What is a deficiency judgment after a repossession?

If you finance a vehicle purchase, or take a loan to buy a vehicle, you have to pay back that loan in accordance with the terms of the contract.  If you do not, the bank who loaned you the money will have a right to repossess the vehicle.  That means the bank will come and take the vehicle.  After the bank takes your vehicle, it will sell the vehicle at an auction in order to recover as much money as it can to cover the amount you owed in the financing.  If the bank is not able to cover the full amount you owed, then the bank has a right to sue you for a deficiency judgment.  The deficiency is the difference between what you owed and what the bank was able to get for the car at the auction.  Let’s look at an example with simple numbers.

Let’s assume you bought a car for $12,000.00, put $2,000.00 down, and financed $10,000.00.  After so many months, you had paid off $4,000.00, but then stopped making your payments.  You still owed $6,000.00 to the bank that loaned you the money to buy the car.  The bank will come repossess the car and take it to an auction.  At the auction, the Bank is only able to sell the car for $3,000.00.  That means there is still $3,000.00 of the original finance contract that remains unpaid.  That is the deficiency amount.  The bank now has a right to sue you for $3,000.00.

If the bank sues you for this deficiency amount, it is a hard case to win.  Your best option may be to settle the deficiency amount for less than is owed.  You may even be successful at paying this deficiency judgment in a payment plan so the financial burden isn’t extreme.  What you want to avoid is a final judgment on your record.  This will destroy your credit.  Additionally, the bank may be able to sell some of your property or garnish your bank account in an effort to collect the money.

It is never a good idea to have a vehicle repossessed.  However, we understand that sometimes financial situations turn for the worse.  Just remember, you have options.

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