If a Car is Repossessed Do I Still Owe the Debt?

George Simons

January 13, 2021

Summary: Even if your car is repossessed, you probably still owe the debt. If you get sued for the debt use SoloSuit to respond in 15 minutes and win your lawsuit.

If your automobile is repossessed, you may be asking yourself, “do I still owe the outstanding balance on the auto loan?” The answer, in most cases, is yes. The amount you would still owe is referred to as the "deficiency" or "deficiency balance."

What Exactly is a Deficiency Balance?

When the bank, or other lender, has your vehicle repossessed, they actually wind up selling the property (typically at an auction). If the proceeds from the auction are insufficient to cover the amount owed on the vehicle, you could be held liable for the balance. This is known as the "deficiency balance."

Post-Repossession Notice

In most cases, when a lender decides to repossess your vehicle, they are legally obligated to send you a notice that the vehicle will be sold and must provide the date, time, and location of the sale. In addition, the notice needs to tell you whether you are responsible for any deficiency balance. Furthermore, the notice must provide you with a phone number where you can find out how much you still owe for the vehicle. It is also worth noting that you are allowed to attend the bid and ultimate sale of the vehicle.

After Repossession, it Can Be a Private Sale or a Public Sale

There are generally two kinds of repossession sales - a public sale or a private sale. Lenders opt for a private sale when an item “is of a type customarily sold in a recognized market” or “is the subject of widely distributed standard price quotations.” Automobiles are routinely sold at private sales to which used auto dealers and others who regularly purchase repossessed vehicles are invited. If the aforementioned post-repossession notice does not give you the date and location of the sale, contact the lender to find out.

Lenders Generally Cannot Accept Pennies on the Dollar for Your Vehicle

There are laws on the books that require lenders to conduct a vehicle sale in a "commercially reasonable" manner. Though, the scope of what is “commercially reasonable” is a bit vague, which means that a lender can accept a lower amount depending on the bids or offers to purchase your vehicle. Nevertheless, a lender generally cannot simply accept pennies on the dollar for your vehicle, especially if a better offer or bid is made for your vehicle.

For example, let's say you had a BMW X5 valued at $20,000, but it sold at auction for $12,000. Even though you probably could have sold the vehicle for more, this type of transaction would likely be considered “commercially reasonable.” If, on the other hand, your X5 valued at $20,000 is sold quickly for $800, you could have grounds to challenge the sale as commercially unreasonable.

What Happens to the Deficiency Balance After the Sale of Your Vehicle

After your vehicle is sold, the sale price is subtracted from what you owe the lender. After that, the cost of repossessing, storing, and selling the vehicle is added to the difference. In most instances, you'll be deemed liable for the remaining balance. If the lender does not forgive or write off the deficiency balance, you should expect to receive a collection letter and multiple phone calls from a collection agency.

Limits on the Recovery of Deficiency Balances

A number of states have enacted laws that ensure individuals will not be held liable for a deficiency balance on certain kinds of transactions or if the amount of the deficiency balance is less than a few thousand dollars.

You Can Defend Against a Debt Collector Seeking to Recover on a Deficiency Balance

Many states prohibit creditors from collecting on a deficiency balance when the creditor failed to comply with notice requirements. For example, if the creditor failed to notify you of the right to cure or of the sale, then you could use that oversight to halt the collection efforts.

If you have reason to believe that the creditor made a mistake or committed an oversight, you need to raise this affirmative defense at the time you are sued for the deficiency balance.

File a Wrongful Possession Claim Against the Lender

Instead of raising affirmative defenses, you have the option to go on offense and file a claim against the lender for wrongful repossession. If file this type of claim, you can pursue compensatory damages for your harms and losses.

If you need assistance filing the necessary paperwork to respond to a debt collection lawsuit, or to file a claim for wrongful possession, take advantage of the resources and information available through SoloSuit.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

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