Having your car repossessed is never a fun experience, especially if you don't have a second car or an easy means of transportation. You might think that the worst is over once you lose your car, but if you still have a car loan, the bank may try to recover the remaining balance by garnishing your wages.
It Doesn't End With Repossession
When you take out a car loan, the loan is secured by your car. But cars depreciate quickly, and the condition of your car can affect how much money you still owe the lender. With a brand new car, a repossession may be sufficient to recover the loss, but older cars may leave large balances that you'll be stuck paying.
Understanding Deficiency Balances
Three figures play a role in garnishments after repossession: the value of the car, the amount you owe and the amount you've paid. If the car's value is less than the total amount you owe, this is called a deficiency balance. You'll still have to pay this sum to the bank, and the bank can garnish your wages if you don't pay up or strike a deal.
Obtaining a Garnishment
Although the bank can garnish your wages to recover the deficiency balance, you'll get plenty of notice before it happens. The bank has to file a lawsuit against you and obtain a judgment first, and this can take months. After that, the bank will send a copy of the garnishment to your employer, who must then notify you before beginning to garnish your wages.
Limitations on Garnishments
A few states, including Pennsylvania, South Carolina, Texas and North Carolina, ban wage garnishments for consumer debts such as for repossession. In other states, though, state and federal laws determine how much the bank can take. Check your state laws to see if your state offers you additional protections. Under federal law, lenders can garnish either 25 percent of your disposable income -- the income you have left after taxes and payroll deductions -- or any income that is more than 30 times the federal minimum wage.
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