How Does Boat Repossession Work?

A creditor has a right to repossess a loan collateral if a borrower stops making payments. Lenders give borrowers time to catch up on payments or to negotiate a new payment plan. If a borrower cannot continue to pay his boat loan, a bank has no other choice but to repossess the collateral. Creditors use the same procedure for both vehicle and boat repossessions.

A contract between a financial institution and a consumer signed at the time of the purchase describes payment details and what constitutes as a default. This contract allows a creditor to legally repossess a collateral if a borrower breaches the contract by not making payments. Creditors generally wait a several months before starting the repossession process. They then transfer the loan to a collector and attempt to collect the debt. They want to avoid repossession if possible as it is a lengthy and costly process.

If collection attempts fail, a creditor starts the repossession process by filing the appropriate documents with the state to receive a temporary title to the collateral. When the paperwork is completed, the bank sends a tow truck to pick up the boat. A consumer may not know when this happens. The bank does not need to notify him of the date. It is only required to inform him when and where the collateral will be sold. At this time, the consumer can make a payment to bring the loan current and get the boat back.

A consumer may turn the boat in voluntarily (called "voluntary repossession") to the bank. This reduces the creditor's repossession costs. By law, all costs associated with the repossession process are the borrower's responsibility. The creditor adds them to the loan balance. By turning the boat in, the borrower reduces the loan balance he owes to the bank. The creditor may report voluntary repossession and late payments to credit bureaus.

Creditors sell repossessed collateral at auctions and use the sale proceeds to pay down the debt. A creditor must notify the borrower when and where the sale will take place. A borrower may pay the past-due amount at any time before the sale occurs to get the boat back. If a creditor receives more from the sale than the loan balance, the borrower will receive the excess amount. If the proceeds are less, the borrower is responsible for repaying the deficiency. A creditor will likely convert it to a personal loan since the collateral has been sold.