Car repossession is a serious situation that can occur when you fall behind on your car loan payments. If you’re facing this, it’s important to understand what happens when your car is repossessed and what your rights and responsibilities are. Even after your vehicle is taken, your financial obligations related to the car loan might not be over.
Understanding Repossession Fees and Associated Costs
When your lender repossesses your vehicle, they will typically charge fees to cover the costs of picking it up and storing it. These are known as repossession fees, and while lenders are entitled to charge them, these fees must be “reasonable”. The definition of “reasonable” isn’t always clear-cut and can be determined by courts based on various factors. These factors include the type of vehicle, the method used for repossession, and the location where the vehicle was taken. As a borrower, you have the right to request a detailed breakdown of all repossession costs from your lender to ensure transparency and accuracy.
Deficiency Balance and Surplus After Vehicle Sale
After repossession, the lender will usually sell your car to recover the outstanding loan amount. The sale of the vehicle, however, doesn’t always settle your debt. If the sale price is less than the amount you still owe on the loan, plus the repossession fees, you will be responsible for paying the remaining difference. This is known as a “deficiency balance.” Conversely, if the car is sold for more than what you owe, including fees, you are legally entitled to receive the surplus funds.
For example, consider this scenario: you owe $10,000 on your car loan, and after repossession, the lender sells it for $7,500. In this case, you would owe a deficiency balance of $2,500, in addition to any repossession fees incurred. Failure to pay this deficiency balance can lead the lender to employ a debt collector to recover the amount owed. On the other hand, if the vehicle were sold for $12,000, you would be entitled to receive the $2,000 surplus after the loan and fees are covered.
Commercially Reasonable Sale and Protecting Your Rights
Lenders are legally obligated to sell your repossessed vehicle in a “commercially reasonable manner.” This means they must take steps to ensure a fair sale price. It’s crucial for you to be aware of how much your car is sold for, as this directly impacts any deficiency balance or surplus. If you believe that the sale price obtained by the lender was unreasonably low, you have the right to contest it. Consulting with an attorney can be beneficial if you suspect that the sale wasn’t commercially reasonable and that your financial interests have been unfairly impacted.
Seeking Legal Guidance and Understanding State Laws
Car repossession laws and regulations can vary from state to state. You may have additional rights and protections under your specific state laws. To gain a comprehensive understanding of your rights and the repossession process in your state, it is advisable to contact your state attorney general or your state consumer protection office. Furthermore, seeking advice from a private attorney or your local legal services office can provide personalized guidance based on your unique situation and ensure your rights are protected throughout the repossession process.
Understanding what happens when your car gets repoed is essential to navigating this challenging situation. By being informed about fees, deficiency balances, your rights regarding the sale of the vehicle, and available legal resources, you can better protect your financial well-being and make informed decisions.
