What Happens if Your Car Gets Totaled and You Still Owe Money?

The property damage in a motor vehicle accident is bad enough, but to add insult to injury, you’re still most likely responsible for paying any outstanding balances on your car lease or loan.

How To Tell if Your Car Is Totaled?

After an accident, you will need to contact your insurance company to file a claim. New York is one of 22 states that sets a specific threshold percentage, rather than using a total loss formula.  The insurer will send a claims adjuster to inspect your damaged vehicle and make an estimate on repair costs. The adjuster will add the cost of repairs to the scrap value of your vehicle.

  • If the number is less than 75% of the actual cash value of your vehicle (before the accident), you’ll be offered a repair.
  • If the number is equal to or greater than 75% of the actual cash value, your vehicle will be declared “a total loss.”

At home, you might check out the Kelley Blue Book for a rough estimate of your vehicle’s resale value based on make, model, year, mileage, and condition. In the event of a total loss, the insurance company will offer you a settlement check. Whether you feel that amount is fair or not is another matter.

What To Do About Your Car Loan or Lease After Your Car Gets Totaled in an Accident

Here’s the bad news: if you have a loan or lease out on a totaled car, you’re still responsible for paying off the remaining balance. Usually, the insurer pays the lender or leaseholder first and gives you the rest of the settlement money if there’s any leftover.

Sometimes you may owe more than your insurance claim is willing to pay. If that’s the case, you’d better hope you have Gap Insurance, which is used to pay the difference between the insurer’s check and the remaining balance. If you don’t have Gap Insurance, you’re stuck paying out-of-pocket for the remainder of the loan.

Gap Insurance Helps New York Motorists Pay for Damage

While Guaranteed Auto Protection (GAP) insurance coverage increases premiums, it exists to protect financing or leasing drivers from having to pay out-of-pocket in the event of a total loss. The gap between what you owe and what the car is worth is often significant because the car begins depreciating the moment you drive it off the lot. For instance, you might buy a car for $30,000, but after just two months of driving, it might depreciate in value to $26,000. If you’ve been making $500 payments, then you owe $3,000 more than the car is actually worth at this point. 

Gap coverage can pay up to 25 percent of the Actual Cash Value in the event of a totaled car. You may not require gap coverage if you’ve paid off enough of your car loan that you owe less than it’s worth. If you have comprehensive and collision coverage, you may have sufficient insurance to pay off the loan. You may not have enough left over to pay off the loan and buy a new car, but you should at least have a sizable down-payment.

Auto insurance policies can be complex and confusing. If you’re not sure whether you have GAP insurance, you can ask a New York car accident lawyer from Douglas and London to review your policy. We can also help determine whether or not your insurer is using the correct methodology to calculate your car’s full monetary value.

Should You File A Lawsuit to Cover Your Losses?

If you were involved in an accident where the other driver was clearly at fault, you might get a phone call from the driver’s insurance company. They may want to know your version of what happened, how you’re feeling, and where you work. You are under no obligation to give them a recorded statement. Insurance agents can be tricky; they may be looking for any excuse to pay you less than what your claim is worth. Sure, you’d like a fast resolution, but not if it’s far less than you deserve for your medical bills, lost wages, and property damage. For this reason, it is always wise to have a personal injury attorney advocating on your behalf and communicating with the insurance companies for you. Professional representation costs nothing upfront, but rather, costs you a third of the total settlement if compensation is secured. Keep in mind the statute of limitations for filing a lawsuit following a car accident in New York is three years, but it’s best to start working with a law firm right away, while the evidence is fresh.