My car was repossessed – now they want the deficiency balance! What do I do?

21 Apr My car was repossessed – now they want the deficiency balance! What do I do?

After a vehicle is repossessed, the lender usually auctions it off.  If the lender sells the vehicle to someone else, the auction proceeds will be applied to the outstanding balance on your loan, the auction fees, the repossession fees, and storage fees.  Usually, there is not enough money to pay these fees in full – resulting in a deficiency.  Ask your lender to let you pay the deficiency over time.  If the lender agrees, get the terms of your agreement in writing before you pay the lender any money.  The agreement should include the amount of your installments, when the agreement begins and ends, if interest will apply to the deficiency and, if so, the rate of interest that will apply, when you will be in default of the agreement, and the consequences of the default.

If your lender insists that you pay the deficiency in a lump sum, don’t do it if it means you won’t have the money to pay your mortgage or rent, buy groceries and medication, or to keep your utilities running.  The deficiency is an unsecured debt.  This means that if you don’t pay it, your lender will have to take you to court to try to collect the debt.  If you are unable to pay the deficiency and you have a significant amount of other debt, you may want to consider filing for bankruptcy.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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