GAP Insurance and Debt Cancellation Agreements



GAP insurance and debt cancellation agreements are often sold by car dealers for several hundred dollars when you buy a car. They are supposed to cover the “gap” between what you owe on the car, and the remaining loan balance, if your car is totaled or stolen. Call the lawyers at Gordon, Wolf & Carney if your GAP agreement, or debt cancellation agreement, was not honored.

  • Contact Us Now if you purchased a GAP/debt cancellation agreement, which did not pay off your loan - call 410-825-2300 or click here.

Read the Law - you can read the definition of a "debt cancellation agreement" under Maryland law here

Learn About GAP/Debt Cancellation Agreement lawsuits

One of our class action cases established that debt cancellation agreements must cancel the remaining loan balance in Maryland.​

  • You can listen to the appellate argument in that case here
  • You can see the appeals court’s opinion in that case here
  • You can read about the settlement in that case here

If you bought “GAP Insurance” or a “debt cancellation agreement,” your vehicle was totaled or stolen, and your whole balance was not paid off, contact us now.

Debt cancellation agreements, also called “GAP Agreements,” are sold as a product that can protect a consumer in the event of a total loss of the vehicle the consumer is purchasing and financing. GAP Agreements are advertised as covering any potential “gap” between what an insurance company will pay for the total loss of the collateral and the amount owed on the financing contract. 

Consistent with the advertised purpose of GAP Agreements, Maryland law requires that these debt cancellation agreements must actually require a holder of a financing contract to cancel the “gap” remaining between the amount owed on the finance contract and the amount paid by the insurer in the event of a total loss of collateral.

Since 1941 when Maryland’s Retail Installment Sales Act (“RISA”) was enacted, the Maryland General Assembly has been wary of allowing car dealers to include charges for products of questionable value in credit contracts, recognizing that when interest charges are applied to these costs, considerable damage can be done to the buyer’s financial wellbeing. It therefore structured Maryland's Credit Grantor Closed End Credit Provisions ("CLEC") – an alternative financing law to RISA which was enacted in 1983 - to allow the financing of only those products or services it expressly approved in the credit contracts by which Marylanders financed their vehicle purchases. These provisions have saved Maryland car buyers many millions of dollars over the years.

When the General Assembly amended CLEC to allow the cost of optional debt cancellation agreements to be financed under the laws governing financing of motor vehicle sales, see Md. Com. Law §12-1005(c)(1), the product was carefully defined to include only agreements “which provide[] for cancellation of the remaining loan balance in the event of theft or total destruction of the collateral for the loan after application of the proceeds of any insurance maintained on the collateral for the loan.” Md. Com. Law §12-1001(h)(emphasis added). By enacting this definition, the General Assembly did not intend to (and did not) open the door to “look alike” products such as phony GAP Agreements, products which take advantage of the good name and actual value of legitimate debt cancellation agreements – agreements which do not actually cancel the remaining loan balance on the contract as required.

Accordingly, under both CLEC and RISA, only true debt cancellation agreements may be financed.  If you purchased a GAP Agreement or debt cancellation agreement which did not cover the gap remaining between your insurance payout and the amount owed on financing after a total loss of your vehicle, contact us now.

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