A lawsuit to recoup car payments following a repossession is possible, but a few factors affect whether an auto lender would go to that extent to collect the payments. For example, the amount owed on a repossessed vehicle may impact a lenders decision to pursue a lawsuit to collect the remaining balance on a vehicle.
Process
Repossessions generally take place when car buyers don't pay their auto loans as agreed. A lender who repossesses a vehicle usually sells it in an attempt to get money to pay as much of the remaining balance on the loan as possible. However, you could be held responsible for any portion of the balance that's left unpaid after the sale of your repossessed vehicle. The lender has the right to bill you for the remaining balance, and there are a few options for collecting the debt if you don't pay it.
Debt Collection
An auto lender may use a collection agency's services to recover the balance owed on a repossessed vehicle. However, the Nolo law information website indicates that the lender may decide to sue you to collect the balance. A lender could ask for a court order to garnish your wages if the lender wins the debt-collection case against you. Your employer would be required to deduct a specified amount of money from your pay and send it to the lender to pay off the auto loan if a garnishment takes place.
Voluntary Repossession
Some people who can't make their car payments return their vehicles to the dealership where they bought them in what's known as a voluntary repossession. Such actions prevent lenders from having to hire a company to seize a vehicle, but the Experian credit-reporting company indicates a voluntary repossession is just like a regular repossession. That means the lender can still require you to pay the balance on your auto loan, and you still may be at risk of facing a lawsuit to collect the debt.
Avoiding Repossession
Lenders use auto repossessions as a last resort to collect delinquent debts because they lose several thousand dollars on repossessions, according to Bankrate.com writer Russ Heaps. Therefore, consider renegotiating your loan terms if you're having trouble making your car payments; a lender may be willing to work with you to avoid a repossession. Heaps notes that extending the time you have to pay off a loan by just six months can significantly reduce your monthly payment, making your vehicle more affordable. You would pay more in interest charges by extending the loan, but you also could avoid a repossession and a lawsuit.
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