My Car Was Totaled, but I Still Owe Money on It: What Happens Now?

If your vehicle is totaled in a motor vehicle accident, you will likely receive a check from the insurance company. Once an insurance company deems a car totaled, you’ll have difficulty reselling it. In fact, there’s a good chance you won’t be able to drive it.

What happens if you still owe money on your totaled car or truck? It doesn’t seem fair that you should have to pay the remaining balance on a vehicle that isn’t drivable. However, the bank carrying your auto loan expects you to pay the debt in full, regardless of the condition of your car.

Insurance claims can help cover many of the costs that come with a car accident, but the insurance settlement may not cover the full outstanding loan on a financed car. This leaves you making the remaining loan payments on a car you can’t drive.

There’s a lot to be aware of if you end up in this situation. In this article, we’ll explain:

• Factors that impact the cash value of a vehicle
• How the insurance company decides whether a vehicle is a total loss
• What to do if the at-fault driver‘s insurance company declares your car totaled and you still owe money on it

If your car was totaled after an auto accident, consider contacting a local car accident lawyer. They’ll explain the claims process and ensure you don’t accept a lowball settlement offer. They can also help you file a legal claim to cover your remaining costs, if necessary.

How Does the Insurance Claim Process Work?

After your car accident, you’ll have to file an insurance claim. Do you file a claim with the other driver’s insurance company or your own? It depends on a few things. Many will depend on where you live.

When it comes to car accident injuries, most states follow a fault-based insurance system. In these states, the at-fault driver’s insurance company pays your claim.

However, twelve states follow a no-fault insurance system. In these states, your insurance company must cover your losses, regardless of who was at fault.

The twelve states that follow a no-fault system include:

• Florida
• Hawaii
• Kansas
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Pennsylvania
• Utah

The rules are a bit different for property damage claims. If you have collision/comprehensive coverage, the usual process is to file a claim with your own insurance carrier first. Your insurance company will pay you the actual cash value (ACV) minus your deductible and seek reimbursement from the at-fault driver‘s insurance company.

For your vehicle damage claim, you must pay the deductible to your own insurance company. Gap insurance typically doesn’t have a separate deductible.

If the at-fault driver‘s insurance pays your claim, you may get your deductible back. If the other driver doesn’t have insurance, you can either file a claim under your own uninsured or underinsured motorists’ policy or sue the other driver in civil court.

How the Insurance Company Determines Whether Your Car Is a Total Loss

Insurance adjusters must abide by state law when determining whether a vehicle is a total loss. Every insurer has a policy that sets the threshold for deeming a car a total loss. This can vary between one insurance company and another.

Many states set the minimum percentage for a salvage vehicle at around 70%. Individual insurers may have total loss percentages higher than the state minimum.

A car is a total loss when the cost of repairing it is greater than the value of the car, minus any salvage value. Salvage value is the car’s estimated worth if it’s sold for parts or scrap metal.

Let’s say your car has a fair market value (FMV) of $20,000. You are in a tractor-trailer accident, and your vehicle sustains severe damage. The insurance company‘s repair estimate is $16,000, which is 80% of the car’s ACV.

Rather than spend nearly as much to fix the car as it’s worth, the insurance company declares the vehicle a total loss. They’ll pay out the ACV ($20,000) in exchange for the vehicle’s title. The insurance company buys you out of your totaled car. The money you receive can be used for anything you want, including as a down payment on a new car.

If you still owe money on the vehicle, the insurance settlement pays off the amount owed to your lender first. This will take care of your remaining balance, and you’ll receive the rest. Owing more on the car than your car’s ACV means that the insurance settlement won’t cover the balance on your auto loan. You’ll still be on the hook for the unpaid amount due.

Determining the Value of a Totaled Car

Most people understand that their car’s actual cash value (ACV) drops the moment they drive it off the lot. Over time, the value depreciates until you sell it, trade it in for a newer model, or have a wreck make it undriveable.

If your vehicle is in a serious auto accident, the insurance adjuster handling your claim must determine its current value. They base the value of the car on its condition immediately preceding the accident. Some of the factors that impact your car’s ACV include:

• The age of your car
• The vehicle’s mileage
• The history of car repairs
• Damage sustained in other accidents
• Whether you properly maintained the vehicle
• The cost of replacement parts
• The labor and repair costs if the car insurance company doesn’t deem the car totaled

These elements affect the fair market value of your car and help the insurance adjuster calculate their settlement offer.

An appraiser from the insurance company uses the Kelley Blue Book or a similar resource to determine the actual cash value of your vehicle. They will consider the car’s condition, mileage, and other factors at the time of the accident. The insurance payout depends on this ACV.

How Do I Pay Off a Loan on a Car That Has Been Totaled?

If another motorist caused your accident, you can pursue a property damage claim with their insurance company. The law only requires the other driver’s insurance company to compensate you for the ACV of your car at the time of the accident, not the amount you owe to your lender.

You may have a few options available:

Gap Insurance

Your regular liability coverage protects against damage you cause to others, not your own vehicle. Collision insurance or comprehensive coverage covers damage to your car, but it doesn’t provide relief for the remaining balance on your car loan. For that outstanding amount, guaranteed asset protection coverage (GAP or Gap insurance) may cover the difference between your car’s ACV and the outstanding balance on your car loan or lease.

Gap insurance can be purchased from auto insurers, lenders, or car dealerships. The entity that sold you the gap coverage will handle the claim, which may be someone other than your regular auto insurance company.

Gap coverage activates after your primary insurance (collision/comprehensive) pays out. If your auto insurance company declares your vehicle a total loss and offers a payout based on the car’s ACV, your gap insurance may cover the remaining loan balance. If the at-fault driver‘s coverage doesn’t cover your outstanding loan, and you don’t have gap coverage, you must pay the remainder out of pocket.

Paying Your Insurance Deductible

Even with gap insurance, you’ll still have to pay your deductible before your collision insurance coverage kicks in. The deductible is the amount you must pay out of pocket towards a claim. Your deductible amount depends on the terms you agreed to when you purchased your insurance.

If the insurance company agrees to pay your claim, it will send you a check for your settlement amount less the deductible. For example, if your car’s ACV is $15,000 and you have a $1,000 deductible, you’ll receive $14,000.

New Car Replacement Coverage

Some auto insurance policies include new car replacement coverage. This policy pays to replace your totaled vehicle. You’re still responsible for your deductible costs before your new car coverage kicks in. New car replacement coverage is a step above typical collision coverage, which only pays the ACV of your vehicle at the time of the accident.

When shopping for auto insurance, ask if the company offers new car replacement coverage. Not all companies do. It’s usually only available for new cars that are either less than two years old or gently pre-owned. There may also be additional eligibility requirements. For instance, some insurance companies require that the car be below a mileage maximum.

Can I Keep My Totaled Car?

In many cases, yes, you can buy the car back from the insurance company. Instead of handing over the title, you keep the car. The insurance company will pay out the ACV minus its salvage value. You can fix your totaled car, but be aware that it will now have a salvage title.

State motor vehicle agencies issue a salvage title when a car is significantly damaged to the point where most insurance companies would consider it a total loss. It indicates that the car might not be legally drivable without major repairs.

After your car has a salvage title, you essentially have three options:

• Keep and fix the car
• Sell the car as is
• Sell the car to a salvage yard

Restoring a vehicle with a salvage title can be costly and time-consuming. In many states, the repaired vehicle must be inspected by law enforcement, which will require proof that none of the parts used came from stolen vehicles.

Vehicles with salvage titles sell for much less than those with a clear title. Regardless of the route you choose, check your local and state regulations for guidance on transferring a salvage title. Don’t try to sell the vehicle without disclosing that it has a salvage title, as you’ll run into legal trouble.

Can You Negotiate the Insurance Payout for a Totaled Car?

It’s possible to try to get a better deal from your insurance company on a total wreck. With smaller claims, the insurance company usually approves your insurance claim and sends your check in a week or two. Larger and more complex insurance claims have a greater chance of the insurance adjuster denying your claim or only paying part of it.

Read the insurance company‘s settlement offer carefully. The insurance carrier’s legal team constructs settlement releases to ensure the insurance company pays out as little as possible without opening itself up to future litigation. An attorney can help you make a counteroffer that demands your car’s actual cash value.

How an Attorney Can Help

One of the reasons many car accident victims hire a personal injury attorney to handle their car accident claim is that they want to get as much money as possible. Dealing with the insurance company can be intimidating, especially when you are unfamiliar with the claims process.

A car accident lawyer is familiar with the legalese and terms of a settlement offer and will make sure the insurance company doesn’t take advantage of you. You deserve a fair settlement that includes reimbursement for car repairs, medical expenses, and other financial losses you suffer. The insurance carrier should also pay you the fair market value of your totaled car.

Arguing With the Insurance Company Over a Total Loss? Speak With an Attorney

If you’ve been in a car accident and the insurance company says your vehicle is a total loss, you have options. FindLaw’s directory of car accident attorneys can help you find the right person to help protect your interests after an accident. You can narrow your search by state, city, reviews, and more to find a lawyer who best fits your needs.

Getting back on track after a car accident can be challenging, but finding an attorney doesn’t have to be.