Having your vehicle repossessed can be financially devastating. Many borrowers assume that once the lender takes the vehicle, the debt is finished. Unfortunately, that is not always the case.

In Wisconsin, a lender may be able to pursue money that remains unpaid after a repossessed vehicle is sold. This is commonly called a deficiency balance. Understanding how deficiency balances are calculated, what other charges may be added, and what rights you have can be extremely important after a repossession.

This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship. For guidance specific to your situation, consult a licensed Wisconsin attorney.

What Is a Deficiency Balance?

A deficiency balance is generally the amount that remains after a repossessed vehicle is sold and the proceeds are applied to the debt.

For example, suppose you owe $20,000 on a vehicle loan. The lender repossesses the vehicle and later sells it for $13,000. There may be a remaining balance of approximately $7,000, although the actual amount depends on applicable credits, expenses, fees, and legal requirements.

The lender may attempt to collect this remaining amount from you.

Why Do You Still Owe Money After Losing the Vehicle?

When you finance a vehicle, the vehicle serves as collateral for the loan. Repossession allows the lender to recover the collateral, but it does not necessarily eliminate the underlying obligation.

The lender typically sells the vehicle and applies the proceeds toward the outstanding debt. If the sale proceeds are insufficient to satisfy the debt and allowable expenses, a deficiency may remain.

This can be especially significant when a vehicle has depreciated substantially or when the borrower owes more than the vehicle is worth.

What Expenses Can Be Added?

The amount claimed after a repossession may involve more than the principal balance on the loan.

Depending on the circumstances and applicable law, the lender may claim certain expenses associated with repossession, storage, reconditioning, and disposition of the vehicle.

Wisconsin's Department of Financial Institutions explains that proceeds from the disposition of a repossessed vehicle are applied according to statutory requirements, including permitted repossession, reconditioning, and disposition expenses, followed by applicable fees, interest, and principal.

Because the lender's accounting can include multiple categories of charges, consumers should carefully review any deficiency statement they receive.

What Happens When the Vehicle Is Sold?

After repossession, the lender generally has to follow applicable requirements when disposing of the vehicle.

Wisconsin law and the Uniform Commercial Code impose requirements regarding the disposition of collateral, including the requirement that the disposition generally be conducted in a commercially reasonable manner.

The lender must also provide required notices concerning the planned disposition of the vehicle. Wisconsin's Department of Financial Institutions specifically references the notice requirements of Wis. Stat. § 409.614 for the sale of repossessed motor vehicles.

What If the Vehicle Sells for More Than the Debt?

Not every repossession results in a deficiency.

If the proceeds from the sale are greater than the amount legally owed, a surplus may exist. Wisconsin's Department of Financial Institutions explains that remaining proceeds after the applicable debts and permitted expenses are satisfied must be paid to the customer in appropriate circumstances.

This is one reason it is important to review the lender's accounting instead of assuming money is always owed after a repossession.

Your Right to Redeem the Vehicle

Wisconsin law provides certain consumers with a limited opportunity to redeem a repossessed vehicle.

For qualifying consumer credit transactions, Wisconsin Statute § 425.208 provides a 15-day period after repossession during which a customer may have the right to restore the account to good standing and recover the vehicle by paying specified amounts, including unpaid amounts without acceleration and permitted repossession expenses.

The exact redemption requirements depend on the transaction and applicable law.

What About the Initial Notice of Default?

For certain consumer credit transactions, Wisconsin law requires a Notice of Right to Cure Default before a nonjudicial repossession can occur.

The Wisconsin Department of Financial Institutions provides a sample notice that gives the borrower a specified period to cure the default. The sample form states that the cure period must be at least 15 calendar days from the date of mailing. It also explains that, for motor vehicles, the notice can include information concerning the creditor's ability to repossess the vehicle without further notice or court proceeding if the default is not cured.

The DFI has identified several common errors involving these notices, including incorrect cure amounts and failure to provide enough time to cure the default.

Whether a particular notice was legally sufficient depends on the type of transaction and the facts of the case.

What Happens If the Lender Claims You Owe a Deficiency?

After the vehicle is sold, the lender may send you a statement demanding payment of the remaining balance.

The lender may also refer the deficiency to a collection agency or file a lawsuit seeking payment.

If a lawsuit is filed, the deficiency claim should be carefully reviewed. The lender generally must establish the amount it claims is owed and comply with applicable legal requirements.

Ignoring a deficiency lawsuit can result in a default judgment and potentially additional collection remedies.

Can You Challenge the Amount You Owe?

A deficiency balance is not necessarily correct simply because the lender says you owe it.

Questions may arise regarding:

• The original loan balance.
• Payments made before repossession.
• The amount received from the vehicle sale.
• Repossession and storage charges.
• Reconditioning expenses.
• Interest and fees.
• Whether required notices were provided.
• Whether the vehicle was sold in a commercially reasonable manner.

A review of the lender's accounting and repossession records may reveal errors or legal issues.

What If the Repossession Was Unlawful?

Consumers may also have legal rights when the repossession itself was conducted improperly.

Wisconsin's consumer credit laws impose requirements on creditors conducting nonjudicial repossessions. The Department of Financial Institutions states that, for the repossession procedures described in Wis. Stat. § 425.206, creditors must provide the required notice, notify local law enforcement as required, avoid entering a customer's residence or certain buildings without permission, and avoid breaching the peace.

A violation may have significant consequences. For example, DFI explains that Wis. Stat. § 425.305 provides a remedy when certain repossession requirements are violated, including retention of the vehicle without an obligation to pay and recovery of payments previously made in the transaction.

Can a Deficiency Be Negotiated?

In some cases, consumers may be able to negotiate a deficiency balance rather than paying the full amount demanded.

Negotiations may involve:

• A reduced lump-sum payment.
• Monthly payments.
• A settlement for less than the claimed balance.
• Resolution of a pending collection lawsuit.

Any settlement should be documented in writing and should clearly state what happens to the remaining balance after payment.

How a Consumer Protection Attorney Can Help

A consumer protection attorney can examine the entire repossession and deficiency claim rather than looking only at the amount the lender says is owed.

An attorney may review:

• The vehicle loan agreement.
• Payment history.
• Default notices.
• Repossession records.
• Sale notices.
• Vehicle sale information.
• The lender's deficiency calculation.
• Collection communications.

An attorney can then determine whether there may be defenses, consumer protection claims, or opportunities to negotiate a resolution.

Conclusion

A vehicle repossession in Wisconsin does not necessarily eliminate the debt. Depending on the circumstances, a lender may pursue a deficiency balance after selling the vehicle. However, the amount claimed is not necessarily beyond dispute.

Wisconsin law provides consumers with important protections concerning default notices, repossession procedures, redemption, vehicle sales, and deficiency claims. Reviewing the lender's records and understanding your rights can help determine whether the balance is accurate and legally enforceable.

If you have received a deficiency notice, collection letter, or lawsuit after a vehicle repossession, a Wisconsin consumer protection attorney can help you evaluate the claim and determine what options may be available.

Attorney Nathan DeLadurantey offers free consultations to explain your legal rights in Wisconsin. Free consultations can be scheduled online.