Car repossession is a stressful experience, and many people mistakenly believe that once the car is taken, their financial obligations are over. Unfortunately, this is often not the case. Even after your vehicle has been repossessed, you may still be responsible for certain costs and understanding these is crucial. Here’s what you need to know about the financial implications following a car repossession.
Repossession Fees: Costs You Might Face
When your lender repossesses your car, they typically incur expenses to pick it up and store it. These costs are usually passed on to you as “repossession fees.” While lenders are entitled to charge these fees, they must be “reasonable.”
Determining what is considered “reasonable” can be complex and often depends on legal interpretation. Courts generally assess reasonableness based on factors like the type of vehicle, the circumstances of the repossession (e.g., location and method of retrieval), and standard industry charges. It’s important to request a detailed breakdown of all repossession costs from your lender to understand what you are being charged for. Questioning excessive or unclear fees is within your right.
Deficiency Balance or Surplus After the Sale of Your Repossessed Car
After repossession, the lender will usually sell your car, often at auction. The proceeds from this sale are then used to reduce your outstanding loan balance. However, this is where many people encounter further financial obligations.
If the sale price of your repossessed vehicle is less than the remaining amount you owe on your loan (including repossession fees), you will be responsible for paying the “deficiency balance.” This is the difference between what you owed and what the car sold for, plus the repossession expenses.
For example, imagine you still owed $15,000 on your car loan, and the repossession fees amounted to $1,000. If the car is sold for $12,000, you would still owe a deficiency balance of $4,000 ($15,000 + $1,000 – $12,000 = $4,000). Lenders are legally permitted to pursue you for this outstanding debt, often through debt collectors, which can further impact your credit score.
Conversely, if your car sells for more than what you owe on the loan plus repossession fees, you are legally entitled to the “surplus.” In this scenario, the lender is obligated to return the excess funds to you. For instance, using the same example, if the car sold for $18,000, you would be entitled to a surplus of $2,000 ($18,000 – $15,000 – $1,000 = $2,000).
It’s crucial to understand that lenders are required 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. If you suspect that your car was sold for an unreasonably low price, potentially increasing your deficiency balance unfairly, you have the right to question the sale. Consulting with an attorney can help you assess whether the sale was commercially reasonable and explore your legal options.
Understanding Your Rights and Seeking Help
Laws regarding car repossession and your rights vary by state. It’s highly recommended to familiarize yourself with your state’s specific regulations. Resources like your state attorney general and state consumer protection office websites offer valuable information and guidance. Additionally, seeking advice from a private attorney or your local legal services office can provide personalized support and ensure your rights are protected throughout the repossession process and its financial aftermath.
Conclusion
Car repossession is not just about losing your vehicle; it often comes with further financial responsibilities. Understanding repossession fees, deficiency balances, and your rights is essential. Proactive communication with your lender, careful review of all charges, and seeking legal advice when needed can help you navigate the complexities of car repossession and protect your financial well-being.
