What Happens 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, your leased car could be repossessed with no advance warning and no court action, so long as it doesn't breach the peace.

Also, the lessor can 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, such as for the past-due amounts, the remaining lease balance, certain costs, and other amounts.

How Much Will I Owe After My Leased Car Is Repossessed?

If your leased car is repossessed, you could be on the hook for a lot of money. A "deficiency" is what you still owe on the lease after the lessor sells the vehicle and applies the sale amount to your unpaid obligation. Most times, the lessor will then send you an invoice for the amount. (This amount might be called an "early termination charge." In this context, "early termination" means that the lease ends before the scheduled termination date for any reason—voluntarily or involuntarily, such as through a repossession.)

The method of calculating the deficiency will be in your lease contract. Generally, you might have to pay:

• the amount that remains on the lease
• past-due payments
• repossession costs
• excess mileage (if in excess of the contractual limits)
• wear and tear that's in excess of what's reasonable, and
• costs for selling the car, such as auction charges, costs for cleaning the vehicle, and costs to repair any collision damage.

Again, the deficiency is the difference between what you owe and what the car sells for at auction. Or the deficiency might be the difference between the car's current value and what you owe on the lease (plus the repossession costs).

If you don't pay the deficiency, the lessor will, depending on state law and the circumstances, probably 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 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, 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.

How Can I Prevent Repossession of My Leased Car?

You might be able to make up the missed payments. Some leases (and, in some cases, state law) give you the right to cure the default by paying the overdue payments plus fees.

If you want 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.

What Is a Voluntary Repossession of a Car?

You might also consider voluntarily returning the vehicle to the lessor. With a voluntary repossession, you agree to give the vehicle to the lessor to avoid a repossession. But you need to make sure you get a good deal. If you don't negotiate, voluntarily returning the vehicle to the lessor probably won't do you much good because you'll still owe money. Unless you negotiate a lower deficiency amount (or no deficiency) as part of the process, you might still be responsible for paying the full deficiency.

Before turning in a leased car early, negotiate to reduce or eliminate your early termination liability. Make sure to get this agreement in writing.

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.

Can I Get My Leased Car Back After Repossession?

Depending on your state's laws and your lease, you might be able to get your leased car back after a repossession by reinstating the lease or repurchasing the vehicle at the auction. State law might require the lessor to let you know the time and date of the auction.

You can also ask the lessor if they might be willing to return the vehicle to you under certain conditions. Which option is best for you depends on how much money you have, your state's laws, your loan agreement, and the lessor's willingness to work with you.

Talk to a Lawyer About Car Repossession

You might want to consult with an attorney before you try to negotiate with the lessor to ensure that you fully understand your rights and the risks involved. In addition, you might have a defense to a deficiency judgment. (Your defenses are sometimes different with a leased car than if you had bought the car with a loan. Generally, you don't have the same protections with a leased vehicle as you do with a financed vehicle). For example, you might be able to argue:

• You weren't in violation of the lease. (For example, you didn't default on lease payments.)
• State law required the lessor to give you a right to cure the default prior to repossession.
• The repossession breached the peace.
• When you signed the lease, the lessor didn't clearly and conspicuously disclose what your liability would be in the case of early termination. (The federal Consumer Leasing Act requires the lessor to properly disclose the terms of the lease, including the amount or method of determining any penalty or other charge for early termination.)
• The method of calculating deficiency is unreasonable.

An attorney can tell you if the lessor's actions were against the law and possibly help you get your car back by raising any illegalities either directly to the lessor or by filing a lawsuit in court.