Can Your Wages Be Garnished for Auto Repossession?
When you obtain an auto loan, your lender places a lien against the vehicle's title until you pay off the loan. This gives the lender a solid security interest in the vehicle. If you do not make the payments on time, the lender can then repossess your car. Unfortunately, losing your vehicle to repossession does not mean that you do not still owe money to your lender.
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Facts
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Your lender has no interest in the car itself, but has considerable interest in collecting the remainder of your loan. Because of this, your lender will sell the repossessed vehicle through an auction or private transaction. The lender may not recover the full loan amount through the transaction. According to the Federal Trade Commission, the lender must only sell the vehicle for a "reasonable" amount and not necessarily for fair market value.
Significance
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Even if your car is worth more than you owe, a reasonable amount to your lender may be less than your vehicle's fair market value. In this case, you still owe your lender the remainder of the loan amount, or deficiency, that it did not recover through the sale of your vehicle. If you owe more on your car loan than the car is worth, however, you will almost certainly owe your lender a deficiency following the vehicle's sale.
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Features
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If you do not make arrangements with your lender to pay off any deficiency you owe after repossession, your lender has little recourse other than to either write off the bad debt as a tax loss or force you to pay the debt through garnishment. In order to procure a wage garnishment order against you, the lender must file a lawsuit and obtain an official court judgment granting it legal permission to garnish your paychecks.
Benefits
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Your lender cannot seize your entire paycheck each pay period until you satisfy the deficiency you owe after repossession. Title III of the Consumer Credit Protection Act places federal limits on how much a judgment creditor can garnish from your paychecks. If you earn more than 30 times the minimum wage, your lender will seize the difference between that amount and your pay. If you earn less than 30 times the minimum wage, your lender can garnish 25 percent of your take-home income.
Considerations
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Federal laws are not the only regulations that limit wage garnishment. The U.S. Department of Labor grants each state the right to either adhere to the federal limitations on wage garnishment or impose even stricter laws regarding what creditors can and cannot seize. In addition, not all states permit lenders to garnish wages at all. In South Carolina, for example, a lender can collect a deficiency after repossession through bank account garnishment or a property lien but does not have the option to garnish a debtor's wages.
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