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Can I Discharge a Deficiency Judgment In Bankruptcy?

Can I Discharge a Deficiency Judgment In Bankruptcy?

Can a car company sue me even if the car was voluntarily surrendered? Unfortunately for Danny C from Brooklyn the answer is yes. A creditor can pursue a deficiency judgment.

Danny, his wife and their four year old son live in Brooklyn. A few years earlier he attempted to help his brother by financing a car for him. Although he never drove the car, the title and the loan were under his name. You know what they say, “A good deed never goes unpunished”. Danny’s brother could not make the payments and he voluntarily surrendered the car. Soon the car company was asking Danny for deficiency. The aggressive tone and the frequency of the collection calls started to increase. Danny needed help.

He tried to contact the car company and work out a deal. They couldn't tell him when the car was sold or how much they received for the car. They wanted their money and they wanted it now!

Danny thought his life was over and the credit history he worked so hard to build was ruined in one minute. He wanted to know if Bankruptcy could help clear up the deficiency judgment. A friend told him that Doyaga & Schaefer was the best Bankruptcy firm in Brooklyn. During his free consultation the Bankruptcy lawyers at Doyaga & Schaefer explained the process step by step. After learning all his options he decided to file for Chapter 7 Bankruptcy and get rid of all his debt including the car loan.

What made the decision easy was being told by the Bankruptcy attorney at Doyaga & Schaefer that him filing for Chapter 7 relief in Brooklyn would not affect his wife’s credit.

Danny filed for Bankruptcy protection and immediately received the relief he was seeking. Lesson learned! Thankfully he got a second chance and would suggest to anyone to file Bankruptcy because it helped him.   

Deficiency judgments

Generally, deficiency judgments are court orders, issued by a judge, after a lender repossess your property and the value of that property is less than what you owe. The lender is suing you for the part of the loan that remains unpaid. For example, if you have a balance of $8,000 on a car loan and you surrender the car or it is repossessed and the car is only worth $5,000 you are still on the hook for that $3,000 difference. Deficiency judgments are tools that creditors use when this situation occurs to get back that $3,000 difference. So, even though you are now car-less you still have to come up with the difference.

On top of the difference ($3,000 in our example) they can add to that number any and all costs associated with repossession like storing, moving, and selling the car and the attorney’s fees for filing the deficiency judgment. So in the example above, while the deficiency after the auction sale was only $3,000, the judgment will be more than $3,000, and in the end you have to pay back more than what you owed in the first place.

If the court issues the deficiency judgment against you, you must pay back the amount stated in the deficiency judgment. If you do not pay back the amount in the judgment the creditor is then can freeze your bank accounts, garnish your wages directly from your employer, or put a lien on your property.

In Danny C’s situation even though the creditor took the car he was still personally liable for the amount that was not paid. So in the example above the debt ballooned from an outstanding $3,000 to a figure will now be possibly over $5,000.

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