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Ask Dr. Don

Garnished wages on a repo

Dear Dr. Don,
Can an auto finance company garnish your wages if they have already repossessed the automobile and that was more than six years ago?
Lane Loan

Dear Lane,
When a car is repossessed you owe the lender the repo costs, the costs they incurred in selling the car and the outstanding loan balance after using the sales proceeds to pay down the loan. This sum is known as a deficiency.

Some states allow the creditor to sue and win a deficiency judgment while other states prohibit this practice. Your state's Consumer Protection Agency can tell you whether your lender can sue for a deficiency judgment.

Garnishment can happen when the lender or a collections agency wins a court judgment against you for repayment. Unpaid judgments also accrue interest at a rate stipulated by the court. In general, garnishment is limited to 25 percent of your income, but an amount equal to 30 hours worth of pay at minimum wage is exempt. The Consumer Credit Protection Act spells out the rules concerning garnishment. However, when a state wage-garnishment law differs from the federal provisions, the law resulting in the smaller garnishment is used.

Lenders or collection agencies will sometimes threaten to file for a judgment as a tactic to get the borrower to reaffirm the debt before the statute of limitations ends the borrower's obligation to repay. Partial payments or signing anything that reaffirms the debt may preserve the lender's rights without going to court. Work with an attorney if you're unsure of how to proceed with the lender.

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Borrowers often see activity as an unpaid debt approaches the statute of limitations for that loan. That's because a judgment can keep the lender's claim active. In states where judgments can be renewed, that claim can stay active until paid.

By now you should know what amount of money the lender expects from you and whether they have won a judgment against you. Your credit report will list outstanding judgments against you. (Bankrate provides contact information for all the credit bureaus.)

You also know your financial position. You have to choose between paying the deficiency on your own, being forced to pay though wage garnishment and taking a chance that the creditor is just using scare tactics to get you to repay because they don't want to go to court.

Depending on your financial circumstances, filing for bankruptcy could make sense as a way to discharge this debt without repaying the creditor.

-- Posted: Feb. 11, 2003
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See Also
Garnishment: the unexpected pay cut
Why you should check your credit report
Financial advice glossary
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