This fact sheet is for information only. It is recommended that you get legal advice about your situation.
Jerry had a car loan with BIG FINANCE COMPANY. The car loan was secured by a mortgage over Jerry’s car. Jerry had a lot of bills come in at once and he could not afford to make the repayments on his car loan.
A few weeks after Jerry missed a payment he received a letter from the finance company. The letter stated that Jerry was in default on his loan contract. He had 30 days to make the repayments he had missed; otherwise BIG FINANCE COMPANY would take his car and/or begin court action against him. Jerry ignored the notice. Now the car has been taken and Jerry wants it back. He is trying to negotiate with the finance company without success. They want all the arrears, the payment due next week and enforcement expenses. They tell Jerry he has left it too late.
This Fact Sheet only applies to loans for personal purposes that are covered by the credit law. If you are unsure whether the credit law applies see our Factsheet on Does the National Credit Law Apply?
If you are still unsure get legal advice.
WHAT IS REPOSSESSION?
When you buy goods on credit, (for example a car) often the money loaned to you is secured by a mortgage over the goods. The lender takes the goods as security so the lender can take them from you and sell them if you default in paying the loan.
WHEN CAN THE LENDER REPOSSESS THE GOODS?
Goods bought on credit can only be repossessed if:
- there is a mortgage or a lease; AND
- you have “defaulted” on the loan agreement (for example, failed to make repayments, failed to keep the goods insured etc.); AND
- you have been given a notice by the lender (required in most cases) that you are in default of the loan, have 30 days to fix the problem and you did not fix the problem within that time.
A COURT ORDER TO REPOSSESS THE GOODS IS REQUIRED IF:
- The mortgaged goods are on private property and you have not agreed in writing to the lender entering that property to take the goods; and/or
- Where a large part of the loan (75% or more) has been repaid and the amount now owing is less than $10,000.
CAN THE LENDER TAKE A MORTGAGE OVER MY ESSENTIAL HOUSEHOLD PROPERTY?
For loans granted after 1 July 2010, credit providers cannot take a mortgage over your essential household goods to secure the loan. Essential household goods include kitchen equipment, fridge, freezer, beds, tv, stereo, washing machine, dryer, educational equipment for children (e.g. a computer), baby equipment, and video recorder.
Property used by the mortgagor in earning income by personal exertion (tools of trade) are also unable to be used as security if they are valued below the limit in the bankruptcy regulations ($3,750 as at January 2017 – for the latest amount go to the Australian Financial Security Authority (AFSA) website and select current amounts from the bankruptcy menu).
If the loan is used to purchase a particular item, for example a computer, then the lender can take a mortgage over the item being purchased only.
THE LENDER HAS SENT ME A DEFAULT NOTICE WHAT DO I DO?
You need to take action as soon as you receive a default notice from the lender. The default notice will give you at least 30 days from the date of the notice to pay any arrears owing (the amount you are behind on repayments).
If you pay the arrears AND your usual repayment within the time given in the default notice (at least 30 days) then the loan returns to normal and the lender cannot take any further action. This is the best option if you can do it.
If you fail to pay the arrears in the default notice then the lender can:
- accelerate the debt, which means the whole debt is owing not just the arrears; and/or
- repossess the goods you mortgaged; and/or
- commence court proceedings; and/or
- list a default on your credit report 60 days from the date of the default (the lender usually uses the default notice to notify you that they may list a default on your credit report).
If you cannot pay the whole amount claimed in the default notice you need to:
- contact the lender immediately to negotiate a repayment arrangement and explain that you are in financial hardship. See our Financial hardship fact sheet.
- Try to get a repayment arrangement agreed before the default notice expires.
- Keep paying what you can afford to pay.
- Make an appointment with a free financial counsellor.
IMPORTANT: If the lender agrees to a repayment arrangement then this should stop any further action. If you believe you have an agreement and the lender is threatening to repossess your goods anyway see below.
If the lender will not agree to a repayment arrangement you should then lodge a dispute in writing in an External Dispute Resolution Scheme (EDR), the Australian Financial Complaints Authority (AFCA). The lender must be a member of the AFCA scheme, which is free and will stop all legal action, which means that the lender cannot repossess your goods until your dispute has been considered. See our Dispute resolution fact sheet.
- You should also get legal advice to discuss your matter and to get guidance on how to run your dispute in AFCA.
REMEMBER: Lodging in AFCA should be used to negotiate a repayment arrangement with the lender where you can put the loan back in order. If you think you will not be able to catch up you need to get legal advice.
HELP, THE LENDER IS THREATENING TO REPOSSESS MY CAR!
You should follow the same steps as above but if the lender is threatening to repossess straight away (or a repo agent is looking for you) you should lodge a dispute with AFCA immediately, and park the car on private property in a garage until you have lodged with AFCA. You should still contact the lender to try and negotiate a repayment arrangement. Let the lender know you have lodged with AFCA.
HELP, THE REPO MAN IS AT THE DOOR!
The lender does not have the right to enter on private property to repossess the car/goods without your written consent or a court order. If they try to repossess explain that they cannot repossess without a court order. Show them this fact sheet.
If you have agreed to the repossession you should also:
- take a picture of the car/goods before it is repossessed as proof of the condition of the car; and
- get your personal possessions out of the car.
When the goods have been repossessed check the value. For example, in the case of a car, look in local trading newspapers to see what other cars of similar age and condition are being sold for or check online for car values.
WHAT CAN I DO AFTER MY CAR/GOODS HAVE BEEN REPOSSESSED?
The lender must serve you a written notice within 14 days of the repossession of the car/goods stating:
- the date the goods were taken;
- the estimated value of the goods;
- the enforcement expenses incurred to date and any other enforcement expenses accruing (such as the daily storage rate for the car);
- your rights; and
- that the lender cannot sell the goods until 21 days after the date of the notice.
If you pay the amount of the arrears, the enforcement expenses and your normal repayment (if it is due during the notice period) the lender must return the goods to you. If the enforcement expenses claimed seem too high, check your contract and get legal advice. If you can get back on track, but cannot pay the amounts required within the 21 days, you can apply for a hardship variation. See our Financial hardship fact sheet. If this is the case you need to lodge a dispute with AFCA urgently. If you lodge a dispute with AFCA after the car has been repossessed but before it has been sold, the lender cannot sell the car until AFCA has considered your dispute.
SALE OF GOODS
If full payment is not made within 21 days, the lender must sell the goods as soon as possible for the best price reasonably obtainable.
Once the goods are sold, the lender must send you a notice stating:
- The amount the goods sold for;
- The net proceeds of the sale (being the amount the goods sold for less the lender’s expenses for arranging the sale);
- The amount required to pay out the loan;
- Any further recovery action to be taken by the lender against you.
WARNING: Once the goods have been sold all of the remainder of the loan that is owed becomes due to be paid immediately. The lender does not have to agree to any repayment arrangement.
You can also complain to AFCA if the lender has not sold the goods for the best price reasonably obtainable, or you believe the enforcement expenses added to the loan have not been reasonably incurred. You will need evidence to support your complaint. You will not get the goods back!
NEED SOME MORE HELP?
See our Getting help fact sheet for a list of additional resources.
Last updated: October 2018.