Indiana Repo Laws: A Complete Guide

What Are Repo Laws in Indiana?

Indiana repo laws encompass the legal restrictions under which a lender may go about repossessing their property after a borrower has defaulted on their loan. These apply to virtually all forms of secured debt in the state, including real property (like a home) and personal property (such as a car). Secured debt is any offering of credit in which the borrower commits their personal property as collateral until the loan is paid off .
These legal requirements exist for the benefit of consumers, but creditors are allowed to utilize them as a means of reclaiming property from a consumer who has defaulted. It is important to know what these laws entail if you are in the position of either a debtor or a creditor, as it could impact whether you end up going to court or not.
Repossession laws can protect creditors from the potential loss that could be caused by the default on a loan, as well as giving debtors the right to be treated fairly and not have their property seized in an abusive or overly aggressive manner.

How the Legal Process of a Repossession Works

The legal process of repossession in Indiana typically involves several steps that creditors must take to repossess collateral that has been defaulted on. While these steps may vary based on the type of collateral involved (collateral can range from vehicles to real estate), the basic legal process for self-help repossession in Indiana is as follows.

Notice of Default. Once a debtor has failed to make timely payment pursuant to a loan or secured transaction agreement, the creditor should provide the debtor with a properly executed "demand for possession of collateral" pursuant to Ind. Code § 26-1-9.1-609. In this case, "possession of collateral" includes physical control of the collateral, or control of what the debtor owes to the person making the repossession if the collateral is intangible. This demand should inform the debtor the creditor intends to pursue repossession of the collateral within a specified period of time—generally no less than 10 days from the date of the demand.
Right to Cure Devt. In some cases, the debtor may have the right to cure during the 10-day notice period. The right to cure is the right of a debtor "who has received an authenticated notice . . . that a person intends to repossess collateral" to pay the remaining balance due under the transaction agreement, and any late charges. The debtor must pay the amount due "at the place and in the manner reasonably designated by the secured party." If the debtor does so within the specified time period, the creditor may not proceed with repossession of the collateral. Ind. Code § 26-1-9.1-609(c).
Repossession of Collateral. If the debtor fails to cure during the 10-day period, the creditor may repossess the collateral in person or through its agents. Pursuant to Ind. Code § 26-1-9.1-609, "[a] secured party may take possession of collateral" "without demand or the judicial process if the secured party can do so without breach of the peace." The definition of "breach of the peace" is not entirely clear under Indiana law. However, as the Indiana Court of Appeals stated in Jackson v. Zenith Corp., 557 N.E.2d 1113, 1120 (Ind. App. 1990), "[a] breach of the peace occurs when the secured party uses physical force, threats of force, or other conduct creating the impression that force will be used to repossess the collateral….The repossessor may not enter the debtor’s home unless he is invited inside or there is no other reasonable means of effecting a repossession." In other words, use of reasonable physical force in repossession will create a "breach of the peace" and could give rise to a civil lawsuit for damages against the creditor.

Rights of the Consumer During Repossession

Consumers have certain rights that may affect how they approach their creditor regarding the repo situation. In general, consumers have the right to demand that their creditor send proper notice of the default by mail to their last known address. In addition, Indiana law provides that the consumer has the right to get any property that was not a part of the collateral for the loan. As an example, if you purchased a flat screen tv on credit from your furniture store, and the loan for the tv is in one account with the furniture store, you are entitled by law to keep the tv. Whether it was attached to the collateral or not, all you have to do is obtain the furniture store’s permission to keep it. In addition, you may be entitled to keep any accessories that were part of your purchase. Sticking with the tv example, we are talking about the stand, curtains, etc.
The creditor has to arrange a way for you to obtain those things from their premises. There’s no point in you having a tv, curtains, etc., unless you can piece them together. The creditor should contact you and inform you of the best way to get your items from their premises. If the creditor refuses to give the consumer a way to get the missing property, then the consumer can take the creditor to court to force them to do so. If the creditor has sold the consumer’s property and not properly returned the proceeds to them, then the consumer also has the right to take the creditor to court.
Once a repossession occurs, there may be an opportunity for the consumer to retain their property by obtaining a new loan to pay off the existing loan. In some cases, there may be little difference in the payments due to the low interest rates and relatively small payments being financed over time. Your attorney may help you obtain a new loan with a low interest rate, making money available to retain your property at relatively low cost.

Repo Laws for Lenders

Unlike a typical secured transaction in Indiana, there are additional State law requirements on how and when the collateral is repossessed. As a result, the lender may want to exclude personal property from a financing statement when repossessing such property and instead obtain a lien through a judgment which eliminates the need to worry about proper repossession. For personal property, repossession must follow Indiana Code 26-1-9.1-609 (Physical Possession Required) and Indiana (IC) 26-1-9.1-623 (Commercial Reasonableness Requirement For Disposition of Collateral). Additionally, personal property generally must be repossessed within a reasonable time after the default occurs. However, the parties to the loan can issue a waiver that requires the lender to enter into the Commercial Code public auction provisions. In Indiana, personal property is defined as everything that is not real estate, and is further broken down into two categories; tangible (goods) and intangible. (IC 26-1-9.1-102(a)(42).) Tangible personal property generally refers to goods. Goods include "all things that are movable at the time the security interest attaches.." (IC 26-1-9.1-102(a)(44).) Intangible personal property means "any personal property, including choses in action, evidences of debt, contracts of insurance, and choses in action." (IC 26-1-9.1-102(a)(44).) Indiana Code 26-1-9.1-610 governs repossession of tangible personal property. The collateral must be located where the debtor resides or at another location as agreed to by both the debtor and the lender. The lender then has the right to take possession of the collateral without legal process if it can be done without a breach of the peace. If the collateral is on the debtor’s premises, the collateral can be repossessed as long as there is no demonstration by the debtor that the repossession would cause harm. If the debtor refuses to surrender the collateral, the lender cannot forcibly repossess the collateral. (IC 26-1-9.1-609(1).) It is essential that the lender does not repossess without consent of the debtor because the lender, or his agent, risks being found guilty of theft under Indiana Code 35-43-4-2 (Theft). If possession of the collateral is obtained without legal process and is refused by the debtor, there must be a showing that a breach of the peace was avoided. If the debt is for rent on a personal property encumbered in the lease agreement, upon demand by the lessor in regard to the encumbered collateral, possession may be obtained. (IC 26-1-9.1-612(a)(6).) Once the repossession takes place, there are restrictions on how the collateral shall be disposed of. The disposition of collateral must be commercially reasonable and the lender must not dispose of the collateral until ten days after providing notice of such action to the debtor. (IC 26-1-9.1-613).

Reversing a Repossession

Unlike most laws, you have very little time to challenge a vehicle repossession. Many courts hold that once the car is sold at auction, you can no longer seek to either redeem your vehicle or to undo the sale.
The only real option for challenging a repossession after it has already taken place is through litigation. You may have a number of potential claims, depending on the facts of your case. You may be able to show that the lender violated the terms of the security agreement , violated the law in repossessing your vehicle, violated the law in selling your vehicle at auction, failed to provide proper notice of the repossession, etc.
Many banks unlawfully repossess vehicles and do not follow the statutory requirements. They believe that companies like ours will not take the time to pursue these cases and make the costs prohibitive. However, if you have not otherwise obtained legal counsel, we will undertake the task and handle the litigation from start to finish.

How to Avoid a Repossession: Tips and Advice

How can you avoid repossession? The most important step toward avoiding repossession and staying on the right side of repo law is communication. Remember, creditors don’t want to repossess your vehicle. They want your money. If you find yourself in a position that you feel is leading to repossession, stay in contact with your lender. Lenders generally want to help borrowers who communicate with them, and often times will work out a modified payment schedule for consumers who reach out to them. In addition to communicating with the lender, another important step to take is to know your rights as set out by repo laws. Many states require lenders to give consumers some notice before repossessing their vehicles. Indiana has such a law, known as the notice of right to cure. This requires any lenders or creditors in Indiana wishing to repossess a vehicle to send notice to the consumer at least 10 days prior to taking possession of the vehicle. Consumers are also entitled to received certain information about the repo and sale of the vehicle once it has occurred. The lender must provide an accounting of the funds used to pay for repossession and sale, as well as details of any subsequent sale of the vehicle. If the vehicle is sold for an amount higher than the outstanding balance on the loan, the lender must provide the consumer with the surplus funds. Conversely, if the sale does not raise as much money as the loan, the consumer may owe the remaining funds to the lender. If your vehicle is repossessed, you have certain rights under state law. Be sure to contact your attorney as soon as possible to find out more information on how to save your vehicle or get it back.

The Effect of a Repossession on Your Credit Score

The impact of a repossession on a consumer’s credit score can be severe and far-reaching-like a pebble thrown into a pond, the ripples can be felt for years to come. The FICO credit score is used by more than 90% of lenders in extending credit. The score considers many factors with five of them having the following weight on your score: Other items such as length of credit history, types and number of accounts and changes to accounts are also considered. Agency theory posits that consumers are rational decision-makers. Thus, a consumer will seek to minimize early losses in order to avoid more significant losses later. This is why lenders are often so willing to work with borrowers who have had a recent change in financial circumstances in order to avoid additional fees and charges. If consumers need to make a choice of how to get current, continued delinquencies are often cited to justify a lender’s refusal to extend further credit. Terminated accounts with significant positive payment history can impact consumers’ "length of credit history," but the negative component of a terminated account can cause more short-term damage.
If the period of time between the consumer’s last payment and delinquency date is short, the non-payment will often have a direct impact on the credit score. Suppose that the consumer is six months short of paying the account off, but has an intact payment history otherwise. In this situation, a delinquency could mean losing up to 180 points.
A voluntary or involuntary repossession, or foreclosure, will have long-term effects on credit reports and scores. FICO scores and many other scoring models track delinquent dates not only as reported by the consumer, or also by the creditor, from the time they shown delinquent to the time they are released. The longer the period between the first reported delinquency and accounting cancellation, the greater the impact the repossessions are likely to have on the consumer’s credit. On top of the impact of the repossession, the consumer may also experience a re-aged account on his credit report which does not reflect full payment at the time of repossession. This problem is created by the creditor reporting the "charge off" accounting with a paid or canceled status instead of closed.
Quite often creditors voluntarily repossess their collateral after conducting a standard self-help or judicial repossession. These include situations where the vehicle is returned by the consumer against the demands of the creditor or where the consumer was current on payments or had a direct payment plan established that had missed no installments. In these cases, it is important a consumer carefully review the contract language to determine the circumstances where the vehicle can be picked up. It is not uncommon for contracts to provide for legal expense recovery to the creditor if the vehicle is wrongfully repossessed.
Lawsuits involving repossessions and secured debt are heard in two places: (1) in a court action to enforce the contract against the consumer; or (2) by a jury that is asked to determine if the repossession occurred within the scope of the UCC.

Locating an Attorney for Repo Issues

When legal questions arise regarding repossession, experienced legal assistance should be sought. In Indiana, the Indiana Bar Association (IBA) provides guidance on finding an attorney, as well as answers to frequently asked questions about consumer rights. However, finding an accredited Indiana repossession attorney can also be accomplished through the National Association of Professional Repo Managers (NAPR), or the National Consumer Law Center (NCLC), which provides a guide called "Consumer Bankruptcy: A Legal Guide For Nonlawyers." In addition to these resources , the Indiana Legal Services, Inc. (ILS) offers free legal help to qualifying low-income individuals and families. The services offered include assistance with foreclosures, eviction defense, access and delivery of public benefits, domestic violence, employment discrimination claims, immigration, child care, consumer issues, bankruptcy law, food stamps, Medicaid and Medicare, Social Security, veteran’s benefits, Section 8 housing, unemployment and more.