Defenses to Car Repossession Deficiency Lawsuits

If a car lender sues you for a deficiency after repossessing your car, you might have some defenses to the lawsuit.

By , Attorney Case Western Reserve University School of Law
Updated 9/15/2023

When a creditor sues you for a deficiency judgment after repossessing your car, you might have defenses to that lawsuit or counterclaims that you can make against the creditor for damages of your own. These defenses or claims can reduce or even eliminate the balance of the debt.

Below is a short description of the various defenses or claims that might be available to you.

You Weren't in Default on the Car Loan

The loan papers you signed should describe when you are considered in default. For example, some loan agreements state that a debtor isn't in default if less than 30 days late on a payment. In others, you might be in default if you're just one day late on a payment. Some agreements require the lender first to send you a notice regarding the late payment and give you time to get current. Read your loan papers carefully.

Notwithstanding what your loan agreement says, if the creditor had a history of accepting late payments from you without declaring a default or did other things to change the terms of the loan agreement—such as changing the payment due date—you can raise this as a defense.

The Creditor Didn't Follow Proper Procedure in Repossessing the Car

A creditor must comply with the law when repossessing a car. You can challenge a creditor's claim for a deficiency judgment if it failed to repossess the car legally, such as for the following reasons:

Breach of Peace

Creditors can't breach the peace while repossessing the car. That means it can't use or threaten to use force or violence. It can't break locks or destroy or damage property in attempting to reach the car. Nor can it use law enforcement to assist in a repossession or engage in a confrontation with you.

If the creditor breached the peace, you can raise that as a defense to a deficiency lawsuit. If the creditor or its repossession agent harmed you or your property (or threatened harm or force), you might also be able to seek damages in the form of a counterclaim.

Violation of Military Service Protection

If you're in military service, a creditor generally must obtain a court order before it may repossess your car. To be eligible for this protection against repossession, you must have signed the loan agreement and paid at least the deposit or first installment payment before you entered military service.

If a creditor takes your car without getting permission from a court, then you can raise that as a defense and counterclaim, and the creditor is potentially subject to criminal charges.

Missing or Damaged Personal Property

The creditor is not allowed to keep or sell personal property left in the car when the creditor repossessed it. The creditor must also use reasonable care to prevent others from causing loss or damage to your personal property.

If the creditor refuses to return personal property, or if it is lost or damaged while in the creditor's possession or control, you may raise this as a defense and counterclaim for damages.

Improper Calculation of the Deficiency Balance

Even if you owe a deficiency balance on the car loan, the creditor might have miscalculated that deficiency amount. Here are some issues that you should carefully look for when reviewing the creditor's calculations of what it claims you owe:

  • Interest rate. Does it match what the creditor is allowed to charge you under the loan agreement? Even if the creditor is allowed to charge you the agreed-upon interest rate, the interest rate might be against the law in your state.
  • Late charges. Did the creditor charge you late fees for payments you made on time? Do the late fees match what the agreement says the creditor can charge you?
  • Credits. Did the creditor apply all of your payments?
  • Repossession and storage fees. Does the agreement state that the creditor can charge you repossession and storage fees? If so, do those fees match or exceed what is covered in the agreement? Creditors usually can charge for these fees, but they can't exceed a certain amount, depending on your state's law. You should research the laws of your state or talk to a local attorney to find out if these fees are capped or even prohibited altogether.
  • Attorneys' fees. Even if your loan agreement permits the creditor to charge you attorneys' fees as part of the deficiency balance, the laws of your state might prohibit this. Creditors are usually limited in charging attorneys' fees for collecting consumer debts like personal car loans.

The Creditor is Barred From Collecting the Deficiency

The creditor might be completely barred (prohibited) from collecting the deficiency. For instance, if the creditor failed to provide you with required written notices, did not conduct the sale of the car in a commercially reasonable manner, or refused to allow you to reinstate the loan, the law might prohibit it from going after you for the deficiency.

Similarly, if you filed for bankruptcy and discharged your car loan debt, the lender might be barred from collecting the deficiency. Or you could have other defenses if the creditor violated other federal or state consumer lending, debt collection, or consumer sales practices laws in its dealings with you.

Getting Help

You might have additional claims and defenses not already covered here. For more information or assistance, contact your state attorney general office or state consumer protection agency (see State Consumer Protection Offices to find yours), or consult with a local attorney.

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