If my car is repossessed do I still owe money to repay the loan?

If you have purchased a car and you are unable to make the car payments, per the contract, the lien-holder has the legal right to come and physically repossess the automobile. If they repossess the car they may decide to sell it at auction. Unfortunately, the sale price of the car may not cover the original amount you owed the lien-holder under your contract.

If your car is repossessed and sold, but the amount of the sale is less than what you owe, you may still owe the lien-holder money on the contract. This amount is called a deficiency balance.

Legal rights to repossess your automobile

If you have stopped making payments on your car loan, the lender is allowed to repossess the car. If they decide to resell it, however, they are supposed to send you a notice that the property will be sold. The sale notification must include the date, time, and location of the sale. If the car is sold, you should also be notified of the amount of the deficiency balance.

You also have the legal right to attend the auction and bid for your car. There are several different types of auctions (private and public), but regardless of where your car is sold, you should be notified of the sale. Call the lender if you have questions about the date and time of the sale.

Deficiency balance after the sale of an automobile

Assuming your vehicle was sold at auction and you did not purchase the car, the sale price is subtracted from the balance you owe the lender. The lender may, however, also charge you for other expenses such as repossessing the car, storing it until the sale, and selling the property. If after the sale there is a deficiency balance, you will be required to pay the difference between the sale price and the remaining balance of your car loan.

There are several ways to avoid a deficiency balance. For instance, you can ask the lien-holder to reinstate the contract and sell the car yourself. While you may not get the full value of the loan, you may be able to sell the car yourself and get more funds to pay the lender than the lender will get if they auction the car, thus reducing your deficiency balance.

Another option is to hope the lender will simply "write-off" the deficiency balance. This is more likely in certain states where laws have been passed which eliminate your liability for a deficiency balance on certain kinds of transactions or if the amount you owe or the amount you paid for the car is less than a few thousand dollars.

Assuming the collector did not make any mistakes in the collection process, which means they complied with all notice requirements and sold the property in a commercially reasonable manner, and they chose not to write off the loan, you will have to pay the deficiency balance.

Bankruptcy and deficiency balances

Filing bankruptcy may allow you to avoid paying the deficiency balance. For instance, if you file Chapter 7 bankruptcy the deficiency balance is considered unsecured debt and may be discharged. If you file Chapter 13 bankruptcy the deficiency discharge may be repaid or reduced through the bankruptcy repayment plan.