Basics On Surrendering A Car

Cars are unique secured debts in that they are financially upside down the moment they are taken out. All vehicles lose inherent and monetary value the moment they are driven off the new car dealer’s lot. As such, it is virtually impossible to find a car that is worth more than what is owed on it. When this difference becomes too extreme, many people find it better to surrender their vehicle through a Bankruptcy Court rather than to continue paying the debt, on which they are terribly upside down.

For example, if you bought a car 2 years ago at $20,000.00 only to find out that today that same vehicle is worth perhaps $8,000.00, it behooves you very little to continue paying on that $20,000.00 debt. If the property valuation holds, by the time that the debt is paid off in a year or two, you may have paid $20,000.00 or more for a vehicle that could well be worth $3,000.00 or $4,000.00.

Another instance is where a vehicle is bought with a particular monthly payment based on the income of the individual at the time of purchase. For one reason or another, that person’s income could have gone down in the time since the purchase. When this happens, the person finds themselves in a position where they can no longer make their monthly payments. As opposed to having a car repossessed, many prefer to simply surrender the car through the bankruptcy process.

When a car is repossessed outside of the bankruptcy courts, it is then sold at auction. After auction, most lenders will issue what is known as a Deficiency Judgment. A Deficiency Judgment is the amount of the original car note minus the monies received from the sale at auction plus the cost of acquisition and auction. In our example, the $20,000.00 vehicle worth $8,000.00 may be sold for approximately $6,000.00, leaving a balance on the original note balance of $14,000.00 plus the cost of sale. The Deficiency Judgment resultant could be between $15,500.00 and $16,000.00.

When a vehicle is surrendered through the Bankruptcy Court there is no deficiency judgment. Vehicles surrendered through the Bankruptcy Court are surrendered as full satisfaction of the debt. The lender does not get any additional properties or monies beyond the vehicle that is surrendered back to them. The vehicle itself is the full satisfaction of the debt.

The timeframe for surrendering vehicles is widely varied. This depends mostly on the policies and procedures of the individual lenders. Unfortunately with car lenders, there is no standard policy. Some lenders pick up quickly, some lenders take months.


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