Can Your Wages be Garnished if Your Car is Repossessed?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - November 28, 2018

Depending on where you live, and how far behind you are on payments, a lender can get a court order to garnish your wages once your car is repossessed. You still have to pay any remaining balance if your vehicle is repossessed and sold at auction, and garnishing your wages is the worst-case scenario for most lenders.

What Does it Mean to Garnish Your Wages?

Not all states allow creditors to garnish wages for a repossession, but if your state does, you should know what it means.

In order for a creditor to garnish your wages, they must sue you, and then obtain a judgment against you, which allows them to use measures to collect the money from you. This includes taking funds from your bank account and garnishing your wages, with the court issuing an order that’s sent to your employer to withhold a specific amount from your paycheck each month to be sent to the creditor. In some states creditors can also seize any tax refunds. By federal law, however, they’re not allowed to take more than 25 percent of your disposable income, and some states even set a lower percentage limit.

Owing a Deficiency Balance after Auto Repossession

According to the legal experts at Nolo.com, you have three options for paying a deficiency balance:

  1. Pay the deficiency – If the amount you owe on your car loan is small, or you have the money, you can pay the full deficiency amount. This avoids the account being sent to collections, which could add additional interest charges.
  2. Create a payment plan – Your lender doesn’t want to deal with a deficiency balance any more than you do. So, if you approach them and request a payment plan, they’re more than likely willing to help. In this case, you and your lender come up with a plan that allows you to pay off the deficiency balance over a set amount of time. In some cases, you may be required to sign an agreement stating that you plan to pay the full amount under the plan.
  3. Negotiate a settlement – If your deficiency was caused by financial changes such as a job loss, you may be able to negotiate a settlement with your lender. You need to bring in proof of how and why you aren’t able to pay the deficiency balance in full. If approved, you typically need to pay the settlement amount it in a lump sum within 10 to 14 days. Depending on the severity of the situation, you could lower the debt anywhere from 20 to 75 percent, but watch out for tax consequences. The amount you don’t pay, called forgiven debt, could be reported by the lender on a Form 1099C to the IRS, and you need to show it as income on your tax return that year.

If you can’t pay the balance, and your lender isn’t actively collecting money from you, Nolo suggests that you wait to take action until they do make a move to collect the debt and, as a last resort, filing for bankruptcy is also an option.

The Bottom Line

Having to deal with a deficiency balance because of a repossession can cause more stress than needed. If your vehicle was repossessed, or a repossession listed on your credit reports is affecting your financing journey, let CarsDirect help.

We work with a large network of special finance dealerships around the US that have the subprime lenders available to work with people whose credit holds them back from getting a traditional car loan. The lenders at these dealers specialize in helping people with low credit, no credit, bankruptcy, and even repossession. Take charge of your situation today by filling out our simple auto loan request form now!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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