Can a debt collector repo your car?

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When you take out a personal loan or other form of debt, it’s important to make a plan to pay it back according to the terms you agreed to. If you go too long without making a payment, you risk hearing from a debt collector.

You may be concerned about what assets a debt collector can seize, particularly if you own something as expensive as a car. In most cases, the debt collector won’t be able to repossess or take your car. However, there are a few exceptions where it may be possible for them to do so.

Can a debt collector take my car?

If you have unsecured debt — debt that is not backed by collateral, such as a car or home — it’s difficult for a creditor to seize your assets. For example, if you’ve defaulted on an unsecured personal loan or credit card debt, collectors don’t have a legal standing to repo your car because of your debt.

In order to have access to your personal property, they’d have to get a court to award them a judgment against you. Even then, some of the equity in your car and other personal property is exempt — creditors can’t take it.

To give you an example of how this works, let’s consider the following scenario:

A woman named Marie who lives in Maine owns a car that’s worth $5,000. She fails to repay a debt collector or make arrangements, and a judge awards her creditor a judgment against her.

In this example, the creditor wouldn’t be able to take Marie’s car, because the state of Maine has an exemption of up to $7,500 for one vehicle. Keep in mind that the exemption laws vary from state to state, so speak with an attorney if you have any questions.

Exceptions

Here are some scenarios where a collector might be able to take your car:

  • You’ve defaulted on a loan that was used to purchase the car.
  • The debt is a result of a car title loan.
  • A debt collector has been awarded a judgment against you.

If you happen to default on your car loan, your creditor is allowed to repossess your vehicle without being granted a judgment in court, since the car is used as collateral for the car loan. Additionally, if you have incurred debt as a result of a car title loan, a collector might be able to take your car if you fail to repay the debt. That’s because when you sign up for a car title loan, you give the lender the title in exchange for money.

In the last scenario, a debt collector could, in theory, take your vehicle if they’ve been awarded a judgment against you. For example, say Marie from the example above lived in Arkansas instead of Maine. There, the vehicle exemption is just $1,200.

If the debt collector wanted to, they could sell Marie’s car, worth $5,000, to satisfy the debt she owed. Afterward, the collector would have to reimburse her $1,200 — which is the amount of the exemption. Since the debtor would have to spend time and money finding a buyer for Maria’s car, this scenario is highly unlikely, but it’s possible.

Paying debt during the coronavirus pandemic

Due to the coronavirus pandemic, the government and some lenders have paused a few debt collecting practices. For example, Secretary of Education Betsy DeVos recently extended student loan forbearance for direct federal loan holders through Jan. 31, 2021. During this special forbearance period, borrowers don’t have to make payments, and interest doesn’t accumulate on their balances.

Some banks have allowed their customers to postpone other debts, such as mortgage payments, auto loans and personal loans. Some states have even recommended a 60-day moratorium on vehicle repossessions, which encourages auto lenders to refrain from repossessing cars.

If you can’t pay your loans during the coronavirus pandemic, reach out to your lender to see if you can modify the terms of your loan so you can avoid having your debt sent to a collection agency.

The bottom line

While it’s always a good idea to follow up on paying your debt off as promised, sometimes you might find yourself in a situation where you’re not able to. To avoid having your debt sent to collections, communicate with your lender. By asking for a deferment or forbearance, you might be able to avoid hearing from a debt collector.

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