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Combating a Deficiency Balance on a Repossessed Car

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Behind on your car payment? You’re not alone. A record number of Americans are behind on their auto loan payments. This is a somewhat unsurprising fact, as lower income individuals are more frequently able to obtain financing on cars due to what seems to be an increase in predatory and sub prime lenders nationwide.

If you find yourself behind on car payments, and have your car repossessed, you will be on the hook for the “deficiency balance” which is the difference of the amount the car sells for at auction and the amount owed on the vehicle. For instance, if your 2010 Toyota Camry sells at auction for $4,000, but you owed $14,000.00 to the lender, the lender can sue you for the $10,000.00 deficiency balance, plus costs and attorney fees. This applies even if you voluntarily surrendered your vehicle.

For those who are already unable to make their car payment, a judgement of this amount is almost impossible to pay. The lender can take money out of your bank account to satisfy the judgement, which can put the debtor in a very dangerous position of being unable to pay rent or their mortgage.

Filing for Chapter 7 bankruptcy can provide those who owe a car lender relief from that debt. A Chapter 7 bankruptcy typically lasts about four months from filing date to discharge. The filing of the bankruptcy protects the debtor from any collection efforts by any creditor, even a creditor with a judgement for a deficiency balance on a car loan. The discharge of the bankruptcy (preceded by a Motion to Avoid the lender’s Judgment Lien) absolves the debtor of that debtor for forever.

Lastly, considering car payments are high on the priority list of bills to pay, an individual behind on their car payments are likely to have high balances on credit cards or other loans such as signature loans and payday loans. These types of debts are also dischargeable in a Chapter 7 bankruptcy. If you find yourself struggling to make car payments and other debt payments, or have already had a car repossessed, a Chapter 7 bankruptcy could be your easiest and cheapest way to get back on track financially.

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