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Knock, knock! Who’s there? Possibly the repo man if you haven’t been paying your credit card bill! Some store credit cards have clauses in their agreements that allow for repossession if your bill hasn’t been paid. What does this mean? It means your stuff can be taken back due to non-payment. Wait, isn’t credit card debt unsecured?
There are two basic categories of debt — secured and unsecured. Secured debt is debt backed by collateral that can be seized if you fail to make your payments. Examples of secured debt would be a mortgage or vehicle loan, with the house and vehicle being the collateral, respectively.
Unsecured debt is debt not backed by collateral. Your student loans, for example, are unsecured because the knowledge you acquired in school can’t be repossessed. Credit cards are typically unsecured as well; however, some credit card companies are now securing them in the cardholder agreement.
Does your credit card agreement have a repossession clause?
The majority of these clauses are showing up in the cardholder agreements of store cards, like the Capital One Costco card. If you look at the security interest clause in its agreement, you’ll notice it says “each good you buy using your account secures your entire account balance until that good is paid in full and may be taken from you if you don’t pay on time.” This is what repossession looks like in legalese.
To find out if your credit card has this same policy, you’ll want to look for similar language in its cardholder agreement. Understand that while some cards have a security interest clause, not all of them explain exactly what it means in the agreement like the Costco card does.
The security interest clause also keeps you from being protected by bankruptcy law. If you do file for bankruptcy, your items could still be repossessed until the balance is paid in full.
If you are wondering if your current credit card — or a credit card you plan to obtain in the future — has this clause, check out the Consumer Financial Protection Bureau’s database of credit card agreements. All credit card agreements are available for public consumption online, thanks to the Credit CARD Act of 2009, Title II, Section 204.
Is this really going to happen to you?
Honestly, your stuff probably won’t be repossessed, even if you don’t pay your credit card bill in a timely manner. According to Fox Business, creditors are likely to seize your home or vehicle in the case of non-payment, but the stuff you purchased with your store credit card will likely not be repossessed. It can be, but it’s more of a threat than a promise.
The threat of repossession is typically enough to collect the balance due. Creditors probably don’t actually want the stuff back — as it’s hard to sell other people’s used possessions — they just want to collect the amount owed. Often times, if the threat of repossession comes up, the consumer can settle the debt at a fraction of the original price.
It’s always a good idea to know your rights. Check out your credit card agreement to see if your stuff could be repossessed in the case of non-payment. If you find yourself in this position and are being threatened with repossession, try to settle with your creditor for an amount you can afford.