This money is used to pay fees for late payments, interest on the loan, the loan balance, and any other penalties from the loan company. You still might owe the loan company some money. This difference is the deficiency balance. There is no personal property, house, or car that can be taken. While it may take a while before your loan company does anything, the loan company can take legal action by suing you for this money. Sometimes, people are able to negotiate monthly payments with the loan company to avoid a lawsuit.
With this judgment, you might have to deal with wage garnishment each cycle before your paycheck hits your bank account. Additionally, deficiency judgments do affect your credit report and can lower your credit score. This sounds like a good deal, but it might be too good to be true.
If you owe more on your old car than it is worth, the car dealership will add that difference into your new loan. You might be looking at higher fees, a higher principal, or a higher interest rate. You might have much higher monthly payments than you did before because of this negative equity. This might not be manageable in the long run.
You may have to deal with the loan company repossessing your car. If that happens, anything rolled in when you bought the car is part of the loan and will be part of the deficiency balance.
Your personal liability on unsecured AND secured debt will be gone. If you owe money on your repossessed car, this debt will be discharged with the rest of your unsecured debts.
Filing your papers will stop the collection agency from going after you for the rest of the auto loan if your car was repossessed. Watch out! If you sign a reaffirmation agreement with the lender, you agree to continue making loan payments. You can still keep the car by signing a reaffirmation agreement, but you need to keep making payments. You would lose the car and your Chapter 7 discharge will not protect you from having to pay repossession costs because you reaffirmed the debt.
Upsolve provides free Chapter 7 assistance to qualified low-income individuals. Attorney Amelia Niemi. Amelia Niemi is an attorney licensed in Illinois. Depending on where you are in the car repossession process, you do have options for keeping your car -- and more of your money. Because the repossession process is outlined in your loan agreement, your lender legally can repossess your car without notice or a court order.
But most lenders will call, email or send notices or all of the above that outline the consequences if you begin missing car payments. Repo companies can take your car at any time -- whether the car is parked in front of your home, at work or at the grocery store.
After taking possession of your car, the lender begins the process of recouping the money you still owe on the car loan, plus any fees incurred -- think towing, storage of the vehicle, re-keying the car and legal fees.
The best way for the lender to get that money is to sell the car, often through an auction. If the sale price is less than your loan balance plus any fees, the difference is called the deficiency balance. If the amount is too large to settle, though, the lender will contact you and, depending on the state where you live, can pursue the deficiency balance through collections. Although losing your vehicle and the repossession expenses may be upsetting or even devastating, the lasting financial consequences of a repossession could hurt even more.
This story was originally published by The Penny Hoarder. If the car is sold, ask if you still owe money. Work on improving your credit. In some states, not getting insurance stipulated in a loan or lease contract can count as a default, and your car can be repoed because of it. Call your lender before jumping to conclusions so you can clarify how you can set things straight. Readers also ask. In a voluntary repossession, you inform your lender you can no longer make payments and intend to return the vehicle.
Just as with involuntary repossession, you have to pay the difference between what the car sold for and what you owed on the loan. Voluntary repossession, a type of loan default, will stay on your credit report for seven years.
That type of negative mark will harm your scores — especially your automotive-specific credit scores, which will determine the interest rate you pay on your next car loan. Once seized, your car will probably be sold at auction.
If your car sells for less than you owe, you may be sued for the difference, known as a deficiency, plus any applicable fees. You can sometimes reinstate the loan and work out a new payment plan, too. The repossession may not be removed from your credit report in these situations, but your new payments will generally be reflected if you make a deal with your lender but not if you buy the car back at auction. Before getting your car back, think through these questions:. If you got your car back, would you be able to afford insurance, maintenance and gas?
Neglecting important repairs or getting into an accident while uninsured may land you in an even more difficult financial situation.
Do you have access to affordable public transportation or a carpool? Getting to work by bus or other means may be a better option than reinstating your loan or paying your balance and repossession expenses in full.
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