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.
After the car is repossessed, you'll likely owe:
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:
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.
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:
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.
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:
If the lessor agrees to change the repayment terms, be sure to get the agreement in writing and keep a copy for your records.
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.
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