Posted on: 29 March 2017
When you stop making payments on your auto loan, the bank will typically take the vehicle back (i.e., repossession). Unfortunately, your obligation to pay the loan may not end there. If the bank sells the vehicle for less than the balanced owed on your account, you will continue to be liable for the difference. Here are two things you can do to eliminate a deficiency balance after your car or truck has been repossessed.
Fight Back in Court
If the lender sues you in court for the balance owed on your loan, there are three defenses you can invoke to invalidate its claim:
- The statute of limitations has run out
- The lender didn't sell the vehicle in a commercially reasonable manner
- The lender broke the law when obtaining the vehicle
Every state puts a time limit on how long people have to sue for contract breaches called the statute of limitations. In Florida, for instance, plaintiffs have five years to sue for damages. If they don't pursue their legal options in that time frame, they lose the right to do so forever. The clock typically starts when the breach occurs (e.g. when you stopped making payments), so research what the limitation is in your state and use this defense if enough time has passed.
Although lenders aren't required to sell repossessed vehicles for the highest amount possible, they must use commercially reasonable means to find new buyers. What this means exactly can vary between courts, but generally lenders must sell the vehicle in a way that makes more likely a buyer will purchase it. Selling the vehicle at an auction is considered commercially viable, while simply setting the car in someone's driveway with a sign on it may not be, for instance. Failure to adhere to this requirement may cause the bank to lose its right to collect any balance owed.
Lastly, lenders cannot breach the peace when taking possession of the vehicle. For instance, the recovery agents can't threaten or assault you for the keys and they can't break into your garage to get the car. Any type of illegal behavior will typically invalidate the lender's claim to the deficiency balance.
The second option for eliminating a deficiency balance is to file for bankruptcy. This is a good choice if your debts outpace your earnings and you want to get a fresh start. A chapter 7 bankruptcy will wipe out your obligation to pay the remainder of the loan, while a chapter 13 lets you pay the balance off over time. Additionally, the bankruptcy won't hinder your ability to get another vehicle in the future, though you may be charged higher interests rates for the auto loan.
It's best to consult with a debt relief attorney like Clinger Richard S about these and other options for avoiding a deficiency balance.Share