Repossessions: Why Is Your Deficiency Balance So High? Understanding How Deficiency Balances Work and What You Should Know
- Jeff Boe
- Oct 7, 2024
- 4 min read
Updated: Feb 21
If you've recently had your vehicle repossessed, you might be grappling with a deficiency balance that's much larger than expected. But what exactly is a deficiency balance, and why does it seem so steep?
In this article, we’ll break down what deficiency balances are, how they’re calculated, why they often seem so high, and, most importantly, what you can do about them.
What is a Deficiency Balance?
A deficiency balance is the remaining debt you owe after a repossessed vehicle is sold and the proceeds from the sale aren’t enough to cover your outstanding loan. Here’s how it works:
When you finance a vehicle, you’re required to make monthly payments until the loan is fully paid off. If you fall behind on those payments, the lender has the right to repossess the vehicle. Once repossessed, the lender typically sells the vehicle at auction. However, the auction sale price is often much lower than the loan balance. The difference between what the vehicle sells for and what you owe is called the deficiency balance.
Example: Suppose you owe $15,000 on your vehicle loan, but after repossession, the lender sells it at auction for $6,000. The deficiency balance would be $9,000, plus any fees and interest that the lender may add.
Why Is My Deficiency Balance So High?
Many consumers are shocked by the amount they owe even after their vehicle has been repossessed. Here’s why deficiency balances can be so high:
Low Auction Prices:
Repossessed vehicles are often sold at auction, where prices can be significantly lower than market value. The lender’s goal is to recover the loan amount quickly, not to get the best price.
Fees and Costs Added by the Lender:
Repossession comes with several additional fees, including towing, storage, and administrative costs. These fees are often added to your loan balance, inflating the total amount you owe.
Interest Charges Accumulate:
Interest on your loan continues to accrue even after repossession. Many lenders will continue to charge interest on the deficiency balance until it's paid off, increasing your debt over time.
Attorney’s Fees and Collection Costs:
If the lender takes legal action to collect the deficiency balance, they may add attorney’s fees and court costs to the amount you owe, making the balance even higher.
Other Hidden Costs:
In some cases, there may be additional charges like penalty fees or “late fees” that were added before the repossession took place. These amounts are often bundled into the deficiency balance, making it even harder to pay off.
How Deficiency Balances Are Calculated
The calculation of a deficiency balance includes the following factors:
Remaining Loan Balance: The total outstanding loan amount at the time of repossession.
Sale Price at Auction: The amount the vehicle sells for at auction, typically much lower than market value.
Additional Fees and Costs: This includes towing, storage, administrative, and legal fees.
Accrued Interest: Interest that continues to accumulate until the loan is paid off.
This complex formula means that your deficiency balance is often much higher than expected, catching many consumers off guard.
Your Rights and Options for Challenging a Deficiency Balance
If you’re dealing with a deficiency balance, you may have options to challenge or reduce what you owe. Here’s what you can do:
Verify the Balance
Review all documents provided by the lender to ensure accuracy. Request a detailed breakdown of the deficiency balance to check for any errors in fees or interest.
Negotiate with the Lender
In some cases, lenders may be willing to negotiate a lower balance or offer a settlement. Reach out to discuss your options for paying off a reduced amount or setting up a manageable payment plan.
Check for Compliance with State Laws
Different states have unique laws regarding deficiency balances. Some states require lenders to provide consumers with specific notices and disclosures about the repossession and sale. If your lender didn’t comply with these laws, you might have grounds to dispute the balance.
Challenge the Commercial Reasonableness of the Sale
Under the Uniform Commercial Code (UCC), lenders must sell repossessed property in a “commercially reasonable” manner. If you believe your car was sold for far less than its fair market value, you could potentially dispute the deficiency balance.
Seek Legal or Advocacy Help
Facing a deficiency balance can be daunting, and creditors may use aggressive tactics to collect. Consumer advocacy firms like Boe & Associates specialize in defending consumers’ rights against debt collectors and helping reduce or eliminate deficiency balances.
Consider Filing for Bankruptcy
While it’s a last resort, filing for bankruptcy can potentially eliminate or reduce your deficiency balance. Bankruptcy may discharge your remaining debt, but it has significant consequences for your credit.
Conclusion
Dealing with a deficiency balance can be stressful and financially devastating. However, understanding how deficiency balances work and knowing your rights can make a big difference. Whether you need help disputing charges or negotiating with your lender, remember that you don’t have to face this challenge alone.
At Boe & Associates, we’re here to help you take control of your financial future. Reach out to us today to discuss your options and find a path forward.
Don’t Let a Deficiency Balance Ruin Your Financial Future
At Boe & Associates, we understand the challenges consumers face when dealing with debt collectors and deficiency balances after repossession. Our team can help you review your deficiency balance, challenge any questionable charges, and work to reduce or eliminate the debt.
We have extensive experience in consumer protection and have successfully helped clients navigate repossession and deficiency issues. We’re committed to standing up to debt collectors and helping consumers defend their rights. Contact Boe & Associates today at (651) 571-0440 or visit www.BoeAssociates.com to learn how we can assist you.