What to do if about 4 years ago I returned a loaned vehicle once I could no longer make payments and the company is just now claiming that I owe 5k?

5 years ago, I went to a car dealership to have a car loaned to me. There was no money fronted to me so no bank was involved. I lost my job shortly after, so I did the responsible thing and returned the vehicle the night I found out I could no longer make payments. However, their only concern was renegotiating the payments so that I could keep the vehicle. I told them no, this would not be a smart move to make. Now, all these years later they are reaching out telling me that I owe them over 5k for a vehicle I returned. They state that

Asked on August 28, 2018 under Business Law, Pennsylvania


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 2 years ago | Contributor

Returning the vehicle does NOT automatically cancel the contract and stop you from owing money under it. Rather, when you lease a car, you owe the full amount you agreed to pay (e.g. if you leased it for one year, you owe one year of payments; if for three years, three years of payments; etc.). If the car is returned, they have to sell the car--which may be at a discount or at an auction, to get a quick sale and avoid simply "sitting" on it--and apply the amount received (less costs of sale) to the amount you owe; you then still owe any remaining balance. Example: you leased a car for 3 years at $225/month, or $2,700 per year, ro $8,100 for the full term. You returned it after 6 months, when you still owe $6,750. The car is returned, and after costs of sale, bringing $4,800. The apply that to your balance: you still owe another $1,975. 
You need to review the terms of the agreement under which you leased or rented the car to see how much you owed for the rental, etc., including any early termination fees and any interest or fees for late payments, to see what you would owe now, as well as consider what the car might have been worth then if resold at a discount (use low-end estimates) to see if you might in fact owe the $5,000.

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