If one of your cars is stolen of course the first thing you should do is inform the police so that a police report can be taken. Next report the car theft to your insurance agent so that you can make a claim under the comprehensive portion of your physical damages coverage.

If your stolen vehicle is not recovered and the insurance company thus settles with you, it will be for the actual cash value (ACV) of the vehicle at the time it was taken, not a loan amount or the collateral amount of the vehicle. Actual cash value can be determined by an insurance companies' computerized evaluation as well as taking in factors such as the blue book value and recent local sales of the same vehicle in like condition.

Any amount owed over the ACV settlement amount on a loan or to a lien holder in regards to the vehicle would be your responsibility. In a normal car loan situation you may have been able to take out GAP insurance to pay the difference between ACV and a loan balance. This would not have been possible in your situation though since the car was paid off and you borrow money against the car, thus using it and another vehicle as collateral.