To find out exactly what will happen you must go to your loan documents, primarily the security agreement, and read it. Surprisingly, they do not all say the same thing and there may be variations on the theme, but here is a generic version of what might happen:
You will receive a letter in the mail advising you that an event of default has happened on your loan and giving you 30-days to cure the default. In the event the default is not cured, the letter will tell you, the lender will proceed with any remedies allowed in law and equity in accordance with the loan and security agreements to protect their interests. This would include liquidating anything pledged as security on the loan.
If the default is not cured within the stipulated time period, depending on the balance owed on your loan, the lender may attempt to repossess the collateral used to secure the loan, whether it be furniture or a vehicle, or some other asset. If the security is a deposit account, they may attempt to off-set the funds held in the account. If the collateral is real property they may initiate foreclosure proceedings.
If the lender is successful in repossessing and liquidating the collateral and there is still an amount owing on the loan, they may attempt to collect the “deficiency balance” through suit or small claims if the security agreement allows for that. This is one reason it is important to grab your copy of the loan documents and read them.
For anyone facing default of a secured loan it would be advisable to seek the counsel of a good, local attorney.