From the facts you state in your question, there are actually three separate problems to be addressed: 1) Do you have the right to file a lawsuit against the credit union? Depending on some additional information from you, the answer is probably YES there are several types of claims you may have. 2) Do you owe the credit union money as is being claimed by the collection agency? Probably NO. 3) What should you do about the collection agency contacting you about this claim for payment? Have a qualified attorney respond in writing to the collection agency. If you decide to do that yourself immediately write back to the collection agency by "certified mail with a return receipt requested" ( a green postcard you fill out at the post office when you mail the certifed letter ) demanding that they produce to you proof of the "debt", state that you deny that you owe the money (do not say why). It would be best if you do not discuss the matter with the collection agency in your letter or on the telephone until you first consult with a qualified attorney. If they start to harrass you hire a lawyer to deal with them. Also, get a print-out of your up-to-date credit report from each of the three major credit bureaus to see if this matter has been adversely reported, as this may be useful for your lawsuit. I would advise you to seek counsel from a qualified lawyer before discussing any type of settlement or payment arrangements with the credit bureau or the collection agency. If you decide to retain a lawyer to help you with all of this, feel free to contact me. You can read my profile on AVVO. Best of luck.
The answers to questions posed on the internet are generalized answers which may not apply to your specific case upon more thorough examination by your own lawyer. A lawyer is required to conduct a full interview of each client and an investigation of each case to detemine the proper course of action. The answer given to your internet question is simply to provide the inquirer with general information as to what legal help may be available and is not intended for the inquirer to rely upon. You should contact and consult directly with an attorney qualified to advise you and assist you with your particular type of legal problem. That is the legal advice you should rely upon.
This is not unusual with accounts at credit unions. You need to read the loan and account agreements that you signed. Most credit unions have a cross-collateral and cross-default provision, that says if you default on a loan, that they can take money from other accounts to satisfy the loan, or make the payments, or if you default on a personal loan, that they can repo your car that is under a separate car loan.
However, you may be entitled to some relief, because after the repo, they must send you a proper notice of their intent to sell the collateral, and after the sale they must send you a notice of any deficiency or surplus from the sale. If they fail to follow these laws about repossession, they can be liable for a wrongful repo, and you may be eligible to collect damages.
You need to consult with a consumer advocate attorney in your area, or view my profile on Avvo.
I am an attorney who is only licensed in the State of Florida. My answer is general legal advice based upon what I perceive your question to be, and should not be relied upon because every person's facts and circumstances are unique, and because specific laws vary from state to state. To completely evaluate a legal issue requires reviewing and evaluating all relevant facts, applicable laws and other information. My answer does not create an attorney-client relationship, and offered for informational purposes only.
Your question does not present enough of the facts to give you a complete opinion and I cannot determine whether or not you do or do not have any legally sufficient and factually supported claims that may or may not entitle you to a recovery. Most importantly, an attorney would need to first review the terms of your auto loan agreement before being able to advise you.
But, based upon my experience, your lender would probably be entitled under that agreement to exercise setoff rights against your bank account if you breached the agreement by non-payment of the loan when due. Accordingly, the bank had a right by contract (which you did agree to in the account opening documentation, which you may or may not have read) to withdraw the funds in your account and apply them to your outstanding loan (if the loan was in default, which you admit it was). Further, a typical provision of such a loan is that the lender can repossess the collateral for the loan (i.e. your auto), sell it, and then come after you for the deficiency amount (i.e. the difference between the principal balance of your loan and what it sold for, probably at an auction where the values were depressed). Based just upon the facts given, I do not see any basis for you to sue the lender. In terms of other recourse, you always have the right to file for bankruptcy protection. The default on your loan is probably already a black mark on your credit and you may want to check your credit rating to confirm that. If you feel a moral obligation to repay the loan, you can work out a payment plan with the collection agency. Alternately, if your personal finances permit it, you may be able to work out repayment of a lesser amount than the full amount due in exchange for a lump sum payment or other mutually convenient terms you can reach with the collection agency.
Finally, you should be advised that there are important time deadlines called statutes of limitation that would govern your right to sue the lender, if this is the course of action you want to take. In Florida, most claims are subject to a four year statute of limitations (five years for breach of a written contract). If you file too late, your claims may be forever time barred and you may not be able to recover an award of damages. Assuming you breached the agreement in 2007 when you lost your employment and that is the same year when your lender took the actions specified, your time period to sue may be expiring this year, 2012.
The provision of legal services requires full disclosure by the client to the attorney of all material information. You should not interpret my answer as forming an attorney\client relationship without entry into a mutually agreeable, written fee agreement. The answer to your question is offered for educational purposes only and should not be relied upon for any important decisions because the question and answer are necessarily truncated and may not address all factual and legal issues that could materially impact your legal rights.