Can I Cash an Auto Insurance Check Written Out to My Lien-Holder and Myself?

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It is common today for people to finance vehicles. More than that, people often take out second loans on cars that are already paid off. The arguably predatory title loan system and the original auto financial industry can create some legal issues for people who receive car insurance payouts. If you total your vehicle, for instance, you will find that the insurance company did not just cut a check to you for the damage. Rather, they put the name of your lien-holder on the front of the check, too. The insurance company had a legal obligation to do so because the lien-holder owns an interest in your vehicle. You need to be very careful with your next steps if you get one of these checks.

Can you cash the check outright and use the money?
The first question is the most important. Though you may be technically able to go down to your bank and cash that check with your name and the name of the lien-holder on the front, this idea is potentially dangerous. You can run into civil and criminal penalties if you choose to just cash the check and start spending the money. While you have many options when you find yourself in this situation, cashing the check and running away with the money is undoubtedly the worst of those options.

Taking the check directly to the auto shop
If you’re receiving a check from an insurance company, then you’ve likely suffered damage to your vehicle. One option you have is to take the check directly to the shop that is working on your car. While some do not take third-party checks written out in this way, many will accept these checks as payment for the services rendered. Be aware, however, that these body shops have an obligation to send any unused proceeds to the lien-holder on your vehicle. You won’t be able to cash a check for $1,000 and have the auto shop give you back $200 if the repairs only cost you $800.

What if you don’t want to get repairs?
Just because you file an auto claim for damage does not mean that you have to get the car fixed. Some people choose to use the insurance money for other purposes while driving around in a dinged-up car. The problems with this for people who have liens on their vehicles is that you won’t just be able to keep the money. You’ll be obligated to send the entire insurance check to your lien-holder. The lien-holder will then use that check to reduce the overall balance that you owe on the loan. If the amount of the check is more than you owe, then the lien-holder will apply the amount, release the lien, and cut you a check for any remaining money from the check.

It is important that you not go rogue when you find yourself in this situation. Your lien-holder has a legal right to the money that the check represents. If you act on your own and try to cut them out, you may find yourself in serious criminal or civil legal jeopardy.