Car repossession is a serious situation, and while losing your vehicle is a major blow, understanding what happens afterward is crucial. Many people mistakenly believe that repossession is the end of the story, but in reality, it’s often just the beginning of another phase. Even after the lender has taken back your car, you may still have financial obligations and rights you need to be aware of. This article will break down the key aspects of what happens after a car repo, ensuring you understand your responsibilities and potential next steps.
Understanding Repossession Fees
Once your lender repossesses your vehicle, they will typically charge fees to cover the costs associated with the repossession process itself. These “repossession fees” are in addition to the outstanding loan balance and can add a significant amount to what you owe. These fees are intended to compensate the lender for the expenses incurred in retrieving the vehicle.
What constitutes a “reasonable” repossession fee can be subjective and sometimes depends on legal interpretation. Courts often determine reasonableness based on factors like the type of vehicle, the specific method used for repossession (e.g., was it a simple pickup or more complex?), and the location from which the vehicle was repossessed. As a borrower, you have the right to request a detailed breakdown of all repossession costs from your lender. Scrutinizing this list is important to ensure transparency and accuracy.
Deficiency Balance or Surplus After Vehicle Sale
After repossession, the lender will usually sell the vehicle. This sale is intended to recover some of the money owed on the loan. However, the sale price often doesn’t cover the full outstanding loan amount, especially after adding repossession fees. This is where the concepts of “deficiency balance” and “surplus” come into play.
If the vehicle is sold for less than the total amount you owe (including the remaining loan balance plus repossession fees), you are responsible for paying the difference. This difference is called a deficiency balance. For example, if you still owe $10,000 on your car loan and the lender sells the repossessed vehicle for $7,500, you would owe a deficiency balance of $2,500, in addition to any repossession fees. Lenders have the right to pursue debt collection for this deficiency balance, and they may hire a debt collector to recover the funds.
On the other hand, if the car is sold for more than what you owe, including all fees, you are legally entitled to the surplus. Using the previous example, if the car sold for $12,000 instead of $7,500, you would be entitled to receive the $2,000 surplus after the loan and fees are covered.
It’s crucial to understand that lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” This means the sale process must be fair and designed to achieve a reasonable market price for the vehicle. If you believe the sale price obtained by the lender was unreasonably low, you have the right to question it and potentially seek legal advice from an attorney. Consulting with an attorney can help you understand if the sale was conducted properly and if you have grounds to challenge the deficiency balance.
You should also be aware of your rights under your state laws, which can vary significantly. State laws govern many aspects of repossession and debt collection. Resources like your state attorney general’s office and state consumer protection agencies can provide valuable information about your rights and options. Seeking advice from a private attorney or a local legal aid service can also offer personalized guidance based on your specific situation and location.
