Will I Owe Money If My Leased Car Is Repossessed?

When you lease a car, you sign a contract with the lessor. That contract, along with state law, establishes your rights and obligations and describes what the lessor may do if you stop making your monthly payments. For example, the lessor might be able to repossess the car with no advance warning and no court action, so long as it doesn't breach the peace, as well as charge you specific amounts after your default. In this situation, not only will you lose the car, but you'll also owe a sum of money to the leasing company, like for the past-due amounts, the remaining lease balance, certain costs, and other amounts even after the repossession.

How Much You'll Owe if the Lessor Repossesses the Car

After the car is repossessed, you'll likely owe:

• the remaining lease balance
• the past-due payments
• amounts for excess wear-and-tear and mileage (if applicable)
• the costs of the repossession, and
• the costs of resale, like cleaning and detailing the car, if the lessor decides to sell it after the repossession. (Once the lessor repossesses the car, it will usually sell the vehicle through a private sale or public auction.)

What Is a Deficiency Judgment?

When the lessor sells the repossessed car, the sale price might not cover the total amount that you owe under the lease. The "deficiency" is the difference between:

• the sale price, and
• the total amount you owe.

Most times, the lessor will then send you an invoice for the deficiency amount. If you don't pay it, the lessor will, depending on state law and the circumstances, send the matter to a third-party collection agency to try to collect the deficiency or pursue a "deficiency judgment." To get a deficiency judgment, the lessor files a lawsuit against you for the amount of the deficiency. Once the lessor gets a deficiency judgment, it can typically use regular collection methods, like garnishing your wages or seizing your bank account to collect the deficiency.

What to Do Before the Lessor Repossesses Your Car

If you can no longer afford the lease payments, have missed payments, or feel that you are at risk of losing your car to a repossession, you should:

Read Your Contract

The first thing you should do is learn about the consequences of a default by carefully reading your lease contract. In particular, review the sections that describe what constitutes a default and what happens if you default.

Contact the Lessor If You Want to Keep the Car

If you would prefer to keep the car, but can't afford the payments, call the lessor and ask if you can work out a deal to make the payments more affordable. For example, the lessor might be willing to:

• give you an extended grace period (an allotted amount of time during which you're not expected to make payments), or
• modify the terms of your agreement to reduce the monthly payment amount.

If the lessor agrees to change the repayment terms, be sure to get the agreement in writing and keep a copy for your records.

You Can Offer to Settle the Debt If the Lessor Repossesses the Car

If the lessor won't agree to reduce your payments—or work out an alternate arrangement with you—and later repossesses the car, you can offer to settle the deficiency for a smaller amount than you owe. Some lessors prefer to accept a reduced lump sum instead of going to the expense and hassle of trying to collect the full amount from you. Be aware, though, that settling a debt sometimes has tax consequences.

You might want to consult with an attorney before you try to negotiate a deficiency settlement to ensure that you fully understand your rights and the risks involved.