What can we do if the insurance settlement from a car crash is less than the amount left on the loan?

Your only option to recover the balance may be to sue—if the other party was at fault. (Remember: there is no liability, or obligation to pay, if there is no fault, which usually means if the other party was not negligent.)

The problem for you is, cars depreciate, or lose value, much faster than their loans are paid off. However, under a standard auto insurance policy, the insurer will pay the lesser of

(1) the amount required to repair the car; or

(2) the actual cash value (ACV) of the car, which is often called the “blue book” value.

How fast a given car depreciates depends on many factors, including especially its make and model, but a first-year depreciation or decline in value of up to one third is not impossible. At the same time, very few auto loans will be one-third paid off in a year. That means that unless you had a special type of additional insurance called “gap” insurance, you are left holding the bag for the difference between the car’s depreciated value and what you still owe on it—since the lender is entitled to be paid what you agreed to pay them in exchange for the loan.

That’s where suing may come in. If the other party is at fault, you could sue them for all your monetary and out-of-pocket losses (including any bodily injury, if your son was hurt). You could also sue for the value of anything in the car, like a laptop, that was damaged or destroyed and which was not covered by your insurance. Lawsuits cost money and there’s no guarantee of winning, so in the end it might not be worth it. It is worth, however, consulting with an experienced local attorney, to see whether a law suit is a viable way to recover losses in excess of what your insurance will pay.