Even after your car is repossessed, your financial obligations might not be over. It’s crucial to understand that repossession doesn’t automatically erase your debt, and you could still be responsible for further costs. Here’s a breakdown of what typically happens when your car is repossessed and what you need to know about the financial aftermath.
Repossession Fees: What You Might Owe
When your lender repossesses your vehicle, they generally incur costs for the process. These costs, known as repossession fees, are often passed on to you. These fees cover expenses like hiring a repossession company to locate and retrieve the vehicle, towing, and storage before the car is sold.
While lenders are entitled to recover these reasonable costs, the term “reasonable” is important. What constitutes a reasonable fee can vary depending on factors such as the type of vehicle, the method of repossession, and the location where it was taken. If you’re unsure about the fees charged, you have the right to request a detailed list of all repossession costs from your lender. If you suspect that the fees are excessive, it might be worth seeking legal advice to understand your rights.
Deficiency Balance or Surplus After Vehicle Sale
After repossession, the lender will typically sell your car, often through auction. This sale aims to recover the outstanding loan amount. However, the sale price may not always cover the full amount you still owe on the loan, plus the repossession fees.
If the sale price of your repossessed vehicle is less than the sum of your remaining loan balance and the repossession expenses, you will be responsible for paying the difference. This difference is called a “deficiency balance.”
For example, imagine you still owed $10,000 on your car loan, and the repossession fees totaled $500. If the lender sells the car for $7,000, you would still owe a deficiency balance of $3,500 ($10,000 + $500 – $7,000 = $3,500). Lenders are within their rights to pursue collection of this deficiency balance, potentially even hiring a debt collector.
Conversely, if your vehicle sells for more than what you owe on the loan plus repossession fees, you are legally entitled to the surplus funds. In the same example, if the car sold for $12,000, the lender would first cover the $10,000 loan and $500 repossession fees, and then you would be entitled to receive the $1,500 surplus.
It’s important to note 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 should consider consulting with an attorney to explore your options.
Understanding Your Rights and Seeking Help
Beyond the basic principles outlined above, your state laws may provide additional rights and protections after your car is repossessed. 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 regarding repossession laws in your jurisdiction.
Furthermore, if you are facing car repossession or dealing with the aftermath, seeking legal counsel from a private attorney or a local legal services office can be beneficial. An attorney can advise you on your rights, help you understand the repossession process in your state, and assist you in navigating any disputes with your lender.
