Equipment Financing Default: Yes, They Can Repo Your Stuff
Missed payments on equipment financing? They can and will repossess. Here’s the timeline, your rights, and how to stop it.
How Equipment Financing Works (And Why Repo is Easy)
What you signed:
- Promissory Note: You promise to pay $X over Y months
- Security Agreement: The equipment is collateral – lender has first claim
- UCC-1 Filing: Public notice of their security interest
- Personal Guarantee: If equipment value less than debt, you owe the difference
What this means: They own the equipment until you pay in full. Default = they take it back.
The Repo Timeline
Day 1-15: Missed First Payment
- Late fees added (typically 5% of payment)
- Collection calls begin
- Grace period (if in contract, usually 10-15 days)
Still manageable. Call lender, request extension, make payment ASAP.
Day 16-30: Second Missed Payment
- Formal default notice sent (certified mail)
- Acceleration clause triggered (full balance now due)
- Repo company may be contacted
- You have 10-20 days (varies by contract) to cure default
Day 31-60: Repo Authorized
- Lender hires repo company
- They can take equipment from your business location
- No court order required (self-help repossession)
- Can’t "breach the peace" but can enter unlocked premises
What "breach of peace" means:
- ✅ Can repo from unlocked business location
- ✅ Can repo from parking lot
- ✅ Can repo equipment on job site
- ❌ Cannot break locks
- ❌ Cannot use force against you
- ❌ Cannot repo from locked building without key/permission
What Happens After Repossession
Step 1: They Sell the Equipment
Lender must sell equipment in "commercially reasonable manner":
- Public auction
- Private sale
- Dealer trade-in
Problem: Equipment sells at auction for 30-60% of value typically.
Step 2: They Calculate Deficiency
Math:
- You owed: $100K
- Equipment sold for: $40K
- Repo costs: $5K
- Storage: $2K
- Legal fees: $3K
- Deficiency you owe: $70K
You’re still on the hook for the deficiency if you personally guaranteed.
Step 3: They Sue You for Deficiency
Lawsuit for $70K + interest + more legal fees.
Now they can:
- Garnish wages
- Freeze bank accounts
- Seize other assets
How to Stop Repossession
Option 1: Catch Up Payments (Reinstate Loan)
What you need:
- All missed payments
- Late fees
- Any repo/legal costs incurred so far
Timeline: Usually 10-20 days from default notice
Once reinstated: Loan continues as if nothing happened
Option 2: Pay Off Loan in Full (Redemption)
What you need: Full remaining balance + fees
When it makes sense: You have lump sum available, equipment worth more than balance
You own equipment outright after this.
Option 3: Negotiate Modified Payment Plan
Propose to lender:
- Extend loan term (lower monthly payment)
- Skip 2-3 months, add to end
- Interest-only for 6 months
- Refinance with another lender
Success rate: 40-60% if you’re proactive and have reasonable plan
Option 4: Voluntary Surrender
How it works:
- Contact lender, offer to return equipment voluntarily
- Negotiate deficiency waiver (they agree not to pursue you for difference)
- Turn over equipment cleanly
- Walk away
Option 5: File Bankruptcy
Effect: Automatic stay stops repo immediately
Chapter 13: Can keep equipment, catch up payments over 3-5 years
Chapter 7: Equipment goes to trustee, usually returned to lender anyway
When it makes sense: You have other debts too, need comprehensive solution
Your Rights During Repossession
They MUST:
- ✅ Notify you before selling equipment (usually 10 days)
- ✅ Sell equipment in commercially reasonable manner
- ✅ Give you accounting of sale proceeds
- ✅ Avoid breach of peace during repo
- ✅ Return any personal property inside/on equipment
They CANNOT:
- ❌ Break into locked buildings
- ❌ Use force or threaten force
- ❌ Repo in a way that causes public disturbance
- ❌ Sell equipment without proper notice to you
- ❌ Keep personal property that was in/on equipment
What If They Repoed Illegally?
If lender violated your rights during repo, you can:
- Sue for wrongful repossession
- Recover damages (lost business income, emotional distress)
- Force them to return equipment
- Eliminate or reduce deficiency debt
Common violations:
- Broke locks to access equipment
- Threatened you during repo
- Sold equipment without proper notice
- Sold for unreasonably low price (bad faith)
- Refused to return personal property
Special Situations
Equipment is Critical to Business Operations
Problem: If they repo your delivery trucks, kitchen equipment, manufacturing machinery – business dies.
Strategy:
- File emergency bankruptcy to stop repo (automatic stay)
- Propose Chapter 13 plan to catch up over 3-5 years
- Meanwhile, find alternative financing to refinance out of bankruptcy
Equipment Worth Less Than Balance
Example: Owe $80K, equipment worth $30K
Strategy: Let them repo. They sell for $30K. You owe $50K deficiency (plus costs). Negotiate settlement of deficiency for $15K-20K. Total cost: $15-20K vs. $80K.
Savings: $60-65K
Multiple Equipment Loans with Different Lenders
Problem: Defaulting on one triggers cross-default clauses with others.
Strategy: Triage – which equipment is most critical? Pay those lenders first. Let less critical equipment go.
Facing Equipment Repossession?
Time is critical. Once they repo, negotiating power drops to zero.
Free consultation: We’ll review your equipment financing agreement, assess repo risk, and create stop-repo strategy.
Emergency response for imminent repo situations
FAQ
Can they repo equipment that’s paid off?
No. If you’ve paid in full, they have no claim. If they try, that’s conversion (theft) and you can sue.
What if the equipment is at a customer’s location?
They can still repo if they can locate it and access it without breach of peace. Inform lender of location to avoid them showing up at wrong places.
Can I buy the equipment back after repo?
Sometimes. If it hasn’t sold yet, you can offer to pay balance + costs. After sale, no—new owner has it.
Do I get credit for depreciation?
No. You owe the contract balance, not the current value. This is why deficiencies are so high.
