If you can no longer afford your car payments, losing the vehicle to repossession isn't always the end of your financial woes. You are legally responsible for paying off the loan balance you originally agreed to. If your lender is unable to sell your repossessed car for what you owe, it will pursue you for the difference between the sale price and your remaining debt. Leaving this deficiency unpaid often results in the lender turning the debt over to a collection agency for recovery. Collection agencies sometimes sue debtors who do not pay their debts voluntarily.
Proof of Debt
Should a collection agency sue you over an unpaid repossession deficiency, the burden of proof lies with the collector. Not only does the collection agency have to prove that you actually owe the debt but also that the company possesses the legal right to collect the debt on behalf of the lender. The collection agency must also demonstrate how it arrived at the amount it claims you owe.
If the collection agency has a copy of the contract you signed when you initially applied for the auto loan with your original lender, your signature serves as proof that the debt belongs to you. Not every collection agency has the documentation necessary to back up its case.
Default Judgments
If you received the court summons notifying you of the collection agency's lawsuit yet chose to ignore the summons rather than filing an answer with the court and building your defense, the collection agency has the advantage. If you are not there to demand that the company back up its claims, the judge will not do so in your stead. The judge will instead assume that the collector's allegations are correct and sign off on a judgment against you by default. Thus, a debt collector does not need a signed contract proving your liability for the debt if you do not appear in court and contest that liability.
Account Documentation
Collection agencies make a profit by purchasing nonperforming accounts for a low price and collecting the full balance. The lower the price a debt collector pays for a debt, the greater its potential for profit.
Lenders price debts based on how much documentation comes with the account. Naturally, if a lender devotes its time and resources to including the original signed contract, monthly account statements and other information with the debt it can charge the collection agency a higher price. In an effort to keep costs low, many collectors purchase "bare" accounts that carry no documentation whatsoever. If the collection agency purchased your unpaid repossession deficiency as a bare account, it will be unable to provide the court with your original signed contract upon request.
Considerations
The lender's original contract containing your signature serves as sufficient proof of debt in most cases -- netting the collector a judgment. The only exception to this rule occurs if the repossession took place several years ago and the statute of limitations for collection lawsuits in your state has expired. If the statute of limitations has expired, your liability for the debt is irrelevant because the collection agency no longer has the legal right to recover the debt through a lawsuit. It can, however, continue requesting voluntary payments.
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