Legal Question in Credit and Debt Law in California

Re: Repo

Be comforted in the fact that most people who lose a car to repossession are very confused by the process - it doesn't make a lot of sense if you haven't been exposed to it before. What you said is all correct, but let me explain why they do this. When you bought the car, you agreed to repay the lender a certain amount of money over time with interest. The lender takes a security interest in the car, and if you default, they have the right to repossess the car. When they repossess the car, they have the right, under the loan agrement you signed, to resell the car to get back some or all of what they are owed. The repossession of the car, however, does not relieve you of the obligation to repay the entire loan. You still owed the entire loan balance on that day, and only after they have resold the car were you relieved of some of that debt. Lenders resell repossessed cars at wholesale auctions, or even sometimes private auctions. As such, they never recover the full fair market value of the car, nor anything even close to it. They are not required by law, nor the contract to get the highest price the car might be worth, they only have a duty to reasonably recover what they can. As such, you still owe the difference between the loan balance (plus fees, costs, repossession and resale costs) less what they recovered at auction. That is referred to as a deficiency.

The deficiency is an amount you still owe, and even though they have "charged off" that amount on your credit report, they still have a right to collect it, and that is why you have been sued. Charging off is simply a reflection of the fact that the likelyhood of collecting the debt is uncertain, and so for credit reporting purposes, and internal accounting purposes they charge the debt off as bad, but that still doesn't relieve you of the obligation to repay it. You need to do some tap-dancing with their attorney and attempt to negotiate a settlement before you have to fully defend the lawsuit. Also be aware that unless they sued you in small claims court, you have to file a response to the pleading within 30 days of being sued.

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