You may still owe after a repossession, but it depends on the contract you signed and how much the vehicle sells for at auction compared to what you owe on it.
Why You Still Owe After a Repossession
The amount of money you might owe after your car has been repossessed and resold is called a deficiency balance. The deficiency balance is the difference between the car’s selling price plus the costs of repossessing and storing the vehicle compared to the loan balance. You’re responsible to pay the lender back the deficiency balance, and if you fail to do so it could result in legal action.
When the lender sells the car at auction, the vehicle’s selling price will be one of the biggest deciding factors on whether or not you still owe money:
- When you have equity in the car – Equity is when the car is worth more than what you owe on the loan. If the vehicle sells for more than what you owe you at auction, you may not need to pay the lender and could end up getting money back, which is also known as a “surplus.”
- When you have negative equity in the car – Negative equity, known as being underwater, is when the vehicle is worth less than what you owe. When the lender sells the car at auction, your deficiency balance is determined based on the difference between what it sells for and what you owe on the loan. For example, if the vehicle sells for $8,000 and you owe $13,000, the deficiency you’re responsible for will be $5,000 plus any repossession fees and expenses.
If the vehicle isn’t sold in a commercially reasonable manner, or the lender fails to notify you of the car sale, you may be excused from paying the deficiency balance. In rare cases, lenders can write off or forgive the deficiency balance, but this is only if you have no assets available. If the forgiven amount is $600 or more, the lender will issue a Form 1099-C or 1099-A to you and you’ll need to report the forgiven balance as income on your tax return.
Having a vehicle repossessed can put a lot of strain on you. Besides losing a car, the additional fees associated with the repo process can put you further behind on financing a vehicle in the future. If your car was repossessed at least a year ago and you need to finance a new vehicle but don’t know where to turn, Auto Credit Express wants to help.
We can point you in the right direction by helping to find a local dealer that has the lending resources to work through challenging credit situations. There’s no cost or obligation. Fill out our simple auto loan request form to get started today.