Finances are tough for a lot of people these days, and life can take sudden turns that can leave you without the ability to pay your bills, including your car loan.
If you’ve recently had your vehicle repossessed, it’s hard not to feel like the worst has already happened – but that may not be true. One of the potential consequences of car repossession is a deficiency judgment.
What’s a deficiency judgment?
After a vehicle is repossessed, it’s typically sold at a discount through an auction. That’s usually the best way for a lender to collect the balance owed. However, depending on the condition of the vehicle, how much you still owe and the competition at the auction, the lender may end up with less than the outstanding balance of your auto loan. That’s when a deficiency judgment may come into play. The lender can ask the court to order you to pay the difference between what you owed on the loan and what the lender received from selling the vehicle.
What are the consequences of a deficiency judgment?
Once a deficiency judgment is obtained by the lender, it gives them the legal right to pursue collection efforts for the remaining debt. That can mean:
- Wage garnishment: The lender may attempt to garnish your wages, which means a portion of your paycheck will be deducted to repay the deficiency.
- Bank account holds: In some cases, the lender can levy your bank accounts to collect the debt.
- Property liens: A deficiency judgment can result in a lien being placed on your property, such as your home, making it difficult to sell or refinance.
- Additional credit damage: The repossession itself will negatively impact your credit score, but a deficiency judgment can make it much harder to recover.
If you find yourself facing a deficiency judgment, you have a few options. You may be able to negotiate a settlement with the lender to pay off the deficiency in installments or for a reduced amount – but that may not be entirely feasible if your money problems are still ongoing. In those situations, it can be best to consider other legal options, including bankruptcy. Bankruptcy can help you regain your financial footing and move past your financial crisis.