In Texas, when you default any condition of your car note, the creditor or debt buyer can repossess your car before you can say, “Dude, where’s my car?”

Default typically happens when you haven’t made payments, or just failed to maintain insurance. After repossession your car will be placed in a storage lot or auction house. You will be allowed a chance to get back your stuff that’s still inside the car.

Now what do you do?

  • File a Chapter 13 Bankruptcy  – it’s a drastic solution just to get your car back. Bankruptcy will wreck your credit for at least 10 years. If you’re going to file for bankruptcy make sure you’re doing it because you’ve got other uncontrollable debt problems and a house on the verge of foreclosure. In a Chapter 13 plan you can refinance the car and pay over a period of time, usually the 3 to 5 years.
  • Fight the Deficiency – After they sell your car at auction, then they can sue you for the balance still owed on the car. This is called the “deficiency”, which roughly equals the amount still owing on the car note after it was sold at auction. Here are the common defenses, under Texas UCC Article 9, used to defeat a deficiency judgments.

The creditor failed to give you proper notice of the auction sale  – under Texas law, the repossessed vehicle must be sold in a “commercially reasonable” manner. The creditor must give you reasonable notice (usually 10 days by certified mail) of the date, time place of the sale of your car at auction, and whether it’s a private or public sale, and your rights of redemption  and make things good again to get the car back. Failure to give you the notice before the sale will invalidate the deficiency judgement, and you won’t have to pay it. Similarly, you are entitled to another letter from the finance company after the sale takes place informing you that the car was sold and how much it was sold for. If they don’t send you that notice, the deficiency is invalid and you can get damages.

Not a Commercially Reasonable Sale – Your practically new car was sold at public auction for a price that was way below blue book value. If you can prove they sold your car at an unreasonably low price, then you can cancel the deficiency.

Breach of Peace committed by recovery agent – if there was a breach of peace, this will certainly defeat a deficiency judgment, and you may have a good counterclaim and get damages.

  • Texas UCC Counterclaims – On the flip-side to UCC Defenses, you can turn-around and sue the creditor with UCC Counterclaims like
    • Harm caused by Breach of Peace
    • Failure to give required notices of the sale and disposition of the car

What if you just do nothing at all?

You will owe the balance due on the car note after the resale of your old car.  The debt will increase by another one-third to one-half for the lender’s attorney fees and court costs. After that, the judgment bears interest until paid. Here in Texas the judgment is good for ten years, and can be renewed every ten years. The judgment remains on your credit report for as long as it is valid.