Deficiency After Car Repossession: Will I Still Owe Money?

Find out what a lender can do to collect money owed after repossession.

By , Attorney

Don't count on being off the hook financially after your car lender repossesses your car, truck, or motorcycle. If your lender repossesses your car and sells it for less than the balance owed—which happens regularly—you'll likely be responsible for a "deficiency" or the amount remaining on the loan balance. In this article, you'll learn:

  • why you might owe a deficiency after a repossession
  • steps the lender can take to collect a deficiency, and
  • how to wipe out a deficiency in bankruptcy.

How Car Repossession and Deficiencies Work

When you buy a vehicle on credit, you must agree to give the lender a "lien" allowing the lender to repossess your car if you don't pay as agreed. If you fail to pay and your car is repossessed, the lender will sell it at auction and apply the sales proceeds to your loan.

Most states don't require a court proceeding before the lender takes or "repossesses" your car. But you're likely entitled to receive a notice telling you the sale's date and location.

When You'll Owe a Deficiency After Repossession

If your car sells for less than what you owe, the lender will want to collect the unpaid portion or "deficiency." In most states, a lender must first conduct the sale in a "commercially reasonable manner" by advertising the sale publicly and selling it for close to what it's actually worth.

How a Creditor Collects a Deficiency After Repossession

The lender can ask you to pay the outstanding amount voluntarily. However, before forcing you to pay, the lender must prove that you owe the deficiency amount in court and get a "deficiency judgment" against you.

A creditor with a deficiency judgment can force payment by:

  • taking your wages using a wage garnishment
  • withdrawing your bank balance with a bank levy, or
  • selling other assets through property seizure.

Learn more about dealing with a deficiency judgment after car repossession.

Car Repossession Deficiency in Bankruptcy

If the car repossession hasn't yet occurred, you might be able to stop it by filing for bankruptcy. The automatic stay put in place when you file prevents most creditors from continuing with collection actions—including car lenders.

However, if you've already lost your car and the lender is trying to collect the deficiency, filing for bankruptcy can get rid of a deficiency debt or money judgment.

Navigating a Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Related Information

Should I Ignore a Debt Collector's Calls and Letters?

How to File Bankruptcy Without Losing a Car

How to Value Your Car in Bankruptcy

Keeping Two Cars in Chapter 13 Bankruptcy

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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