Will I owe money after my car is repossessed in Florida?

Question

I bought a car in Florida over four years ago. I had only three payments left when I lost my job. The loan balance at that time was $1,200, but the lender repossessed it anyway. I've heard that even if the lender takes your car, it can still sue you for the loan balance. Am I on the hook for the last $1,200? I won't have any money until I find a new job.

Answer

You're in luck because your loan balance at the time you stopped paying was under $2,000. Normally, a car lender can demand that you repay the "deficiency" (see below) after car repossession. But Florida law makes an exception: If your unpaid balance at the time of default is less than $2,000, the lender can't go after you for a deficiency. (Fla. Stat. Ann. §516.31(3)).

What Is a "Deficiency" After a Car Repossession?

If you fall behind in your car loan payments, your car lender can arrange to have your car repossessed. When this happens, the car repossession company simply takes your car—it doesn't need your permission. Although, in certain situations, it must provide some type of notice first.

In most cases, the lender then sells your car at an auction or private sale. If the sale price isn't enough to cover the remaining balance on your car loan and the lender's repossession and auction costs, you'll usually owe the difference, which is called a "deficiency."

On the other hand, if the sale price is more than your loan balance plus costs, there won't be a deficiency. Instead, the lender would have to turn over any surplus money to you. Unfortunately, in most car repossession situations, the former car owner ends up owing a deficiency.

When Is a Florida Car Lender Prohibited From Collecting a Deficiency?

Again, under Florida law, if at the time of default (when you stopped paying, for example), the unpaid balance is less than $2,000, the car lender can't try to collect a deficiency from you. (Fla. Stat. Ann. §516.31(3)).

Also, because the lender has to follow Florida laws when repossessing the car and conducting a sale, if it fails to do so, you might have a defense to the deficiency even if your unpaid balance was $2,000 or greater at the time of default.