What Happens If I’m Involved in an Auto Accident & Owe Money on the Vehicle?

Car accidents are inconvenient in the best of circumstances. If you are dealing with a car accident involving a vehicle that you do not fully own – such as a vehicle you are still making payments on or that you lease – you likely have the added problem of being upside-down on your payments. This means you owe more on the payment arrangement than the damaged vehicle is now worth. Find out who is responsible for paying for the car in this scenario in New Jersey.

What Are New Jersey’s Car Insurance Requirements?

All drivers in New Jersey are required to purchase at least $5,000 in property damage liability insurance and $15,000 in personal injury protection (PIP). PIP insurance pays for the policyholder’s medical bills, while property damage liability insurance pays for the other driver’s vehicle repairs. Bodily injury liability insurance is also an option if the driver wishes to have coverage for injuries suffered by others in an at-fault accident.

What Happens to My Car Loan After an Accident?

If you get into a car accident in a financed or leased vehicle, you will still be responsible for paying the remaining balance on the car loan or lease. This is true even if the vehicle is deemed a total loss, meaning an insurance company has determined that the actual cash value of the vehicle is less than the price of vehicle repairs. If your car is totaled, it is not roadworthy and cannot be driven – yet you must still pay any remaining amount owed on the purchase or leasing agreement. Your loan does not disappear.

If you have a car loan, you will most likely need gap insurance to help you pay for an accident. Gap – or Guaranteed Asset Protection – insurance can save you from having to pay the remainder of your car loan out of pocket after a car accident. Gap insurance works by covering the difference between your vehicle’s actual cash value after a car accident and what you still owe on the loan or lease.

The issue with having a car payment in a car accident case is that a motor vehicle immediately depreciates in value when it is driven off the lot. Thus, the actual cash value of the vehicle at the time of the accident is less than what the buyer paid for the car. When an insurance company appraises a vehicle to determine a suitable amount in property damage compensation, the amount assigned will most likely be less than the full value of the buyer’s loan. Gap insurance covers this difference.

Will the Other Driver Pay if He or She Is at Fault?

The answer to this question depends on the case. New Jersey is a no-fault car accident state that gives drivers the option to purchase limited or unlimited right-to-sue coverage. If you get injured or suffer property damage in a car accident, your financial recovery options depend on your auto insurance policy and the circumstances of the crash. 

If you purchased unlimited right-to-sue insurance, you can seek compensation from the driver who caused your crash regardless of the severity of your injuries. The other driver’s insurance company will be responsible for paying the actual cash value of your totaled car or the price of repairs. With limited right-to-sue insurance, however, you may only hold the at-fault driver liable if you suffered a serious injury, such as significant scarring and disfigurement, dismemberment, bone fractures, or a permanent injury.

What Can I Do After a Car Accident if I Owe Money on the Vehicle?

After a car accident in New Jersey, contact your own car insurance provider to find out what type of insurance you have and if it covers your collision. If you suffered significant injuries or have unlimited right-to-sue insurance, your next step is to contact the other driver’s car insurance carrier to file a third-party claim. In this scenario, the at-fault driver will be responsible for paying for the full value of your losses, including what you still owe on your vehicle.

Then, before you accept an insurance settlement, contact a car accident attorney in New Jersey at the Law Offices of Jeffrey S. Hasson, P.C. for assistance. We will help you resolve a complicated car accident case that involves an unpaid car loan or leased vehicle.