Can my wages be garnished by an auto lender if they already have the car back in their possession?

UPDATED: Nov 8, 2011

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Can my wages be garnished by an auto lender if they already have the car back in their possession?

Asked on November 8, 2011 under Bankruptcy Law, Michigan


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

When someone purchases a car and finances it by taking out a loan, until they make the last payment to the creditor, the creditor gets several important rights. One of which is the right to repossession. If a borrower fails to make their loan payments (i.e. "defaults"), the lender has the right to retake possession. The lender doesn't even have doesn't to go to court first.

The lender then sells the car at either a public auction or private sale (the sale must be "commercially reasonable"). If the lender sells the car for a profit, the former owner may be entitled to some proceeds (this almost never happens because auction prices are typically low). On the other hand, if the lender loses money on the resale (the usual case), the lender can go after the borrower for the "deficiency". For example, if the borrower owes $15,000 on the car loan and the car is sold at auction for $12,000, the borrower would still owe $3,000, plus expenses (e.g. the cost of towing, storage, etc). In other words, the borrower is liable for the difference between the remaining loan balance (and costs) and what the car was sold for (that is the deficiency). And the creditor can sue to collect and can be awarded a "deficiency judgment". It may then garnish wages, bank accounts, etc.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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