A car repossession can cause severe difficulties in your financial life -- it negatively impacts your credit score, which can make it difficult to purchase another vehicle or obtain loans or credit cards. If you do not have another vehicle, a repossession can also prevent you from commuting to work, which can cost you your job. However, if you are a Texas resident, a repossession can impact your finances in another way: you may be responsible for amounts your lender cannot recover by selling the vehicle.
After a lender repossesses your car, Texas law allows you to reclaim possession of the vehicle by paying the full balance of your loan or lease, plus repossession costs, within 10 days of repossession. If you do not exercise this option, the lender will typically sell the vehicle at a public auction. Your lender is not obligated to demand an auction price sufficient to cover your loan balance and expenses; it may sell the car for less than you owe.
If a lender sells the repossessed vehicle for less than the loan balance and repossession costs, it will hold you responsible for the difference, which is called a deficiency. Under Texas law, the lender may pursue collection of the deficiency to recover the remainder of the loan balance, as well as repossession, storage and auction fees. The lender will send you a letter itemizing these costs, listing the auction price of the vehicle and demanding payment of the deficiency. It may also call you at home or work to collect the unpaid balance unless you have sent the lender a letter requiring only written communication.
Failure to pay the deficiency or agree on a repayment arrangement can prompt your lender to take legal action to recover the deficiency. The lender may file a civil suit against you in your county's court to obtain a judgment against you for the money you owe. A judgment affirms your legal liability for the deficiency.
After the lender obtains a legal judgment against you for the deficiency on a repossessed vehicle loan, it may employ aggressive strategies to collect the deficiency balance. Texas does not permit wage garnishment for collection of a deficiency judgment balance; however, it may attach your bank accounts and force your bank to send non-exempt funds in your account to the court for payment against the deficiency. A judgment creditor may also place a lien on your real estate property, which prevents you from selling your property to satisfy the deficiency.
- James Foley, Attorney at Law: Vehicle Repossessions
- Fair Debt Collection: Texas Wage Garnishment
- Nolo. "Deficiency Judgment." Accessed May 3, 2020.
- AllLaw. "How Are Deficiency Judgments Collected?" Accessed May 3, 2020.
- Federal Trade Commission. "Garnishing Federal Benefits." Accessed May 3, 2020.
- Nolo. "Can Judgment Creditors Go After My Retirement Accounts?" Accessed May 3, 2020.
- AllLaw. "Deficiency Judgments." Accessed May 3, 2020.
- Internal Revenue Service. "Recourse vs. Nonrecourse Debt." Accessed May 3, 2020.
Owen Pearson is a freelance writer who began writing professionally in 2001, focusing on nutritional and health topics. After selling abstract art online for five years, Pearson published a nonfiction book detailing the process of building a successful online art business. Pearson obtained a bachelor's degree in art from the University of Rio Grande in 1997.