Many people buying new cars do not pay for the car in cash. Instead, they take out a loan to pay for the car and pay back the loan over an extended period of time. If the buyer fails to pay back this loan according to the terms set by the finance company that issued it, the car will likely be repossessed. In some cases, he may have to pay additional fees, which may be seized through garnishment.
Car Repossession
A car loan is a secure loan, meaning that the borrower offers up a form of collateral on the debt that the lender can seize in the event that the borrower fails to pay back the loan. Under most car loans, the lender can seize the full car even if the borrower has paid off a portion of the loan. Often, after the car has been seized, the borrower will owe no additional money, but sometimes he will.
Additional Fees
After a car is repossessed, it will usually be sold at auction, with the lender using the proceeds to pay off the unpaid portion of the debt. Sometimes, the lender will be allowed to charge the borrower additional fees for charges incurred in the repossession and the auction. If the proceeds from the auction sale do not cover the unpaid debt plus the fees, the borrower may be liable for the difference.
Garnishment
If the borrower owes the lender additional money and refuses to pay, the lender can take him to court for breach of contract. This is because the possession action and the fees assessed to the borrower were likely spelled out in his loan contract. If the lenders wins damages in court, he may be able to collect the money by receiving a garnishment order allowing him to seize a portion of the debtor's wages.
State Laws
Some states laws prohibit lenders from charging the borrower additional fees after his vehicle has been repossessed. In these states, once the vehicle has been repossessed, the lender cannot charge the borrower for any portion of the unpaid debt or for any costs incurred in the repossession. In this case, there would be no reason that a lender would seek to garnish the borrower's wages.
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