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

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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

Answers:

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

Answered 10 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.


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