My car was repossessed recently and I stilled owed $12,000 on the car loan. I bought the car for $25,000 but had paid off more than half the loan when I defaulted on the payments. Someone told me that the car lender can sue me for more money. How can this be?
In Wyoming if the amount that the car lender gets from the repossession sale of your car is not enough to cover your unpaid loan balance plus the lender’s costs in repossessing and selling your car, you will owe the difference – called a deficiency. If you don’t pay the deficiency, the car lender can sue you to recover that money.
Wyoming does have an anti-deficiency law (a law that places limits on a lender’s ability to pursue a deficiency in certain situations), but it only applies if you paid $1,000 or less for your car. Hardly a consumer-friendly law when it comes to car repossessions.
If you fall behind in your car loan payments in Wyoming, 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. (Learn how car repossession work.)
In most cases, the car lender will sell your car either at auction of through a private sale (often to a used car dealer). If the sale price is not enough to cover the remaining balance on your car loan and the lender’s repossession and auction costs, you will owe the difference – called the deficiency. (Learn more about deficiency balances after car repossession.)
You owed $12,000 when your car was repossessed. Let’s say the car lender incurred $1,000 in repossessing and selling your car. Although you paid $25,000 for your car, at this point your car has depreciated significantly and repossession sales don’t bring in top dollar, so let’s say it sells for $10,000. In this scenario, you will owe a deficiency in the amount of $3,000.
Let’s do the math: $12,000 (loan balance) + $1,000 (lender’s costs in repossessing and selling the car) - $10,000 (sale price) = $3,000 (amount of deficiency)
What if the sale proceeds are more than the loan balance? If, on the other hand, the sale proceeds covered both the unpaid loan balance and the lender’s costs, the consumer owner wouldn’t owe a deficiency. In fact, the lender would have to return any surplus money to the consumer.
In Wyoming, the lender is prohibited from collecting a deficiency if you paid $1,000 or less for the car. (Wyo. Stat. Ann. § 40-14-503.) When the law was passed, back in 1971, this provided significant protection for consumers. Back then, you could buy a new car for $2,000 or $3,000. So if you bought a used car (which would probably cost less than $1,000), the anti-deficiency statute would kick in. Unfortunately, the law has not been updated to take into account inflation, so it provides no help to car owners today.
However, if the lender failed to Wyoming rules when it repossessed the car, conducted the sale, or calculated the deficiency balance, you might be able to challenge its right to the deficiency. (Learn more in Can a Car Lender Collect a Deficiency After Repo?)