Losing your car to repossession is a significant setback, and many people believe that once the car is taken, their financial obligation ends. However, this is often not the case. Even after your vehicle has been repossessed, you may still be responsible for certain costs. Understanding these potential expenses is crucial to managing your finances after a repossession.
Repossession Fees: The Initial Costs
When your lender repossesses your vehicle, they typically incur costs for picking it up and storing it. These expenses are usually passed on to you as repossession fees. These fees are intended to cover the lender’s expenses related to the physical act of taking back the car.
The crucial point about repossession fees is that they must be reasonable. What constitutes “reasonable” isn’t a fixed number and can be determined by courts based on various factors. These factors include:
- Type of Vehicle: Repossessing a large truck might involve different equipment and costs compared to a small sedan.
- Method of Repossession: The complexity of the repossession process can influence the fees.
- Location of Repossession: Distance and accessibility can impact the cost of pickup and storage.
You have the right to request a detailed list of all repossession costs from your lender. Reviewing this list is important to ensure transparency and identify any charges that seem excessive.
Deficiency Balance or Surplus After Sale
After repossession, the lender will typically sell your car, often at auction. This sale is intended to recoup some of the money you still owe on the loan. However, the sale price rarely covers the entire outstanding loan amount, along with repossession fees. This leads to two possible financial outcomes for you: a deficiency balance or a surplus.
Deficiency Balance: When You Still Owe
If the sale price of your repossessed vehicle is less than the remaining balance on your loan (plus repossession fees), you are responsible for paying the difference. This difference is known as a deficiency balance.
For instance, imagine you owe $10,000 on your car loan, and after repossession and fees, the lender sells it for $7,500. In this scenario, you would owe a deficiency balance of $2,500, in addition to the repossession fees. If you fail to pay this deficiency balance, the lender has the right to pursue debt collection, potentially hiring a debt collector to recover the amount.
Surplus: When You Might Get Money Back
Conversely, if your repossessed car sells for more than what you owe on the loan, after covering repossession fees and sale expenses, you are legally entitled to the surplus funds.
Using the same example, if the car sold for $12,000, you would be entitled to receive the $2,000 surplus after the $10,000 loan balance is covered (assuming fees are already accounted for in the sale price example or are less than $2000).
It is crucial to understand 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. If you believe the sale price was unreasonably low, you have the right to challenge it and should consider consulting with an attorney to explore your options.
State Laws and Your Rights
Your rights and obligations in a car repossession can vary depending on your state’s laws. State laws govern aspects like the “reasonableness” of repossession fees and the procedures lenders must follow during the repossession and sale process.
To gain a clearer understanding of your rights in your specific state, you can reach out to your state attorney general or your state consumer protection office. These resources can provide valuable information and guidance. Additionally, consulting with a private attorney or your local legal services office can offer personalized legal advice based on your situation.
Understanding what you may still owe after a car repossession is vital for navigating the financial aftermath. By being informed about repossession fees, deficiency balances, and your rights, you can take steps to manage the situation effectively and protect your financial well-being.
