Leasing a car comes with responsibilities, and understanding your lease agreement is crucial, especially when financial difficulties arise. If you fall behind on your lease payments, the leasing company, known as the lessor, has the right to repossess the vehicle. This can happen without prior warning and without going to court, as long as the repossession doesn’t disturb the peace. But repossession is just the beginning. Beyond losing your car, you’ll also face significant financial repercussions.
Understanding the Financial Fallout After Repossession
Repossession of a leased car often leads to what’s called a “deficiency.” This is the amount you still owe after the lessor sells the repossessed vehicle and applies the sale proceeds to your outstanding lease obligations. The leasing company will typically send you an invoice for this amount, sometimes referred to as an “early termination charge.” “Early termination” in this context signifies the lease ending prematurely due to circumstances like repossession, whether voluntary or involuntary.
The exact method for calculating this deficiency is detailed in your lease contract. Generally, you can expect to be responsible for:
- The Remaining Lease Payments: The total amount left on your lease agreement.
- Past-Due Payments: Any monthly payments you’ve missed prior to repossession.
- Repossession Costs: Expenses incurred by the lessor to repossess the car.
- Excess Mileage Charges: If you’ve exceeded the mileage limits stipulated in your lease contract.
- Excess Wear and Tear: Costs to repair damage beyond normal wear and tear, as defined in your lease.
- Vehicle Sale Expenses: Costs associated with selling the car, such as auction fees, cleaning, and repair of collision damage.
The deficiency is essentially the gap between what you owed under the lease and the vehicle’s resale value, often determined at auction. Alternatively, it might be calculated as the difference between the car’s current market value and your lease balance, plus repossession expenses.
If you fail to pay this deficiency, the lessor is likely to pursue collection efforts. Depending on state laws and the specifics of your case, this could involve sending your debt to a third-party collection agency or initiating a lawsuit to obtain a “deficiency judgment.” A deficiency judgment allows the lessor to use standard collection methods, such as wage garnishment or bank account seizure, to recover the owed amount.
Proactive Steps to Take Before Repossession
If you anticipate difficulty in making lease payments, have already missed payments, or fear repossession, the most crucial first step is to thoroughly review your lease contract. Pay close attention to the sections outlining what constitutes a default and the consequences of defaulting. Understanding your contractual obligations is paramount to navigating this situation.
Strategies to Prevent Leased Car Repossession
Preventing repossession is always preferable. Here are a few avenues to explore:
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Cure the Default: Many lease agreements, and sometimes state laws, allow you to “cure” the default. This means you can reinstate your lease by paying all overdue payments, along with any associated fees and repossession costs, before the vehicle is sold. Contact the lessor immediately to inquire about this option.
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Negotiate with the Lessor: If keeping the car is your priority but affordability is an issue, reach out to the lessor to discuss potential solutions. They might be willing to offer a temporary grace period, allowing you to defer payments for a set time. Alternatively, they might agree to modify the lease terms to lower your monthly payments. If any agreement is reached, ensure it’s documented in writing and keep a copy for your records.
Voluntary Repossession: Is it a Better Option?
Consider voluntary repossession, where you willingly return the car to the lessor to avoid a formal repossession. However, proceed with caution. Simply surrendering the vehicle without negotiation may not significantly benefit you financially, as you could still be liable for the deficiency.
Before opting for voluntary return, negotiate with the lessor to reduce or eliminate the early termination liability and deficiency balance. Crucially, get any such agreement in writing to protect yourself from future financial claims.
Settling the Deficiency Debt
Even after repossession, you have options. You can attempt to settle the deficiency debt for a reduced amount. Leasing companies might be open to accepting a smaller lump-sum payment to avoid the costs and complexities of pursuing full collection. However, be aware that settling a debt can have tax implications, so consult with a tax advisor if needed.
Reclaiming Your Leased Car After Repossession
Depending on your state laws and your specific lease agreement, regaining your leased car after repossession might be possible. This could involve:
- Reinstatement: As mentioned earlier, reinstating the lease by paying all past due amounts and fees might be an option if done promptly.
- Repurchase at Auction: You may be able to repurchase the vehicle at the repossession auction. State laws often require the lessor to notify you of the auction’s date and time, giving you the opportunity to participate.
Contact the lessor to discuss these possibilities and understand the specific conditions and deadlines involved. The best course of action will depend on your financial situation, state laws, your lease terms, and the lessor’s willingness to cooperate.
The Importance of Legal Counsel
Navigating car repossession and deficiency balances can be complex. Consulting with an attorney is highly recommended before engaging in negotiations with the lessor. An attorney can help you understand your rights, assess the risks, and identify potential defenses against a deficiency judgment.
It’s important to note that legal protections for leased vehicles can differ from those for financed vehicle purchases. Potential defenses against a deficiency claim could include:
- No Lease Violation: Arguing that you were not actually in default of the lease agreement.
- Failure to Provide Right to Cure: Claiming the lessor violated state law by not providing you with a legally required opportunity to cure the default before repossession.
- Breach of Peace During Repossession: Asserting that the repossession process involved illegal or disruptive actions.
- Inadequate Disclosure of Early Termination Liability: Arguing that the lease agreement didn’t clearly and conspicuously disclose your financial responsibilities in case of early termination, as required by the federal Consumer Leasing Act.
- Unreasonable Deficiency Calculation: Challenging the method used to calculate the deficiency as unfair or not in accordance with the lease terms or state law.
An attorney specializing in consumer law can advise you on the legality of the lessor’s actions and help you explore options for getting your car back or mitigating the financial consequences of repossession.
Further Reading
I Can’t Afford My Car Payments. Can I Give the Car Back to the Bank?
Defenses to Car Repossession Deficiency Lawsuits
Will I Owe Money After My Car Is Repossessed in Florida?
