If your car loan lender repossesses your car, van, truck, SUV, or other motor vehicle is repossessed, it might sue you to recover any money you still owe on the vehicle loan (called the deficiency). If this happens, you’ll need to decide if it is worth paying for an attorney to help you. In some cases, hiring an attorney might make the difference between having to pay a deficiency judgment and walking away without owing the lender anything.
Understanding Car Loan Deficiency Judgments
After the lender repossesses your car, it will most likely sell it at a public or private sale. In many cases, the proceeds from the sale will not be enough to pay off the total amount you owe -- the difference is called the deficiency.
Example. If you owe $29,000 on your car, but your lender repossesses it and only gets $20,000 for it at the sale, the difference of $9,000 constitutes the deficiency.
The lender may then attempt to collect the deficiency balance from you by filing a lawsuit. Once the lender gets a deficiency judgment, it may garnish your wages, or other income, or bank accounts. (Learn more in Nolo’s Wage Garnishments & Attachments area.)
When to Consider Hiring an Attorney
The lender must meet certain legal requirements when repossessing and reselling your car. If the lender messed up in some way during the repossession process, this could constitute a defense to the deficiency action. Hiring an attorney to represent you in the suit and investigate what happened may help you avoid or reduce the deficiency judgment.
Below are a few examples of defenses that may be available to you.
Lenders and their representatives cannot breach the peace when repossessing the car. For example, they cannot remove you from your car or physically touch you in order to take the car.
The Lender Did Not Sell the Car
After taking you car, the lender must actually sell it in order to go after you for a deficiency. If the lender repossessed the car, but kept it, there can be no deficiency.
The Lender Did Not Provide Proper Notices
When the lender decides to sell the car, it must send you proper written notice about the sale. If the notice contains incorrect information, it is invalid.
The Sale Was Not Conducted in a Commercially Reasonable Manner
The sale must be commercially reasonable. Whether or not a sale meets this standard is generally based on the:
- place, and
- terms of the sale.
The analysis varies a bit depending on if the sale was private or public. (An attorney can explain this to you in more detail. Also, you can learn more in Nolo’s article Car Repo Sale: Was it Commercially Reasonable?)
You Voluntarily Returned the Car in Exchange for No Deficiency
If your lender promised not to go after you for a deficiency if you voluntarily returned the car, this could prevent it from getting a deficiency judgment later on.
The Statute of Limitations Has Passed
If the lender waits a long time to sue you, the statute of limitations (the time period in which the lender must sue you) may have passed. (For more information, see Nolo’s Chart: Statutes of Limitations in All 50 States.)
State Limitations on Deficiencies
Some states limit the lender’s ability to collect a deficiency balance in certain situations. (Find out if your state is one of them in Nolo’s article State Limits on the Collection of Deficiency Balances.)
The Lender’s Math is Wrong
In some cases, the lender may incorrectly add up the amount you must repay or it may include amounts you’ve already paid in the total it now claims you owe. Also, the interest rate, late charges, and various fees that the lender claims you owe may not be accurate. (Learn more in Nolo’s article Defenses to Car Repo Deficiency Lawsuits.)
When You Might Not Need an Attorney
If you think the lender followed all proper procedures and know that you legitimately owe the deficiency amount that the lender is seeking, it may not be worthwhile to hire an attorney to fight the lawsuit.
Instead, you may want to try to negotiate a settlement with the lender. The lender may be willing to accept significantly less than you actually owe if you can come up with a lump sum instead. Alternatively, if you don’t have a lump sum available to settle the account, you may be able to negotiate an affordable repayment plan.
Consulting With a Lawyer
Even if you decide not to hire an attorney to represent you in the suit, you may want to at least consult with an attorney before you negotiate to find out what your rights are and what’s at risk if the case isn’t settled. The attorney can also help you in the negotiation process if you’re not comfortable tackling that on your own.