Charged items have a low risk for repossession

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Dear To Her Credit,
If someone gifts an item they purchased on credit and doesn't pay their credit card bills, will the company repossess the items from the person that was given them? Or will they just go after the person that used the credit card to try to get paid?  -- Tiffany


Dear Tiffany,
Interesting question! You don't say if you're the credit card holder or the gift recipient, or whether any of this has taken place yet. I don't like the sound of it in any case. Here's what happens to you in this situation, depending on which side of the credit card you're on.

Scenario 1: You used your credit card to buy someone a gift. You promised to pay back the amount, plus interest. The credit card company has a contract with you, and with no one else.

Although you are liable for the balance on your credit card, the credit card company cannot repossess your purchases unless the credit card agreement grants a security interest in purchased items. This clause granting security interest is particularly prevalent in retail cards, such as those from Costco and Big Lots, for example, and even some general-purpose cards issued by Wells Fargo. Otherwise, your purchases are not specifically identified as collateral and cannot be repossessed.

Even if your credit card agreement gives the bank the right to repossess items you purchase, the chances of them actually doing so are not high. The bank would far rather get paid than come take your used purchases and try to sell them.

If you've already purchased large items for someone and now are having trouble paying your credit card bill, the good news is that the bank is not likely to go after the friend or relative to whom you made the gift. That would be embarrassing, to say the least. The bad news is that you need to find a way to resolve your credit card debt yourself.

If you are only considering charging a gift and have doubts about your ability to pay for it, don't do it. Save up the money before you buy the gift or think of something smaller and within your budget that you can afford. Many people get into financial trouble simply by being too generous. Don't be one of them.

Scenario 2: Someone else gave you an expensive gift and that person can't pay the credit card bill. If you're the recipient of this gift, you generally don't have to worry about the credit card company knocking on your door and carting off your TV or whatever else you received. 

However, your enjoyment of the gift may be lowered if you know the person who gave it to you is in deep financial trouble because of it. While you legally own the gift you received, you know someone else is experiencing a hardship.

You may feel better returning the gift. If it's not returnable to the store at this point, perhaps the person who gave it to you can sell it and apply the proceeds to his or her bill.

Although credit card companies seldom repossess purchases, they do have legal methods for attempting to get paid. If the cardholder does not pay, he or she can face higher interest rates, late or over-the-limit fees and cancellation of the card. The cardholder's credit may be damaged, making it difficult to get favorable credit terms for years to come. In extreme cases, the credit card holder may go into bankruptcy to try to resolve the debt. That's a high price to pay for making a one-time generous gift that is really above a person's ability to pay.

See related: Capital One edits language allowing visits at home or work

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Updated: 03-24-2019