What happens if your car gets totaled and you still owe money?

When a car accident totals your vehicle, your primary source of transportation disappears. When you still owe money on that car, the situation is even worse. Since an insurance company will only reimburse you for the current value of the car, you could end up making payments on that totaled vehicle for the remainder of the loan’s term, even if the car no longer exists. By law, you are legally obligated to pay off the loan.  You may need a personal injury lawyer.

Determining Whether a Vehicle is Totaled

Even if you think your car was totaled because of the severity of the damage, there is a chance the insurance company will pay for repairs. Most insurance companies declare a vehicle a total loss if the cost of repairs exceeds 80 percent of the value of the car at the time of the accident. For example, if your car has a book value of $10,000, the insurer may authorize repairs if these estimates are under $8,000. If the repair estimates exceed that threshold, the insurance company declares a car a total loss.

Car Loans

According to Insurance.com, the average new car loan is for $30,000 and lasts 68 months or almost six years. If your car is totaled near the end of your financing agreement, you likely owe less on the vehicle than the car’s fair market value (FMV). In that case, the insurance company should send the settlement check to your auto lender. Your lender deducts the amount you owe, and you receive a check for the difference.

However, if your auto loan is relatively recent, you can expect to pay the difference between the insurance company settlement amount and what you owe on the car. This holds in any situation where more money is owed on the automobile than its FMV.

Here is an example. If you financed a car for $25,000, the car begins depreciating the minute it leaves the auto dealer’s lot. A few years later, the car is totaled in an accident, and its FMV is $20,000. You still owe $22,000. The lienholder will receive the insurance company check, and you are on the hook for $2,000.

FMV Determination

Just because one vehicle is the same make and age of another car does not mean they will have identical FMV. It depends on the car’s condition, including its mileage. The Kelley Blue Book is often used to determine the FMV of a particular car, based on whether its condition is fair, good, or excellent. Bart Bernard Injury Lawyers will guide you through this process, and make sure the numbers are correct.

Gap Insurance

Purchasing Guaranteed Auto Protection (GAP) insurance is one way to protect yourself. You must decide to buy GAP insurance at the time of vehicle financing. This coverage fills in any gap between the car’s FMV at the time of the accident and the settlement you receive from the insurance company. Unfortunately, while GAP insurance pays the difference in these amounts, it does not provide funds with which to purchase another car.

Lafayette personal injury lawyers can review your financing and insurance agreements to see whether GAP insurance coverage is included. We can also determine whether or not the insurance company is using the correct methodology to calculate your car’s FMV.

What to Do After a Car Accident

If your car was totaled in an accident by another driver, that person’s insurance company might contact you soon after the incident and offer a settlement. Never agree to an insurance settlement before consulting a personal injury attorney. The insurance company wants to settle for as little as possible, so you need a professional representing your interests so that you can obtain a fair settlement.

Keep in mind that the statute of limitations in Louisiana for filing a lawsuit after a car accident is very short, at just one year from the date of the accident, so time is of the essence.

Contact a Car Accident Lawyer

If you or a loved one were seriously injured in a car accident caused by another driver, or if your car was totaled in an accident caused by another party, you need the services of an experienced Lafayette car accident lawyer. Be Smart. Get Bart. ™

Call us today or contact us online to schedule a free consultation.