Even after you’ve lost physical possession of your vehicle through repossession, your financial obligations might not be over. It’s crucial to understand the costs and potential debts you could still face when a car gets repoed. Here’s a breakdown of what you need to know.
Repossession Fees: What Are You Paying For?
When a car gets repoed, lenders typically don’t just take your vehicle without incurring expenses. They often charge a repossession fee to cover the costs of picking up and storing the car. While lenders are entitled to recoup these costs, these fees must be “reasonable.”
The definition of “reasonable” isn’t fixed and can be interpreted by courts based on various factors. These factors include the type of vehicle being repossessed, the specific method used to repossess it (e.g., towing), and the location where the repossession occurred. Don’t hesitate to request a detailed list of all repossession costs from your lender to understand exactly what you’re being charged for.
Deficiency Balance or Surplus After Repossession Sale
After a car gets repoed, the lender will usually sell it to recover the outstanding loan amount. This sale has significant financial implications for you. If the sale price of the repossessed vehicle is less than the remaining balance on your loan, plus the repossession fees, you will be responsible for paying the difference. This difference is known as a “deficiency balance.”
Conversely, if the car is sold for more than what you owe on the loan, after covering repossession fees and sale expenses, you are legally entitled to receive the surplus funds.
Lenders are legally obligated to sell your repossessed car in a “commercially reasonable manner.” This means the sale process must be fair and designed to achieve the best possible price under the circumstances. It’s important to know the sale price of your vehicle after repossession. If you believe the sale price was unreasonably low, it’s advisable to consult with an attorney to explore your options.
For instance, imagine you still owe $10,000 on your car loan, and after repossession, the lender sells it for $7,500. In this scenario, you would owe a deficiency balance of $2,500, in addition to any repossession fees. If you fail to pay this deficiency, the lender has the right to hire a debt collector to pursue the outstanding amount.
On the other hand, if in the same scenario, the car was sold for $12,000, you would be entitled to receive the $2,000 surplus after your $10,000 loan is settled and repossession fees are covered.
Understanding Your Rights and Seeking Help
Beyond federal regulations, your state laws may provide additional rights and protections related to car repossession. To learn more about your specific rights, you can reach out to your state attorney general or your state consumer protection office. These resources can provide valuable information about repossession laws in your jurisdiction.
Furthermore, if you are facing car repossession or dealing with its aftermath, seeking legal advice can be beneficial. You can consult with a private attorney or contact your local legal services office to understand your rights and explore your options. They can offer guidance on whether the repossession and sale were handled legally and fairly, and advise you on how to proceed.
