment being entered against you.
A non-PMSI can be a valid lien. Selling collateral that is subject to a valid lien without the creditor’s consent is a crime in NC. However, I rarely see criminal charges being pressed in situations where non-PMSI household collateral was sold. This is because the items themselves are typically of little monetary value to the creditor. Based on my experience, I believe that finance companies obtain non-PMSI in household assets because they exert a psychological hold- rather than a legal hold- over the debtor (ie, you). In other words, although it is highly unlikely that the creditor will actually seek to repossess your household items, and is very unlikely to attempt to press criminal charges, it will threaten to do so because it believes that you do not want to lose these items. You certainly don’t want to go to jail!
It is important that you talk to a competent attorney about your options. Depending on your situation you may be advised to do nothing, to make a settlement offer, or even to file for bankruptcy protection. I recommend talking with a bankruptcy specialist. At Kight Law Office we deal with situations like this on a weekly- and often daily- basis.