When people purchase property they may think that they own the property outright. In many cases, that is true — especially with consumer goods. However, in certain cases, the person or entity selling retains some interest in the property. This interest — called a security interest — often gives the creditor some rights when it comes to the property.
When a person purchases a piece of property subject to a security interest it is a secured transaction. Common secured transactions for consumers include the purchase of a car or a mortgage on a house. As in these cases, the creditor retains rights to the property in certain situations. Specifically, the creditor often has the right to reclaim the property should the owner fail to pay its debts to the creditor. In other words, a default on payments triggers certain creditors’ rights.
If the creditor reclaims the property, the property can be sold to satisfy the debt to the creditor. These forced sales can be common if people do not pay the debts own to secured creditors.
In general, secured creditors have priority over unsecured creditors. This means that secured creditors will often be paid first in bankruptcy proceeding, or have great rights to secured property. However, there are complicated legal procedures that must be followed in order for secured creditors to act on their interests, to repossess property or to force a sale.
Individual secured creditors can have different rights depending on the circumstances in each case. This blog post, therefore, cannot answer specific legal questions in a particular case. An attorney, on the other hand, may be able to explain people’s rights and options.
Source: Findlaw.com, “Creditors’ Rights and Collection Options,” accessed Dec. 7, 2014