Auto Repossession Deficiency Lawsuit?

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What Is a Deficiency Balance After Auto Repossession, and What Should You Do If You’re Sued?

Facing the aftermath of an auto repossession can be overwhelming, especially if you receive notice of a deficiency balance. Many people are surprised to learn that even after a car is repossessed, they may still owe money.

This blog post explains what a deficiency balance is, how it arises, and what steps to take if you’re sued for one.

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What Is a Deficiency Balance?

A deficiency balance is the amount of money you owe after your car has been repossessed and sold by the lender. When a borrower defaults on an auto loan, the lender has the right to repossess the vehicle and sell it to recover their money.

However, if the sale price doesn’t cover the full amount of the loan and associated costs, the remaining debt is called the deficiency balance.

Here’s How It Works:

Loan Amount Remaining: Let’s say you owe $15,000 on your loan.
Repossession Sale Price: The lender repossesses the car and sells it for $10,000.
Other Fees: Add repossession, storage, and sale fees—say $2,000.
Deficiency Balance: You would still owe $7,000 ($15,000 – $10,000 + $2,000).

What to Expect After Repossession

After repossession, the lender must follow specific rules, which vary by state. In Texas, for example:

Notice of Sale: The lender must notify you of the time and place of the sale.
Commercially Reasonable Sale: The lender must sell the car in a way that is fair and follows standard practices.
Deficiency Notice: After the sale, the lender will send you a notice explaining the deficiency balance.

What Happens If You’re Sued for a Deficiency Balance?

If you don’t pay the deficiency balance, the lender can file a lawsuit to collect the money. Here’s what to do:

Don’t Ignore the Lawsuit

If you’re served with a lawsuit, ignoring it can lead to a default judgment, where the court automatically rules in the lender’s favor. This could result in wage garnishment or liens against your property.

Review the Details of the Lawsuit

Carefully read the complaint and confirm the following:

The amount claimed matches the deficiency balance.
The lender followed proper procedures for repossession and sale.
The sale was commercially reasonable.

Consider Your Defenses

Possible defenses might include:

Improper Sale: The lender didn’t notify you of the sale or conducted it unfairly.
Incorrect Balance: The deficiency amount is inflated or inaccurate.
Statute of Limitations: This varies by state law.

Negotiate or Settle

In many cases, lenders are open to settling for less than the full amount. You might be able to negotiate a payment plan or reduced balance.

Consult an Attorney

If you’re unsure about your options or defenses, seek legal advice. An attorney experienced in debt collection cases can help you navigate the process and protect your rights.

How to Avoid a Deficiency Balance in the Future

Communicate with Your Lender: If you’re struggling to make payments, reach out to your lender to explore options like deferment or refinancing.
Understand Your Loan Terms: Know what happens in case of default and whether you’re responsible for a deficiency balance.
Keep an Eye on the Sale: If repossession happens, ensure the sale is conducted properly and that you receive all required notices.

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Mike Weston, Esq.

Mike Weston is a seasoned debt lawsuit defense attorney and founder of Weston Legal. Since 2005, Mike has devoted his career to compassionately helping consumers struggling with issues involving their personal and business debts. Mike is grateful to have been able to help tens of thousands of clients become empowered with knowledge on the path to financial stability.