Your unemployment check cannot be garnished for a car payment. The Bankrate website reports that unemployment income generally is exempt from garnishment except for child support, spousal support and income taxes. Also, garnishment isn't possible under any circumstances for one or two missed car payments. Garnishment regarding an auto loan can take place only after your car has been repossessed and sold at auction or through a private sale.
Talk To Your Lender
Knowing your unemployment check cannot be garnished for your car payment should provide some peace of mind. But you may still be stressed by your overall financial problems because of your unemployment. Get things under control by talking to your creditors about your situation. For example, the bank holding your auto loan may allow you to skip a payment or pay a smaller amount for a few months while you try to find work. Also consider selling the car or working with the bank to allow someone else to take ownership by assuming your loan. The move could protect your credit and position you to buy another car after you return to work.
Secured Loan
An automobile loan is considered a secured loan, with your car serving as the collateral. If you stop making payments, the lender has the right to repossess your car. The Federal Trade Commission reports that the repossession can take place at any time and without warning once you have defaulted. An automobile loan can be considered in default after one missed payment, but generally repossession efforts don't begin until about the second missed payment.
Selling Your Car
After the repossession, the lender has the right to sell your car at auction or through a private sale. In some states, the sale can be delayed while you are given time to regain possession of your vehicle by paying all the missed payments in a lump sum. Otherwise the sale proceeds, and you could be held responsible for any balance remaining on the loan after the car is sold. Example: Your balance on the loan at the time of the repossession is $6,500, and the car sells at auction for $4,000. The bank will hold you responsible for the remaining $2,500.
Civil Lawsuit
The bank can file a lawsuit against you for the balance. A judge hearing the case can rule in favor of the bank by issuing a legal order called a judgment. The judgment requires you to pay the bank a specific amount of money. Your unemployment benefits remain protected by state law, but the bank could seek garnishment of your bank account for other money you have on deposit.
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