Your car has been repossessed. Unfortunately, you fell behind on payments. Perhaps you had an interruption in employment or you encountered unexpected expenses that caused you to fall behind on the car payments. Or you decided to return the car to the lender for whatever reason – payments were too much.
So what happens now to the car and the car loan? Well, the lender will sell the car and apply the sale proceeds to the balance on the car loan. Are you in the clear? It depends on how much the sale proceeds are for the car. Are the sale proceeds enough to cover the balance on your car loan?
Often the sale proceeds are insufficient to pay off the car loan. What happens next? In all likelihood the lender will pursue a judgment for the amount still owed. The lender is seeking what is called a car deficiency. The lender will have to file a lawsuit in order to obtain a judgment for a car deficiency. What are your options?
Defenses to lawsuit for car deficiency
You may have defenses to the lawsuit. The following are some possible defenses to a lawsuit seeking a car deficiency.
- Notice before Repossession – Florida law does not require the lender to provide you notice before taking the car. However, your loan documents may require the lender to provide such notice.
- Breach of Peace – Did the lender “breach the peace” when repossessing the car?
- Did the repo man break into a locked building to get access to the car?
- Did the repo man use physical force to get access to the car?
- Did the repo man use threats of physical force to get access to the car?
- Did the repo man use trickery or fraud to obtain consent from you?
If the repo man did any of the above, then you may have a defense to any subsequent lawsuit for a car deficiency.
- Notice of Sale – The lender must provide reasonable notice of the sale. The time and location of the sale must be provided in the notice. Sale may not occur less than 10 days after the notice.
- Commercially Reasonable Sale – The sale of the car must be commercially reasonable in every manner.
- Bankruptcy Discharge – A Chapter 7 or 13 Bankruptcy Discharge may be a defense. See the discussion below.
Chapter 7 and 13 bankruptcy
A Chapter 7 or 13 Bankruptcy also may resolve the lawsuit for a deficiency judgment. A bankruptcy will discharge the personal liability for any car deficiency.
- Chapter 7 Bankruptcy – Your bankruptcy case discharges, meaning wipes out, any personal liability on the car loan provided the lender was provided notice of your bankruptcy, you did not reaffirm the car loan during the bankruptcy case, and you were granted a Bankruptcy Discharge. If you reaffirmed the car loan, then your bankruptcy does not discharge your personal liability.
- Chapter 13 Bankruptcy – Your Chapter 13 discharges your personal liability provided the lender was provided notice of your bankruptcy, you completed all of your Chapter 13 plan payments, and was granted a Bankruptcy Discharge.
A bankruptcy discharge is an affirmative defense to a car deficiency lawsuit. So you must raise the defense, or you will lose it. Just because you filed a bankruptcy which you believe discharged the car loan liability does not mean you can ignore a subsequent lawsuit for a car deficiency. You must file an Answer raising Bankruptcy Discharge as a defense.