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Auto Repossessions, Deficiency, and Debt Buyers
Purchasing a vehicle with financing.

When you purchased your vehicle, you probably had financing to pay for it and agreed to make monthly payments for a predetermined amount of time. This is an example of a secured, non-revolving debt.

If you fail to make your car payments or default on your auto loan, the lender may repossess the car. However, even though your car has been repossessed, you are still responsible for the balance on your loan.



If you receive papers from court notifying you a civil lawsuit has been filed against you after your vehicle has been repossessed, it may be because you still owe a balance on the car loan.

For example, let's say you owe $10,000 on the loan when the car is repossessed. If the creditor resells it for $5,000, you will still owe $5,000 on the loan. You are being sued for the deficiency on the loan. The deficiency amount is the difference between (1) the amount you owed on your car loan at the time it was repossessed and (2) the amount they got in the sale.

Debt Buyers

You might not recognize the name of the company who is suing you. That is because sometimes the company suing you is not the original creditor. Instead, it is a debt buyer who purchased the loan from your original creditor. When dealing with debt buyers (more than with your original creditor), you need to verify the information they give you because they do not have firsthand knowledge of the original transaction. You should make sure the original creditor actually sold the loan to the debt buyer. The debt buyer must prove that they own the loan as part of their case.

Credit for Resale

The creditor is required to conduct a commercially reasonable resale of your vehicle. This means that the creditor has to follow standard sales practices, but is not required to obtain the highest possible price. You should verify that the creditor has truly resold your car and that you have been credited the proper amount toward your loan. If the creditor intends to sell your car after repossession, they must notify you first. You may want to contact an attorney if you did not receive the notice or received the wrong one.

Statute of Limitations

The creditor has 4 years from the time it repossessed your car to sue for a deficiency. If more than 4 years have passed, the statute of limitations has run. If you believe the statute of limitations has run, you should notify the creditor and ask them to dismiss the lawsuit. If the creditor refuses to do so, you should consult with an attorney and/or include your belief as part of your answer to the lawsuit.

Verification - Not in Agreement

The creditor is the plaintiff in the lawsuit. Their complaint will explain why they believe you owe them money. You should make sure these amounts match with the amounts in your records. If these amounts do not match, you should notify the creditor. If you cannot agree on the difference with the creditor, you should consult with an attorney or file an answer explaining your reasoning to the judge.

Verification - in Agreement

If you agree that the amounts are owed, you can conclude the lawsuit by paying the creditor all the money owed. This includes all the court costs and the attorney's fees. If you offer to pay the full amount to the creditor, they MUST accept it, but they may refuse a personal check and require that the payment only be made by certified check or money order. If the creditor does not accept your full payment, you need to provide proof to the judge of how much you offered to pay and when, and why you believe that is the correct amount owed.

Before Trial

After you file an answer, you will need to provide the plaintiff with a disclosure statement, which is a document that explains your position and lists your witnesses and evidence. The court will set the case for a pretrial conference or mediation. You must come to this hearing, which is an opportunity for the parties to meet and discuss a possible resolution of the case. Make sure you confirm where you need to be and at what time. Do not be late. If the judge calls your case and you are not there, the judge may not consider your written defense and enter a default judgment against you. A default judgment means a judgment is signed in your absence without you being able to defend yourself.

Before Trial (cont'd)

If you reach an agreement with the creditor, you will need to put those terms in writing and notify the court. If you do not reach an agreement, the court will set a trial date where each party will produce their evidence.

Note that the plaintiff/creditor may file a Motion for Summary Judgment. You will need to follow the instructions and respond in writing, or you may have a judgment entered against you without a trial.
The information on this page may be helpful if a creditor files a lawsuit against you, but it is not a substitute for legal advice. There are other rules and laws that may apply to your situation, but these are common rules and laws that apply in civil cases.