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

George Simons | October 20, 2022

Lenders coming to repossess your car ^^

Summary: Even if your car is repossessed, you probably still owe the debt if it didn't sell for as much as you originally owed. When this happens, the lender can sue you for the remaining balance of debt. Use SoloSuit to respond to a debt lawsuit and increase your chances of winning by 7x.

Car repossession laws can be confusing and extensive. Each state has unique laws that govern how a lender can repossess a vehicle. That being said, United States Uniform Commercial Code §9-609 states:

“(a) [Possession; rendering equipment unusable; disposition on debtor's premises.]

After default, a secured party:
(1) may take possession of the collateral; and
(2) without removal, may render equipment unusable and dispose of collateral on a debtor's premises under Section 9-610.

(b) [Judicial and nonjudicial process.]

A secured party may proceed under subsection (a):
(1) pursuant to judicial process; or
(2) without judicial process, if it proceeds without breach of the peace.”

In other words, under US federal law, your lender can repossess your car as soon as you miss a payment without having to take you to court. This is generally true in all states, but there may be some nuances.

In this article, we’ll explain why you may still owe money after repossession and whether or not you can be sued for a repossessed car. Let’s jump right in.

If my car was repossessed, do I still owe money?

Have you found yourself asking, “if a car is repossessed, 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."

You should receive a 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.

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.

Let’s consider an example.

Example: You owe $20,000 on your car, and the lender sells it for $12,000. In this case, the deficiency balance is $8,000 plus repossession fees, if any are listed under your contract. In most states, you can be sued for a deficiency balance, as long as the lender follows state rules for repossession and sale.

After repossession, you car can still be sold privately or publicly

After your car has been repossessed, your lender can choose to keep it or sell it. There are generally two kinds of repossession sales:

  • Private sale of repossessed vehicle
  • Public sale of repossessed vehicle

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 post-repossession notice does not give you the date and location of the sale, contact the lender to find out.

Lenders generally cannot sell your vehicle for significantly less than it’s worth

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.

Let’s explore another example.

Example: 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.

Can you be sued for a repossessed car?

Like we said, your lender can sue you for a deficiency balance if the cost you owe them was not recovered upon sale of the car. In other words, when your car is repossessed and sold, you might end up being sued if the sale did not cover the full amount that you owed.

If you are being sued for a balance you owe on a repossessed vehicle, you must respond to the lawsuit before your state’s deadline to avoid losing by default. When you lose by default, the lender or debt collection agency can garnish your wages or put liens on your other property to recover the debt owed.

Going to court for car repossession is no fun, but SoloSuit can help make the process less painful.

The first step to winning your lawsuit is to respond with a written Answer document. In your Answer, you should:

  1. Respond to each claim against you.
  2. Assert any applicable affirmative defenses.
  3. File the Answer document into the court case, and send a copy to the opposing attorney.

Learn more about these three steps in this video:

There are 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.

Defend yourself 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 you 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?

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You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

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