Repossession occurs when a debtor fails to make payments on a loan for items purchased, prompting the owner to take back the property. This happens because the owner, known as the lienholder, has the right to the items until the debt is paid. For example, when taking out a car loan the lienholder, usually a bank, holds the title until you pay off the loan. If you don't pay, the lienholder will take the car back and auction it off.
A repossession will drop off your credit report after seven years. The time limit begins when you miss your first payment on the property. For example, if you miss your first car payment in January and the lienholder repossesses the vehicle in May, the seven-year time period begins in January. Note that you are responsible for paying the difference between the loan amount and the payment received from auction. If you owe $8,000 on the loan and the lienholder gets $6,000, you still owe $2,000 on the debt. If you don't pay, it will also go on your credit report.
- Thinkstock/Stockbyte/Getty Images