If you get behind on car loan payments, the lender will likely come after the car through a so-called “self-help” remedy called “repossession.” Once the lender has your car, it will sell the car at auction. The proceeds received at auction, minus the costs of repossession and sale, will be applied to your loan balance.
If the net amount received at auction is less than what you owe on the car loan, the lender will have a “deficiency claim” against you. The lender will generally demand you pay the deficiency, and sue you to recover the deficiency claim if you don’t pay.
If the lender does sue you to collect the deficiency claim, the lender must serve you with the complaint and a summons. The complaint will set forth facts relating to the loan, the default in payment on the loan, the repossession, the auction, and the resulting deficiency. The summons commands you to appear at a date and time certain to answer the complaint. Failure to respond appropriately to the summons and complaint can lead to a default judgment against you.
Once the lender has a judgment for the deficiency claim, the lender can execute on the judgment. Judgment executions can take many forms, but usually involve wage garnishments and levies on your bank accounts. Wage garnishments and levies can put you in a position where you are unable to pay other creditors, leading to a downward spiral of potentially increasing intensity. It is at this point that many consumers think of filing for bankruptcy protection. Bankruptcy can eliminate deficiency claims and block garnishments and levies.
Send me an email if you would like additional written information on how bankruptcy can protect you against deficiency claims and garnishments.
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