Losing your car to repossession can be a stressful experience. Many people believe that once the bank takes back the vehicle, their financial obligations are over. However, this is often not the case. Even after repossession, you may still owe money to the lender. Understanding what happens after a bank repossesses your car is crucial for managing your finances and knowing your rights.
Understanding Repossession Fees
When your lender repossesses your vehicle, they typically incur costs to pick it up and store it. These costs are usually passed on to you as “repossession fees.” While lenders are entitled to recover these reasonable expenses, the law dictates that these fees must indeed be reasonable.
What exactly constitutes “reasonable” is not rigidly defined and can depend on various factors. Courts often consider the type of vehicle being repossessed – a standard sedan versus a large truck, for example – the complexity of the repossession process, and the location where the vehicle was recovered. You have the right to request a detailed breakdown of all repossession costs from your lender to ensure transparency and verify their legitimacy.
Deficiency Balance and Surplus After Vehicle Sale
After repossession, the lender will typically sell your car, often through an auction. This sale is intended to recover some of the outstanding loan amount. However, the sale price might not always cover the full amount you still owe on the loan, along with the repossession fees.
If the sale price is less than the remaining loan balance plus repossession costs, you will be responsible for paying the difference. This is known as a “deficiency balance.” For instance, if you owed $10,000 and the car sells for $7,500, you may owe $2,500 plus the repossession fees. Failure to pay this deficiency balance can lead the lender to pursue debt collection actions against you, potentially impacting your credit score and financial stability.
Conversely, if your car is sold for more than what you owe on the loan, including all associated fees, you are legally entitled to receive the “surplus.” Using the previous example, if the car sold for $12,000, you would be entitled to receive the $2,000 surplus after the loan and fees are settled.
It is important to note that lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” This means the sale process should be fair and designed to achieve a reasonable market price for the car. If you believe that the sale price obtained for your vehicle was unreasonably low, you have the right to challenge it and should consider seeking legal advice to explore your options. Consulting with an attorney can help you understand your rights and ensure the lender has acted appropriately throughout the repossession and sale process. You can find legal assistance through your state attorney general or local legal services office.
