Do I Still Owe Money If My Car Is Repossessed?

If your car is repossessed, you are still responsible for any balance due after the car is resold by the bank, as stated in your contract. While you may not have to pay right away, your lender is within its legal rights to sue you. Before a lawsuit is filed, you may have options to settle the remaining balance, make payments or pay the balance in full.

Upon Repossession

Once your vehicle is repossessed, you can get it back by paying fees determined by the bank. The amount you'll have to pay includes any payments and late payments due, as well as repossession, locating and towing fees. You can expect to receive a letter stating the total amount due and at which date your vehicle will be offered for sale. If you do not receive the letter, you can call your bank for details.

After Car is Sold

Once your vehicle is returned to the bank, it is usually resold at auction or by the bank itself. In the event the vehicle is sold at auction, it is sold at wholesale value. The wholesale amount is equivalent to trade-in value, which is thousands of dollars lower than retail value. After the vehicle is sold, you will be notified of its sale price and billed for any balance due after the sale. However, if your vehicle warrants the bank a profit, the bank must return the excess amount to you.

Collections

If you do not make arrangements to pay the balance due, your account will be turned over to a collections agency. You can expect letters and phone calls offering you a payment plan or an opportunity to settle the amount due for less than the original balance. Should you decide to ignore collection efforts, it is likely you'll be taken to court. In such an event, the bank will pursue a judgement, garnishing your wages for the amount due.

Warning

If you settle on an amount that satisfies the delinquent loan, the amount you do not pay is reported to the Internal Revenue Service, which considers the amount income. For example, if you owe $10,000 but settle for $4,000, you can expect to pay taxes on $6,000. Unless you claim bankruptcy to cancel the debt, you must claim the canceled part of the debt as income.