Car Loan Deficiency After Repo

[LawKitty]

Here's my situation:

I graduated law school May 2011, took the Florida Bar in July, and failed it. I'm retaking it in a couple of weeks. Having to retake the Bar, along with my husband being out of work for a couple of months, has really hurt us financially. We weren't able to make our car payments for a couple of months, so they came and repossessed the vehicle. In order to have gotten it back, we would have had to pay the entire balance owed on it and since the loan we had carried an 18% interest rate, it was more than the car was even worth. The credit union repossessed the vehicle before Christmas and sold it in January.

Today I receive a certified letter from the credit union telling me that we have a deficiency of around $7300 after they sold the car for about $3700. There is also an accounting of deficiency in this letter. At the bottom it states that if the balance is not paid in full within 15 days of the notice, they will refer the account to an attorney or collection agency.

I personally know they will quickly move to a lawsuit and try to get a judgment against me and my husband for a few reasons. One is that they knew I was in law school, so I'm sure they expect I will eventually have money to pay it, plus since it was in both our names, they could garnish my husband's wages or take the junky cars we have (& rely on to get to work) since there are no liens on them. The other is that they are aware that my home is being foreclosed as well. The main reason the home is in foreclosure is due to a death in the family. I'm fighting the foreclosure to try and buy some time until I can take the Bar and hopefully find full-time work, because I do have some equity in the home and am not upside-down. I'm supposed to go to mediation next week on that.

There is no way I will be able to come up with $7300 in 15 days and they know that. I'm not even sure how to approach this at all. I've had people suggest possibly filing bankruptcy, but I'm still working on my character and fitness clearance from the Bar and a bankruptcy might cause a problem. But then I'm still going to have to explain the repossession and a judgment if they get one against me and my husband. Trying to work out a payment arrangement most likely isn't going to be to their liking because if we couldn't afford the loan payments, then any payments we make a month would have to be much lower than that. Not to mention it is so disheartening to know I've basically paid them payments since 2006 and the principal on the loan hardly moved, so we've easily paid what the car is worth and more and now are looking at $7300 more for a car we don't even have anymore. And we need a car on top of it. I'm trying to make do with junk for now and then save up for something used, but more reliable. After this experience, I really don't want to finance another vehicle again.

As if I needed more stuff to worry about and deal with before I take the Bar Exam...

[NewLife4Me]

I could had sworn if your car get repossessed that you only have to pay what you are behind plus other cost

but whats your question?

[LawKitty]

I could had sworn if your car get repossessed that you only have to pay what you are behind plus other cost

but whats your question?

No, you still have to pay for the balance of the loan. My question is basically what are my options, keeping in mind that I won't have $7300 in 15 days or anytime soon to pay them? I'm assuming trying to negotiate with them and reduce the amount they say I owe probably won't go far. This credit union is all about getting judgments and executing them. I personally know people in their collections department and they don't send these things off to collection agencies. They file suit.

I don't know if there are any things I can do to basically stall them from filing suit, or what mistakes to look for when I do have to file an answer to the impending lawsuit? What should I try to discuss or negotiate with them in the next 15 days since I can't pay them? Do I tell them that there is no way I can pay them anytime soon?

Basically, I can't pay them within 15 days or anytime soon. I would like to negotiate a lower amount because I've paid way more than the car was worth, plus even more in late fees and penalties, and of course 18% interest. I would like NOT to get sued, of course. If I can't avoid a suit, then I'd at least like not to have a judgment against me and my husband. For $7300, they are not going to just go quietly away, that I can assure you. They will use every available legal means to screw me even more than I was screwed having the car loan in the first place. And yes, I do realize that they are not totally to blame because we accepted the terms on the loan. We had bad credit, needed a car, and they were the only ones that would even finance us. I knew the terms were not good, but didn't realize until a couple of years into the loan just how bad they were when we still seemed to owe as much as when we first got the loan, and it was for a used car to begin with. We managed to make payments on it for almost 4 years and the amount we borrowed was just under $13,000. So after almost 4 years, we still owed around $11,000 and had been making payments of $320 a month. Very expensive lesson learned...

[life is good]

It seems so crooked!! if you aren't able to make a $320 monthly payment; How can they hardly expect you to come up with $7,300 within 2 weeks!!

Did they offer some sort of payment option? Seeing as you've made, what? payments amounting to $15,360?? And to boot, they HAVE the automobile........Even depreciation....can't cover this crap......come on; is this legal???

Can you find any case law with respect to you situation?

I hear of this scenario all the time...and people just take it in the......*#@!

[LawKitty]

It seems so crooked!! if you aren't able to make a $320 monthly payment; How can they hardly expect you to come up with $7,300 within 2 weeks!!

Did they offer some sort of payment option? Seeing as you've made, what? payments amounting to $15,360?? And to boot, they HAVE the automobile........Even depreciation....can't cover this crap......come on; is this legal???

Can you find any case law with respect to you situation?

I hear of this scenario all the time...and people just take it in the......*#@!

I'm fairly sure what they are doing is legal. I might argue it's unconscionable. It's just that when you've had things happen like a job loss, a death, or an illness, and you have bad credit because of it; you don't exactly have your choice of lenders and loan terms. You have to take what you can get and that's unfortunately what we did. Nobody would even touch us with our credit, and we even had a down payment.

About a year ago, when I saw how much we still owed on the car loan since it hadn't gone down much at all; I saw an ad for a BRAND NEW Kia Soul for less money than what we STILL owed on the car we bought used. It was sickening. But it seems the poorer you are, the more everything costs. I understand that it's because of risk. But I also have been a customer of this credit union for a while and actually had PAID OFF a previous car loan through them (with almost equally bad terms, but for a lesser amount). So that was about 4-5 years paying a previous car loan off, and then almost 4 years with this one before it went south. They knew I always paid. Sure, I was late with payments, but I'd end up catching it up, and bottom line, they got their money. I always talked to them and didn't avoid their calls or anything like that. It just so happened that when the car got repossessed, my phone had been shut off, so they had tried to call me and couldn't reach me. But I had been communicating with one of their agents through email. Then the boss told her to quit emailing me and not to communicate with me by email, but only through the phone. Since my phone was shut off and they couldn't get me, they just decided to pull the plug on the loan.

I even explained to him that I could have borrowed money if need be to make a past due payment, if I had known that it was going to be repossessed, but borrowing money from family is a last resort option so I try not to do it unless it's truly an emergency. I just didn't know it was an emergency until the repo man showed up, because I had previously been 3 payments behind and then caught it up in the past. I was only 2 payments behind when they repossessed it. Why they were so adamant about repossessing a car that wasn't worth what was still owed on it, I have no idea. Then I called to see if I could just pay the past due payments and the repo fee and get my car back, but was told that I'd have to pay the entire balance of the loan, which obviously then knew I would never be able to do. I really think this was done for the purpose of getting a deficiency judgment on me either because they were tired of me being late on payments here and there or they figured because of my situation, that they would be able to get money quicker by doing it this way, instead of waiting for me to pay it off month by month.

I wanted so bad to get out from under the car loan so at first I tried to be positive about it and figure that at least I'm not trying to come up with $320 each month, plus the insurance costs, etc. and that it would give us a little bit of breathing room as my husband just started back to work full-time in January.

As far as payment arrangements, there is no mention of anything like that in the letter. Only payment in full is indicated. Granted, I haven't talked to them so they might be willing to work out a payment arrangement with me, but given the way the credit union has acted regarding this loan, I would bet they are not going to be flexible at all because they want to get that judgment. The one collector I did speak with quite a bit told me about getting judgments on people then executing them by seizing whatever junker car the person has and is using to get back and forth to work. He would say it was even better when it was a really junky car because chances are it was the only piece of transportation they had and it gave them so much more leverage to get paid when they had the person's only means to get to work. I'm thinking the whole time that it's the equivalent of kicking someone when they're down. If the person can't get to work, chances are they can't make any money and may even lose their job. Then things just get worse from there.

I just really don't want to finance anything every again if I don't have to. There is no job security any more and if you lose your job, but need to make monthly payments, you're screwed. And it takes forever to dig yourself out of the hole, even once you do find another job. The only way I can see that you can be protected from something such as a job loss or death or illness, is to have at least a year's worth of living expenses saved up. Once I do have a job and have put out all the 'fires' I have to deal with, an emergency fund is my first goal. Every time we've tried to make one in the past, some unexpected expense comes along and wipes it out. But part of the problem is just not having enough income, and that's where we've been for the last several years. We don't have credit cards. All the money goes to utilities, food, prescriptions, and gas, and we're generally forced to juggle those. We just had to spend $200 (that we really don't have) to put a new alternator on the one car we have running just so my husband can get to work. The other vehicle we have needs a fuel pump and now it has to wait, so instead of being able to have 2 cars running, we're now back to one. It's 1 step forward, 2 steps back every time you turn around.

Being on this end of things hopefully will give me perspective when I am an attorney and trying to help others. I have no idea what type of law I will end up working in, but can see myself doing pro bono work helping others that have been or are in the situation that many of the people on this forum are in.

[WhoCares1000]

For local credit unions, it is a whole different ball game than the usual JDB/CA/National Banks we usually deal with. Local Credit Unions are operated in the same way all banks operated in before the 1980s. They keep all records and tend to deal with collections in-house rather than with collections agencies. They know and follow the rules to the T. When they sue, they will have all of the records needed to win and they will win. That was how the game was played about 30 - 40 years ago before the debt spiral started.

In most states, a lender can go after you for a deficiency in a car loan IF they follow certain procedures. In this case, they have followed said procedures (unless they forgot to tell you when the care would be auctioned which might be a small loophole to squeeze through but the OP has not said that and I have a funny feeling they did that). This means that the demand is proper.

You might be able to negotiate with them based on your situation today. The simple fact is, you are not a lawyer today and your husband might be exempt from garnishment. Your home is completely safe in Florida. If you close your banks accounts and go cash, it will be very hard for them to collect. They cannot say you will be a lawyer tomorrow because you still have not passed the bar. In fact, you could even mention that if they do go through with the judgement, they may never collect and that a bird in hand is worth 2 in the bush. You do not know until you try to negotiate.

I do not think you have much of an option other than a judgement or bankruptcy (which is stupid for $7300) at which point today, you might or might not be judgement proof. You will have to deal with this as far as the bar goes. If things go well, you will get back to them at a later date and settle with them. All things can be settled if you are persistent enough.

[TomnTex]

I bet that when you do pass the bar you will become an attorney dealing in consumer law. Great that you will be willing to help others. If this doe’s not get paid off, you can bet that withing three years they will issue a 1099 C on the balance. Hang in there, you will get through it.

[Denita]

Call the attorney and restructure the note for the vehicle.

Yes, its a repo, but they are only looking for a consistent monthly payment.

You may have to relent and do the two things that I hate to do in these circumstances:

1) let them draft monthly automatically from a share acct* you have at the CU

and 2) sign a stipulation that it will be an automatic judgment if you fail to pay. It would be beneficial for both of you (the CU and you) to have this at a very low fixed rate. If they bring up the fact that you failed to keep payment arrangements for the last four years, you can point out that the rate and terms were onerous. Negotiate it so that if you do pay it in its entirety, that the entire TL would be deleted or marked "paid as agreed". You may as well make it the best that you can.

Most CU attorney's are much more "approachable" than the attorney's at the big box banks. It would be worth going through this to keep from filing a BK in your particular circumstance.

I am only suggesting this because CU's are relentless and they generally have the documentation. It would be a real shame to file Bk at your stage now having just graduated from law school.

*make it a separate acct from your main operating acct so you don't run into overdraft issues. Remember, CU's cross-collateralize everything too so you may want to have your main acct somewhere else and just have the funds for this auto draft in the CU acct. i have negotiated with a CU in Fl (Tampa area) before and they were amenable to this arrangment - not the collections dept, the attorney. You have to get to someone that has the authority to negotiate.

Edited February 12, 2012 by Denita

[BTO429]

You are a law student,like myself you should know about Commercially Reasonable Price

This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the bank cannot pursue you for a deficiency unless it obtains a fair price for the car (a fair price is known as a "commercially reasonable price"). The burden of proof is on the bank to establish that it sold the car at a commercially reasonable price. Because a bank rarely, if ever, obtains a commercially reasonable price for the car, this is a very strong defense that should be raised in every auto deficiency case.

What is the car make and model and could you yourself sold that car or a dealer sold that car for more than what the bank did at auction?

[racecar]

Reselling the vehicle.

Once your car has been repossessed, your creditor may decide to keep the car as compensation for your debt or resell it in either a public or private sale. In either case, your creditor must notify you about what will happen to the car. If the creditor decides it wants to keep the car, you have the right to demand the car be sold instead. You may choose to exercise this right especially if the car is worth more than the amount owed on the loan. If the car is sold at a public auction, you must be notified of the date in advance. If sold at a private sale, you will be notified of a date after which it will be sold.

Any resale must be conducted in a "commercially reasonable manner." For example, a resale price which is below fair market value may be unreasonable. If this occurs, you may have a claim against the creditor for damages or a defense against a deficiency judgment. You may also be entitled to buy back the vehicle by paying the full amount owed, plus any expenses incurred by the creditor. Additionally, you may be able to reinstate your loan by paying the amount you are behind on the loan plus your creditor's expenses.

A deficiency judgment is the difference between what you owe on your loan and what your creditor receives when reselling your vehicle. A creditor who has followed the proper procedures for repossession and sale is generally allowed to sue you for a deficiency judgment to collect the loan balance. If you are sued, you will be notified of a court date. You should attend the hearing because it may be your only opportunity to raise any legal defenses you may have. An attorney will be able to advise you as to whether you have grounds to contest a deficiency judgment. If your creditor has committed a "breach of the peace," the creditor may lose the right to collect a deficiency judgment.

[bmc100]

If I were you, I would rethink a bankruptcy. If this time you pass the bar exam, some states have rules for new attorneys and bankruptcies. In Michigan, a court will not swear you in if you a bankruptcy is less than a year old and two you have to prove to the court that you are both financially and morally responsible.

You just went through law school, you should have the basic knowledge on what to do. Now, you just have do it. So if it gets into court, be ready to fight.

After having a couple of rough last couple years, before that when my income permitted it, I lived quite well, but not out of my means. Now, that I have no debts, I learned an important lesson...Regardless of how much income I make, go back to the basics of staying out of debt, having a healthy cash reserve, adequate life and disability insurance and save as much as possible.

Like you, with my line of work, I could not file bankruptcy or else I would have most likely had to find a new line of work due to state and government regulations. Just be smart..

[legaleagle]

RSMO-Chapter 400

repo starts at section 400.9-609.