protect your interest as a debtor when goods are repossessed
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This article is focused on New Zealand law and explains issues from a Common law perspective.
How to exercise a NZ creditor's right to repossession
In exercising a right of repossession as a New Zealand creditor you must comply with the requirements set out in the CREDIT (REPOSSESSION) ACT 1997. The Act applies to all "credit agreements", which means hire-purchase agreements and other security instruments, such as chattel mortgages (secured loans) and security interests over motor vehicles.
The Act sets out the procedure for repossession and places restrictions on when and how you can repossess, but it does not in itself grant a right to repossess. Whether or not you have that right will be determined by the agreement itself.
Under the Act, you may not repossess unless:
- the debtor is in default under the credit agreement, or
- the goods are at risk of being removed, destroyed or damaged
Creditor must first send a pre-possession notice
Before you can take steps to repossess, you must first send the debtor a "pre-possession notice". This must be in writing; a standard form is set out in Schedule 1 of the CREDIT (REPOSSESSION) ACT 1997. The notice must:
- state the amount the debtor owes, and
- give the debtor at least 15 days to pay the amount owed
If you do not follow these requirements:
- you commit an offence and are liable for a fine of up to $3,000, and
- the debtor can apply to the court for relief (see related article How to protect a debtor's interest after repossession)
The notice must also be sent to any guarantors of the debt.
It is not necessary to send a pre-possession notice if you are repossessing because the goods are at risk.
When and how must the repossession be carried out?
The repossession must be carried out in a reasonable manner, and only between 6 am and 9 pm, Monday to Saturday. The debtor can, however, consent to the goods being repossessed outside those hours, provided the consent is given after the default in payment has occurred and before you or your agent arrive at the debtor's premises to take the goods.
The following documents must be produced when repossession takes place:
- The debtor must be given a copy of the pre-possession notice that was served on him or her.
- If your agent is repossessing the goods, he or she must produce evidence of authority to act as your agent.
- If the entry is during the prohibited hours, you or your agent must produce the debtor's written consent to this.
What if the debtor isn't home?
If the occupier of the premises isn't home when the entry takes place, you or your agent must leave a notice specifying:
- that the premises have been entered and the date of entry, and
- a list of any goods that have been taken
This notice must be accompanied by copies of the documents referred to above.
People who are disqualified from carrying out repossessions
Certain people are disqualified from carrying out repossessions, whether as agents or as the creditor:
- anyone who has been convicted in the last five years of a crime of violence or dishonesty
- anyone who has ever been sentenced to a prison term of 10 years or more, or to life imprisonment
- anyone who has been released from prison within the last year
Anyone who repossesses property in contravention of these restrictions commits an offence and is liable to a fine of up to $10,000.
Within 21 days after repossessing, you must send a "post-possession notice" to the debtor and any guarantors. The form for the notice is set out in Schedule 2 of the CREDIT (REPOSSESSION) ACT 1997. The notice states that the debtor is entitled to get back the repossessed property if, within 15 days of receiving the notice, the debtor either:
- "reinstates", which means to pay everything owed under the credit agreement, plus the costs of repossession and any storage costs, or
- "settles" the agreement, which means to completely pay off or finish the agreement
The notice must contain your estimate of the value of the goods.
If you don't send a post-possession notice, you are not entitled to recover the costs of repossession from the debtor or the guarantor.
Selling the goods
If the debtor hasn't reinstated or settled within 15 days of the post-possession notice, you may sell or dispose of the goods. You are under a positive duty to make reasonable efforts to obtain the best price.
Within 10 days after selling the goods, you must send the debtor a third notice (a "statement of account"), showing:
- the amount the goods sold for
- the costs and expenses of the sale
- the amount the debtor owed at the date of the sale
- whether there is money left over from the sale or whether the debtor still owes you money, depending on the amount the goods sold for
If there is money left over from the sale, the debtor has six months to begin court proceedings to recover the money from you.
- Especially if you run a repossession agency, it is important that you obtain advice from a lawyer so that you can ensure that your repossession practice complies with the legal requirements.
- Note that special rules apply if the repossession takes place 21 days before the debtor is adjudicated bankrupt.
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