Monday, June 16, 2014

Yes, a Debt Collector Can Take Your Car

Yes, collectors can seize your car.
I'm getting tired of stumbling over seemingly professional articles telling consumers that a debt collector can't take their car (I'm looking at you Bankrate). The simple fact of the matter is yes, a debt collector can take your car, it just has to jump through hoops of fire in order to do it.

Debt Collectors Have to Sue You to Take Your Car

The first thing the debt collector has to do before it can seize your vehicle is sue you and win. That sounds simple enough, but lawsuits are a last resort for collection agencies. Lawsuits require a collection agency's time and money--neither of which they want to devote to you unless they're almost positive of a payoff. So if you're unemployed, living on exempt income like Social Security, already under a garnishment order or poor with few assets, you aren't a good lawsuit risk. That doesn't mean you're safe from a lawsuit--especially if the debt you owe is high--but the chances of being sued are much higher if you have a stable job and ample assets.

Cars generally aren't the first asset that debt collectors go after. They're going to pursue your wages and bank accounts first. They may also place a lien on your home. Seizing and selling a car is a complex process that often doesn't net much profit for the collection agency. This is particularly true if you're still making payments on the car. Many, many people owe more on their cars than the vehicles are actually worth. If you're in this situation and are "upside down" on your auto loan, taking your car is a completely pointless endeavor for the debt collector, but that doesn't mean they don't have the ability to do it.

Enforcing a Judgment to Seize a Car

Here's how it works: The debt collector sues you in court and gets a judgment against you. They then have a variety of options for enforcing that judgment. One of those options is attaching a lien to property you own. There's judgments against real property--that's real estate--and judgments for personal property--that can include your car.

The best way to avoid having a collection agency take your car is to owe money on it. Saying that makes me cringe because I'm a big advocate of driving a car until the wheels fall off (why subject yourself to a car payment if you don't have to, right?) but in this case owning your car outright can hurt you. Without another lien on your car, it becomes much easier for a debt collector to seize the car via a judgment lien and sell it. Any proceeds from the sale that exceed the amount of the debt have to be returned to you, but I wouldn't hold my breath on that one.

State Laws May Limit Collectors' Ability to Seize a Car After a Judgment 

State laws come into play here, but most states do allow judgment creditors to seize personal property.  Massachusetts, for example, is a cesspit of collection agency car seizures. It happens fairly frequently in California too. Heck, in California debt collectors can even take your spouse or domestic partner's car.

Some states allow collection agencies to seize vehicles but place limitations on the process. New York,
for example, permits judgment creditors to seize a automobile, but only if the debtor has a minimum of $4000 of equity in the car. If you're driving a 10-year old Hyundai that's fully paid off yet only worth $3500, you're safe. This is by no means the standard. Different states have different exemptions and regulations regarding vehicle seizure.

A collection agency can only seize your car if its lien is valid. Judgment liens eventually expire. In most states (but by no means all) judgments are valid for ten years. Many states also give judgment creditors the right to renew their judgment if it hasn't been collected. If you live in a state with a ten-year enforcement period that allows judgment creditors to renew a judgment for another term, you could be looking at 20 years of living in fear of losing a variety of assets--not just your car.

So there you have it. Just because you don't hear about it that often that doesn't mean it doesn't happen. Debt collectors can and do take cars.

Related Posts:

Can a Collection Agency Take My House?

Can a Collection Agency Place a Lien Against Property With More Than One Owner?

Statute of Limitations for a Collection Agency Judgment Lien

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