You may think that once you’ve traded in a vehicle that it’s no longer your concern, but if you still owe money on that vehicle, you may be in for a surprise if the dealership goes out of business. Those who bought used vehicles from a dealer that folds may also have their own vehicles repossessed.
The problem arises when a person trades in a vehicle that still has a lien against it. Typically the dealer offers to pay off the car, usually by rolling the payoff amount into the new loan. The trouble is that sometimes the old liens aren’t paid off before the dealer goes out of business. That leaves the previous and new owners at risk. The Associated Press recently reported that amid the rising number of dealership closures, this exact problem is also on the rise.
If the dealer files for bankruptcy, there is little recourse for the buyer or seller, since the dealership doesn’t have the money to pay off the lien as promised. That could leave both the previous and new owner partially responsible for the payoff amount.
Those selling cars on which they still owe money are advised to pay off the car before trading it in. If that isn’t possible, then working with a high-volume, reputable dealer will be the least risky course of action. Such dealers, particularly if they are part of a larger group of dealers, are less likely to go out of business.
If you are buying a used car, ensure that the title is in the name of the dealership (as opposed to the former owner) and that no lien is listed on the title. Many dealers will also provide a vehicle history report, but if not, you can always purchase one from carfax.com. The report will cost you $29.99, but might be money very well spent.
If dealerships paid off existing liens as they were supposed to, this wouldn’t be the problem that it is. When dealerships close and are filing for bankruptcy, such tasks are not necessarily their top priority. Anyone buying or trading in a used car should pay extra attention to the details of the process to ensure that their liability is limited in the case of a dealer bankruptcy.
Have you traded in a car on which you still owed money?Print This Post