Dealing With a Deficiency Judgment After Car Repossession

Strategies for protecting your income and property when a car lender tries to collect a deficiency judgment against you.

If your car has been repossessed for failure to make payments, the sale price of your car at auction may not cover the balance that you owe to the lender. If not, your lender can ask that a court enter a monetary judgment against you for the remaining balance on your loan, called a deficiency judgment. Once it has a deficiency judgment against you, the lender can take steps to collect it.

If your car lender gets a deficiency judgment against you after car repossession, there are things you can do to protect your income and property from collection. (Learn more about car repossessions and deficiency judgments.)

How Can Your Car Lender Collect?

A lender enforcing a judgment has several methods available for collecting it from you, including:

  • Garnishing your wages. This entails obtaining a court order instructing your employer to hold back money from your paycheck and give it to the lender.
  • Taking money from your bank accounts.
  • Taking your property. The car lender can request an order from the court that instructs law enforcement to seize and sell property of value that you own.

Strategies to Defend Against Deficiency Collection

If your car lender gets a deficiency judgment against you, here are some strategies for dealing with its collection attempts.

Do Nothing

A lender may obtain a deficiency, but choose to never collect it. Sometimes, it may take the lender years to try to collect a deficiency judgment. You may want to do nothing until the lender makes efforts to collect on its judgment.

If the car lender does start collection actions, doing nothing may still be a good strategy if you have no assets or little income. This is commonly referred to as being “uncollectable” or "judgment proof." Even if you earn wages and have some property, you might still be judgment proof if those assets are exempt (see below).

Use State Exemptions to Protect Your Property and Income From Collection

All states have laws called “exemptions” that allow a debtor to protect certain types and amounts of property from judgment creditors. Exemptions vary by state, but common ones include:

  • some personal property, usually up to a dollar amount
  • a portion of your wages if you make under a certain amount
  • retirement accounts
  • some equity in your homestead (some states exempt the entirety of your homestead)
  • work or medical equipment, and
  • certain public benefits

Another common type of exemption is the head of household exemption, which protects the wages or bank account funds, up to a certain amount, of a debtor who is responsible for providing for a family.

How to Raise Exemptions as a Defense to Collection

In most states you must raise in court your right to exemptions, otherwise you could lose those rights. Do not ignore collection documents just because you feel you have no funds or property that can be taken, and do not rely on the lender or the court to see for themselves that you are uncollectable. You may have assets or income that you are unaware can be taken by the lender. An attorney can give you an opinion as to whether you are truly uncollectable.

Think About Your Future Financial Situation

It is also wise to consider the future. A judgment collector may inquire as to your assets and income for many years. If you have insufficient income today, that may not be the case years from now. If you think you may increase income or obtain assets in the future, you should be careful when choosing to just do nothing.

Negotiate a Payment Plan to Pay the Deficiency

Even after a deficiency judgment is entered, your lender still may work out an agreeable payment plan with you. You can try to negotiate a payment by calling the lender or the lender’s attorney. Almost every lender’s attorney will take your call, and at least listen to payment offers that you make.

While negotiating, you can try to demonstrate your hardship in order to convince the lender to keep your payments as low as possible. You can show the lender any credit cards that may be overdue, foreclosures, or other items that demonstrate hardship.

If you have a lump sum of money, you can often reduce the total balance owed on the deficiency by paying one lump sum. (Learn about tips for negotiating with creditors.)

File for Bankruptcy

A Chapter 7 bankruptcy wipes out most of your debts, including a deficiency judgment after a car repossession. However, because of the relatively small dollar figure of an auto deficiency judgment, it may not make sense to file a bankruptcy just to eliminate it. But if you have other debts as well, and a bankruptcy is right for your financial situation, you'll be able to wipe out the car deficiency judgment with the bankruptcy.

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