Even after your car has been repossessed, your financial obligations might not be over. It’s crucial to understand what happens after a car repo to manage the situation effectively. Here’s a breakdown of what you need to know when your car is repossessed.
Understanding Repossession Fees
When your lender repossesses your vehicle, they typically incur costs to pick it up and store it. These are known as repossession fees, and you are generally responsible for covering these costs. However, it’s important to know that these fees must be “reasonable.”
What constitutes “reasonable” is not fixed and can be assessed by a court if you dispute them. Factors influencing reasonableness include the type of vehicle, the method of repossession (peaceful or requiring more effort), and the location of repossession. Always request a detailed list of all repossession costs from your lender to ensure transparency and identify any potentially unfair charges.
Deficiency Balance and Surplus After Car Repo
After repossession, the lender will usually sell your car, often at auction. This sale is intended to recover the outstanding loan amount. However, the sale price may not always cover the full amount you still owe.
If the sale price, after deducting repossession costs and sale expenses, is less than the remaining balance on your loan, you will be responsible for paying the difference. This is called a “deficiency balance.” For instance, if you owed $10,000 and the car sells for $7,500 after fees, you owe a deficiency of $2,500 plus the repossession fees. Failure to pay this deficiency can lead the lender to hire a debt collector.
Conversely, if your car sells for more than what you owe on the loan plus repossession and sale costs, you are entitled to receive the “surplus.” In the previous example, if the car sold for $12,000, you would be entitled to receive the surplus amount after all debts and fees are settled.
Lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” If you believe the sale price was unreasonably low, impacting your deficiency balance or surplus, you should consider consulting with an attorney to understand your rights and options. They can advise you on whether the sale process was fair and if you have grounds to challenge it.
Remember, state laws can provide additional protections and rights related to car repossession. You can find more information by contacting your state attorney general or your state consumer protection office. Seeking advice from a private attorney or a local legal services office can also provide personalized guidance based on your specific situation when your car is repo.
Conclusion: Know Your Rights and Responsibilities After Repossession
Car repossession is a serious event with financial consequences that extend beyond losing your vehicle. Understanding repossession fees, deficiency balances, and your rights is essential. Always communicate with your lender, request detailed information, and don’t hesitate to seek legal advice if you believe your rights have been violated or if you are facing unfair charges after your car is repossessed.
