The fact that your car has been repossessed does not mean that your problems are over. When a company repossesses your car, the company is likely to end up pursuing you for more than just back payments. By understanding what will happen when your car sells, you can take steps to protect your financial interests.
Repossessed Car
When a company repossesses your car, you generally have a short period of time to catch up on the payments and redeem the car. The amount of time that you have to redeem the car will vary by state. For example, in Illinois you have 21 days to redeem the car and in California you have 15 days to redeem the car after receiving written notice that the finance company intends to sell the car. If you fail to redeem the repossessed car, the finance company will sell the car to recover the balance of the loan. Generally, the finance company will sell the car at auction, often receiving less than the retail value of the car.
Deficiency Balance
One the finance company sells the car, the company will apply the amount received from the sale toward the balance on the loan. In most cases, the car will not sell for enough to cover the loan. You will still legally owe the remaining balance, or deficiency balance, to the finance company. It is possible in some situations for the car to sell for more than the balance of the loan. In this scenario, the finance company will owe you the difference between what the car brought at auction and the balance of the loan.
Payment Arrangements
Once the finance company contacts you to inform you of a deficiency balance, you will need to make arrangements to pay the balance. A finance company may demand that you pay the entire balance in full, but most will work out a payment plan with you. If you fail to pay the deficiency balance, the finance company may take legal action against you to collect it. Lenders may forgive debt in some situations. However, if the lender forgives the debt, you may owe additional taxes because the IRS treats forgiven debt as taxable income.
Other Information
The finance company may incur various costs when repossessing and selling your car. For example, the company will likely have to pay fees to a repossession company and an auction company. In most cases, the finance company can legally charge you for these fees in addition to the deficiency balance. The laws and regulations regarding car repossessions and collections vary by state. For information on the laws in your state, contact your states attorney general.
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