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Deficiency Balance on Car Repossession

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UpdatedJun 17, 2024

My car was repossessed and now I owe $9,600 in a deficiency balance I can't afford to pay. Is bankruptcy an option?

I filed bankruptcy 7/08 in North Carolina. I lost the car I had, purchased another car, was on a very tight time frame to do so, went to a car lot my lawyer suggested. The salesman looked at my information, the bank told me what I could afford to pay monthly and I picked a car. Unfortunately, I was trying to recover from the bankruptcy and the payment was too high. I struggled with the payment from 7/08 until 4/09. I voluntarily relinquished the car back to tidewater motor credit. They auctioned the car and I owe $9,600. They continue to call and harass me, and I don't know what to do. Can they garnish my wages or if a judgment is placed how bad will that affect me? I'm a single woman feeling overwhelmed with the loss of a relationship, bankruptcy, and now this car loss.

Part of my answer contains some "tough love," so I want you to be prepared to read something you may not want to.

Let us handle the immediate issue first. When you surrendered the car to the creditor, it sold the car for less than the balance of your loan. This is called a deficiency balance. Read your loan documents to see what you agreed to regarding a deficiency balance. According to the North Carolina DOJ Web site, it is legal for the creditor to ask you to pay the deficiency balance in your state.

What can you do about this?

If you had purchased this car before the bankruptcy, it might be possible for your bankruptcy attorney to ask the court to reopen your case and add the car loan to the bankruptcy. However, because you purchased the car after your bankruptcy, I believe it would be all but impossible to add this to the bankruptcy. However, I am not your attorney, and this is a question you should ask him or her.

On a similar note, I do not believe that filing a new bankruptcy petition will be available to you, given that you filed a little more than a year ago. Bankruptcy is designed to be rare event, and not an annual subscription. However, if you were beset by an unexpected calamity the court may allow you to file a second bankruptcy after such a brief period. Again, that's a question for your attorney to ponder.

For the sake of argument, let us assume you cannot file for bankruptcy again. What do you do with the $9,600 deficiency balance? Talk to the creditor and work out a payment plan. They may make intimidating statements that frighten you. Arm yourself with strategies and tactics to level the playing field by understanding debt negotiation techniques. Debt Negotiation and Settlement Advice is a good article to get you started.

If you do nothing, North Carolina is a state that bars creditors from garnishing wages, so at least you will be able to keep 100% of your income. However, creditors can go to court, and in a hearing before a judge that you will be summoned to attend, ask the judge for an order to levy your bank accounts or put a lien on your property. This means that although your income might be safe, anything else of significant value the court finds might not be.

This leads me to the tough-love part of my reply. Your circumstances (bankruptcy followed by buying a car you can't afford, then voluntary repossession and a $9,600 deficiency balance) and the last sentence in your message lead me to believe that you do not have a handle on your finances. To the contrary, your finances are controlling you. Stop being a passive observer of your money. Take control of your spending by creating a budget and sticking to it. Had you been in control of your budget you would have known the car you wanted was too expensive, and not took the bank or salesman's word for it that the car was affordable.

There are many ways to create a personal budget. It's like dieting -- pick a budgeting style or plan that works for you, but once you start stay on your plan! has a free budget guide that you can download and print. This might be the right style for you, or not. But either way, create a budget, take control of your money, and you will never be in your present situation again.

One last thought. Join a local group that focuses on personal finance. I have a family member who joined one at her church recently. She said being with others who wrestle with personal finance issues is helpful because, 1) she gains knowledge about saving and spending, and 2) she socializes with others sharing that interest.

You can and will work your way out of this. I hope this information helps you Find. Learn & Save.



Debt statistics

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q1 2024 was $17.69 trillion. Student loan debt was $1.60 trillion and credit card debt was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in New York, 20% have any kind of debt in collections and the median debt in collections is $1755. Medical debt is common and 6% have that in collections. The median medical debt in collections is $456.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.



ooscar, Apr, 2014
I live in Texas and I'm about to have my car repo'ed voluntarily. It broke down and I can't afford to get it fixed plus make the loan payment. When I called the bank, they said they would garnish my wages and seize any new cars I buy. Is this possible?
BBill, Apr, 2014
You mentioned Texas. Read the article Texas Collection Laws to understand your rights and liabilities as a Texas resident. In particular, the first two paragraphs of the article I just mentioned answers your question. The rest of the article outlines what can happen if the lender files a lawsuit against you and the court awards it a judgment.
MMelanie, Jan, 2013
My situation is different. My husband and I bought a vehicle and the following Monday my husband was laid off. 4 months later we had another child. I am currently behind on my payments and am finding it difficult to afford the necessary items for our family. I am thinking about voluntarily returning my car. I have tried to work out a lower payment with GM. But they said, "We are not a bank and do not refinance." They suggested I go to a credit union and refinance. Unfortunately, I owe $6,000 more than the car is worth. So I cannot refinance at a lower rate. Now I am reading about deficiency balance. So if I return my car I will owe on it still. To what extent can they come after me for the remaining balance or should I file bankruptcy (I have never done so). I owe $21,000 on a $15,000 car. This is my only outstanding bill. No credit cards, no home loans, etc.
BBill, Jan, 2013
It is reasonable to assume some time will pass — 6 months or more — between the voluntary repossession and when the the original creditor assigns or sells the debt to a collection agent. At that point in the future, your spouse may be employed again and your finances may be brighter than they are now. It is likely you will be able to negotiate a settlement for the deficiency balance that will be much less than your projected amount. Why? Collection agents usually buy collection accounts for pennies on the dollar. Negotiating a settlement on the deficiency balance for less than half of its face value is an outcome in the realm of reason.
BBill, Jul, 2010
A recent repossession will have no affect on your ability to buy a vehicle if you pay cash for it. If you need a loan, then you will not find one at an attractive rate due to the recent repossession on your credit record.
ddon, Dec, 2010
I reside in Texas.Due to unforeseen circumstances,I am unable to afford my vehicle.If I do not pay the defiency amount,can they sue for a judgement and take away my home that still has a mortgage?I know in Texas that they cannot garnish wages for consumer debt.Will the texas homestead act allow me to keep my only home if I am sued for a car defiency judgement?thanks.
BBill, Dec, 2010
See the resource Texas Collection Laws to see how Texas law creates rights and liabilities for Texans. Texas law prohibits lienholders from foreclosing on properties declared as homesteads. See the Findlaw article An Overview of The Texas Homestead Law for an accessible and clear discussion of Texas' homestead law.
mmaritza, Jul, 2010
BBill, Feb, 2010

Your paying for your father's medical care is understandable if the alternative is the hospital denying him care. Regarding your question about the amount of time that must elapse for chapter 13, the rule is fairly simple: A chapter 13 discharge will be granted if two years have elapsed from prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases. Of course, that assumes the prior plans were completed, as is the present plan. See the US Courts Web page Chapter 13 basics. Just about any consumer debt can be discharged in bankruptcy. The exceptions include student loan debt (except under narrow circumstances), child support, and instances of fraud.

AAmy, Feb, 2010
Hi bill,thank you for the reply and I really would like to know if it possible to include the 'Deficiency Balance' on car and a home Repossessions in the bankruptcy if I cannot file the bankruptcy this year. To be clear on my earlier comment- of course he would not want to trouble his children and my father never had to do that before - he is 84 years old not living in the United States had a stroke, paralyze, no longer can talk, on lung machine, no longer can work, and currrently living in the hospital ICU. He had some retirement income which is not enough to cover everything. He was working till he day he sick and unable to care for himself. I cannot sit and ignore and see him suffer or do I wait for no more money coming in and hospital will toss him out? He did not deserve that. He didn't ask to be sick and helpless, I did ask for this to happen either. To make long story short - I had to come back to the U.S. to continue working and settling my affair. Right now I hiring local nursing assistant to care for him. Of course, my sister is also caring for him as well and help paying with non-U.S. dollar for his expenses. We both are doing what we can but right now I am not making it and I am loosing what I have. I really would like to know how is it works - I filed the bankruptcy chp.13 in 2003 and the letter from the court dated I completed the obligation is in 12/2007. Which is the date to be consider in the count for the amount of time that must elapse between bankruptcy filings is seven years in 2003 or date in 2007?