What Happens After a Car is Repossessed?

Many people know that a car repossession will affect your credit score and remain on your credit report for ten years. However, there are also issues with a deficiency judgment, which means you still own the balance of the car loan, even if the repossession was voluntary.

Updated on January 4, 2025.

Key Points:

• Even with a voluntary car repo, you would be liable for the balance left on the loan.
• After your car is sold at auction, the lender can seek deficiency judgment to garnish your wages.
• A deficiency judgment should be listed on Schedule E/F of the bankruptcy petition.

The Car Repossession Process

Let me answer the question in the title of this blog post by asking another question. I know they say don’t answer a question with another question, but please humor me. If I agree to pay back a loan for $20,000 at 8% interest for five years, and after three years, I stop paying on that loan, do I still owe money on that loan?

We’ve all seen funny car repo memes and videos on social media. There is even a reality show on car repossessions and even a couple of movies. One is with Emilio Estevez, one of the original “Brat Pack” members, and the classic film “The Breakfast Club,” which I saw on Netflix a few months ago. That movie never gets old.

The other more morbid movie stars Jude Law, an Academy Award nominee and winner of a BAFTA award for Best Actor in a Supporting Role. Forest Whitaker, winner of the Academy Award in the “Last King of Scotland,” also stars in the movie. I’m currently watching Whitaker in “The Godfather of Harlem,” playing the role of Bumpy Johnson. But like the Breakfast Club, I still remember him from “Fast Times at Ridgemont High,” which I also saw recently on Netflix and also never gets old. Law and Whitaker are “repo men” but for human organs in this movie.

I’m sure you have also seen commercials about car auctions coming into town. So, if your car is repossessed, what actually happens?

The Difference Between a Car Repossession and a Voluntary Repossession

Since the loan is secured or attached to the car, the creditor can take back the vehicle. This is similar to a house and a mortgage foreclosure. For unsecured creditors like credit cards and personal loans with no assets to take back, the creditor has to sue the debtor to collect on the debt.

Once a car loan lender has taken back the car, if not sold at a dealer for whatever reason, it is sold at an auction. If there is a voluntary repossession, that means rather than the creditor having to send the repo man to get the car, the car owner agrees to return the vehicle to the lender, and the car is either sold at the dealer or auction.

• Avoid Car Repossession: Bankruptcy Options Explained

Now, let’s return to my original question of what happens if I don’t pay the total amount on my loan. Then, the answer is that I breached the contract with the lender, and I will get sued for the balance left on the loan. No different than a car repossession or mortgage foreclosure.

But the Bank Has My Car

In consulting with clients, they often say the bank has the car, and that’s it. It’s common for clients to not even list the debt in the intake form I have clients complete for their bankruptcy cases. If not for the credit report that I obtained, I would not have even known about the car repossession or listed it in the bankruptcy petition. For this reason, I get a client’s credit report from all three major credit reporting bureaus: Equifax, Experian, and TransUnion.

I use all three credit reports because sometimes debt may be listed in one credit report and not the other. This helps me avoid omitting a creditor in the bankruptcy petition. Note that by law, you can get a free copy of your credit report every twelve months from the three credit bureaus. I recommend the site Annual Credit Report, where you can get your copy from Experian, Equifax, and Transunion.

Returning to my original question, add a car to the situation. There is still a breach of contract, and the car loan lender could still sue for the remaining balance even after the sale of the car at an auction.

Then, the creditor will get what is known as a deficiency judgment. When filing a bankruptcy petition, I list the creditor and include “deficiency judgment” as the type of debt so that the bankruptcy trustee understands why the debt total may be unusually high. Unsecured debts are listed on Schedule F of the bankruptcy petition, Official Bankruptcy Form B106 E/F -Creditors Who Have Unsecured Claims (individuals).

Once the creditor has the deficiency judgment, the creditor will seek to enforce that judgment and has several options available to them:

• The judgment creditor can seek to garnish the debtor’s wages. Depending on the state, the maximum wage garnishment, or wage levy, could be between 15 to 25%.
• Creditors can also freeze bank accounts.
• Creditors can place a lien on other assets, whether another car or home.

What Options Does a Debtor Have Once a Creditor or Debt Collector Has a Deficiency Judgment?

You can negotiate a payment plan with the creditor or file for bankruptcy to eliminate the judgment. While creditors like to tell debtors that judgments cannot be eliminated in bankruptcy, that is far from true. Remember that when dealing with debt collectors, they are not your friends and do not have your best interests in mind. So, some of their tactics, besides being aggressive, are also lying about your options.

Once a wage garnishment or wage levy has started, understand that negotiating with the original creditor or debt collector will be more difficult since the creditor has the upper hand in negotiations. If the creditor can garnish 15-25% from your paycheck by statute, they are not likely to settle for anything less than that amount. So unless you’re offering more than what’s being garnished, a negotiation is likely too late at this point.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.

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Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.