You can surrender the car but not the debt

The story

Bill borrowed $34,000 from Jalopy Finance to buy a car.  Bill’s wife, Betty, had twins, their income decreased and expenses increased.  Jalopy Finance tried to help Bill and Betty through their financial difficulty but, when Bill lost his job, Bill and Betty decided they could no longer afford the car.  Bill voluntarily surrendered the car to Jalopy Finance.

Jalopy Finance sold the car at auction for $13,000.  After deducting selling costs and expenses, Bill still owed $11,000.

Jalopy Finance wrote to Bill at his old address advising the details of the sale, the outstanding balance and asked Bill to make contact to discuss repayment.  Bill did not receive the letter and, after a couple of months, contacted Jalopy Finance.

Jalopy Finance explained the process it had followed when selling the car and said it had achieved the best price.  Jalopy Finance apologised for writing to the wrong address and offered to deduct the selling costs ($800) from Bill’s outstanding debt. 



Bill did not accept Jalopy Finance’s offer saying the car should have sold for at least $16,000.  Bill wanted Jalopy Finance to reduce his debt further.


FSCL’s review

We explained that under section 26 of the Credit (Repossession) Act 1997 Jalopy Finance was obliged to:

  • follow a commercially reasonable process when selling the car
  • use all reasonable efforts to sell the car for the best price.


Jalopy Finance had:

  • sold the car through a reputable auctioneer
  • obtained a valuation from the auctioneer
  • listed the car with a $15,000 reserve, above the auctioneer’s recommendation of $11,500
  • negotiated with the top bidder at auction to push the sale price from $11,900 to $13,000.


Although Bill was disappointed his car did not sell for more, we explained there is a benefit in a quick sale, as it avoids extra storage costs.  Jalopy Finance was not obliged to sell the car through TradeMe, or take the time to wait for the best possible price.  It is also difficult to value a second hand car; we noted the auctioneer’s report found defects on the car which affected the selling price.



We encouraged Bill to accept Jalopy Finance’s offer to discount his debt by the selling costs.  Bill accepted our suggestion, but said with his current financial circumstances it was impossible for him to repay the full amount outstanding.  The most Bill could afford was $100 a month.

Jalopy Finance assessed Bill’s proposal through its hardship application process and agreed to accept repayments of $100 a month, reviewable annually. 



This complaint is an excellent example of a finance company and a borrower working together to find a way through a difficult situation.

Bill was realistic in his decision to voluntarily surrender the car, and offer as much as he could afford to repay the residual debt.  Jalopy Finance followed a proper process to sell the car quickly for a reasonable price and worked with Bill to allow him to repay the debt over time.