Repossession / What Happens After Car Is Repossessed

Repossessions: What Happens When Your Car Gets Repossessed?

Written by Ascend Team
Updated Nov 13th, 2023
The information provided in this article does not, and is not intended to, constitute legal or financial advice; instead, all information, content, and materials available in this article are for general informational purposes only. 

In most states, a lender does not need a court order to repossess a car if the vehicle repossession is “peaceful.”  In other words, they can take the car as long as no one objects. For that reason, many repossessions occur when people are not home, or the vehicle is parked in a public location.

It is a terrible feeling to discover your car was repossessed. However, that may not be the end of the matter. The car lender could seek a deficiency judgment if they do not receive full payment for the loan.

What Happens After the Lender Repossess Your Car?

Most states require lenders to send borrowers a letter notifying them of repossessions and debts owed. The notice gives the borrower a deadline to pay the loan in full. If the borrower does not pay the loan in full, the lender sells the car.

The lender applies the money from the sale to the loan. If the sale of the vehicle does not pay the car loan in full, the lender may seek a deficiency judgment.

What Is a Deficiency Judgment for Repossessions?

A deficiency is the amount of money owed on a loan after the net proceeds of the sale are applied to the account. For example, let’s assume you owe $19,000 on your car loan. The lender repossesses the vehicle and auctions it for $11,000. The deficiency would be $8,000.

The lender files a debt collection lawsuit seeking $8,000 plus attorneys’ fees, filing fees, and interest. The judge rules in favor of the lender and grants their request. You now have a personal judgment against you for over $8,000. Even though the car was taken, you still owe money to the lender.

The lender may pursue legal action to collect the judgment. If your state law permits wage garnishment, the lender may ask the court for a wage garnishment order. Depending on your financial situation and state law, you could be making payments on a judgment for a car you do not own.

Does Filing Bankruptcy Get Rid of Deficiency Judgments from Repossessions?

Yes, filing Chapter 7 or Chapter 13 eliminates deficiency judgments from repossessions. You can also get rid of deficiency judgments from the foreclosure of your home.

Deficiency judgments are unsecured debts. Therefore, they are dischargeable under the Bankruptcy Code. When you file Chapter 7, the debt is wiped out when you receive your discharge. In Chapter 13, the lender would receive a percentage of what you owe. At the end of your case, the court will discharge your remaining debt.

What Are the Benefits of Filing Chapter 7 Before My Car is Repossessed?

If you know you cannot afford to keep your car, you might want to consider filing Chapter 7 before the lender repossesses your vehicle.

Through a Chapter 7 case, you can surrender your vehicle in full satisfaction of the debt. The lender cannot file a debt collection lawsuit or garnish your wages if it does not receive enough money to pay the loan in full. The debt is wiped out entirely by your Chapter 7 bankruptcy discharge.

By filing a Chapter 7 bankruptcy, you also get rid of other debts you cannot afford to pay.

Unsecured debts discharged include:

  • Credit card bills
  • Personal loans
  • Medical debts
  • Most judgment debts
  • Some old income tax debts
  • Old lease and rent payments

Most people go through a financial crisis at some point during their lives. Divorce, illnesses, unemployment, accidents, loss of a spouse, and other life events can create a temporary decrease in income. If you struggle with debts you cannot pay, filing bankruptcy can give you the fresh start you need to get back on your feet. Chapter 13 bankruptcy has similar benefits.

Caution: You Can Be Sued After Your Car Is Repossessed

An auto deficiency is what you owe to a creditor after your repossessed vehicle was sold at an auction and the amount is then applied to your owed amount. In some situations, the lawsuit can be over $5,000 or more as the vehicle may only get a fraction of what you pay for the vehicle, especially if your car is a lemon.
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How Can Ascend Help You With a Bankruptcy Filing?

Ascend has several products that can help you get out of debt and back on a path to financial wellbeing. If you need help paying off debt and don’t want to file bankruptcy, our Savvy debt planner can help you pay off your debts without filing bankruptcy.

If you want to file Chapter 7, our new product may be right for you. It is similar to Turbo Tax. Our program walks you through completing your bankruptcy forms so that you can file bankruptcy without an attorney. It can be an affordable way to file bankruptcy for individuals with simple bankruptcy cases.

Some individuals need help from an experienced bankruptcy attorney. We can help you locate a bankruptcy lawyer near you that offers free bankruptcy consultations. Our goal is to help you find an affordable solution to your debt problems. Contact Ascend to speak with a knowledgeable, compassionate team member.