Pinion Gear Hitting Carrier

So first off this is not a Jeep rear axle.
I pulled the fill plug and lots of metal shavings were attached to the magnetic plug.
I removed the pan and this is how it looks.
So what would cause this and how to fix?

 

Had a little trouble here is a larger one.

 

your pinion has walked into your case. The nut backed off and or your bearings are toast. Full rebuild is what I would do.

 

I'm just an amateur, but it looks like your outer pinion bearing is toast. Pull in and out on your pinion, see if there's play.

No noise?

Is that a Dana 226? ("Super 44"?)

 

Yes a Sterling 10.5 stock limited slip.

 

A full rebuild as in new carrier and pinion bearings? I am hoping I do not have to replace the ring and pinion also.

 

Well, thats what I would do. New case, bearings, ring and pinion... But if you're cheap and pop out that case, bearings are good.. well.. Definitely look at the pinion... you really need to examine it.

 

Right now I can easily feel the slop in the pinion with the drive line attached just grabbing and a bit of a pull and push. I figure this will have to be added to my list of what to check when buying used.

 

Best as I can tell the nut is tight. I can see half of the pinion with the carrier in place and it appears ok. I really just want to sell the truck. Half tempted to just fill with gear oil and not say anything. One mom and pa shop said he would install new carrier and pinion bearings for just 5 bills.

 

I had the same thing happen on my D30 over the winter. Outer pinion bearing self destructed and allowed the pinion to walk. Partially took out four ring gear teeth too, so consider yourself lucky you found it in time.

I just threw a new bearing in mine and buttoned it back up. Good enough for a plow jeep. Working ok so far.