Leasing a car is a popular choice for many, offering the opportunity to drive a new vehicle without the long-term commitment of ownership. However, just like with a car loan, failing to keep up with your lease payments can lead to serious consequences. One of the most significant is repossession. When you stop making payments on your leased vehicle, the leasing company, known as the lessor, has the right to repossess the car. This action can occur without prior warning and without needing to go to court, as long as the repossession doesn’t disturb the peace.
But losing the car is just the beginning. After repossession, you’re likely to face further financial obligations to the leasing company. Understanding what happens when they repo your leased car is crucial to be financially prepared and to know your options.
How Much Will You Owe After Leased Car Repossession?
Repossession of a leased car often leads to more financial burden than many people anticipate. After the car is repossessed, the lessor will typically sell it, often at auction. The money they get from selling the car is used to reduce what you still owe on the lease. However, in most cases, the sale price is less than the outstanding balance, leaving you with a “deficiency.” This deficiency is the amount you’re still responsible for paying even after the car is gone. The leasing company will send you an invoice, sometimes called an “early termination charge,” detailing this amount. Early termination in this context simply means the lease is ended before the originally agreed date, whether you chose to end it early or it was ended due to repossession.
The exact calculation of this deficiency is outlined in your lease agreement. Generally, it can include several costs and charges:
- Remaining Lease Payments: You will likely be responsible for all the payments remaining on your lease agreement.
- Past-Due Payments: Any lease payments you have missed prior to repossession will be added to your debt.
- Repossession Costs: The leasing company will pass on the expenses they incurred to repossess the vehicle, such as towing and storage fees.
- Excess Mileage Charges: If you have exceeded the mileage limits stipulated in your lease contract, you’ll be charged for the extra miles.
- Excess Wear and Tear: Leases usually have stipulations about acceptable wear and tear. Damage beyond normal use will result in charges.
- Costs of Selling the Car: Expenses related to selling the repossessed car, such as auction fees, cleaning, and repair costs for any damage, can be included in your deficiency.
The deficiency amount is essentially the difference between what you owed under the lease and the amount the car was sold for, or its current market value, plus all the repossession-related costs.
If you fail to pay this deficiency, the lessor will likely take further action. They might hire a debt collection agency to pursue the debt, or they could sue you to obtain a deficiency judgment. A deficiency judgment, if granted by a court, allows the lessor to use various collection methods to recover the debt, such as wage garnishment or seizing funds from your bank account.
What to Do Before the Lessor Repossesses Your Car
If you are struggling to make your lease payments, have already missed payments, or fear repossession is imminent, the most important first step is to thoroughly review your lease contract. Pay close attention to the sections that define what constitutes a default and what the consequences of defaulting are. Understanding your contractual obligations and the lessor’s rights is crucial for making informed decisions.
How Can I Prevent Repossession of My Leased Car?
Preventing repossession is always the best course of action. Here are a few steps you can take:
- Cure the Default: If you’ve missed payments, act quickly to catch up. Some lease agreements and state laws provide a “right to cure,” allowing you to reinstate your lease by paying the overdue amount plus any applicable fees.
- Negotiate with the Lessor: If you anticipate difficulty in making future payments, contact the leasing company immediately. Explain your situation and explore potential solutions. They might be willing to offer a temporary solution like a grace period, where you can postpone payments for a short time. Alternatively, they might agree to modify your lease terms to reduce your monthly payment, perhaps by extending the lease term. Always ensure any agreement you reach is documented in writing.
What Is a Voluntary Repossession of a Car?
Another option to consider is voluntary repossession. This involves you willingly returning the car to the lessor to avoid the formal repossession process. However, voluntary repossession isn’t always a beneficial solution on its own. Simply handing back the keys won’t automatically erase your financial obligations. You could still owe a significant deficiency.
To make voluntary repossession worthwhile, you must negotiate with the lessor beforehand. Aim to reduce or eliminate the deficiency you might owe. Get any agreement regarding reduced or waived fees and deficiency in writing before you return the vehicle.
You Can Offer to Settle the Debt If the Lessor Repossesses the Car
Even after repossession, you still have options. If the leasing company is unwilling to adjust your payments or work out an alternative arrangement beforehand, and your car is repossessed, you can try to negotiate a settlement for the deficiency. Lessors might be willing to accept a lower lump-sum payment to close the matter, rather than going through the potentially lengthy and costly process of full debt collection. Keep in mind that settling a debt might have tax implications, so it’s wise to consult a tax advisor.
Can I Get My Leased Car Back After Repossession?
Depending on your state’s laws and the specifics of your lease agreement, it might be possible to get your leased car back after it has been repossessed. Two potential avenues are:
- Reinstatement: You might be able to reinstate your lease by paying all past-due amounts, repossession costs, and any other fees. This essentially puts the lease back in its original state.
- Repurchase at Auction: You might be able to attend the auction where your repossessed car is sold and bid on it. If you are the highest bidder, you can repurchase the vehicle. Lessors are often legally required to inform you about the auction’s date and time.
Whether reinstatement or repurchase is feasible and beneficial for you depends on your financial situation, state laws, your lease terms, and the lessor’s willingness to cooperate.
Talk to a Lawyer About Car Repossession
Navigating car repossession and lease agreements can be complex, especially when substantial sums of money are involved. It is highly recommended to consult with an attorney before attempting to negotiate with the lessor or if you are facing repossession. A lawyer can help you understand your rights and the potential risks involved.
Furthermore, you might have legal defenses against a deficiency judgment. It’s important to know that the legal protections for leased vehicles can differ from those for vehicles purchased with a loan. Possible defenses 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 did not provide you with a legally required opportunity to cure the default before repossession.
- Breach of Peace During Repossession: If the repossession process involved illegal or disruptive actions.
- Inadequate Disclosure of Early Termination Liability: If the lease agreement did not clearly outline 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 line with legal requirements.
An attorney specializing in consumer law can assess your situation, determine if the lessor has acted unlawfully, and potentially help you get your car back or defend against a deficiency judgment. Seeking legal advice is a proactive step towards protecting your financial interests during a leased car repossession.
