Can the Bank Garnish My Wage if I Voluntarily Repossess a Car?

When you fail to make payments on your car, your lender can repossess it at any time. With a regular or involuntary repossession, the lender hires a repossession company to take the car away. A voluntary repossession of a vehicle occurs when you turn your car into the lender on your own volition.

Credit Damage

A voluntary repossession still damages your credit. Though the lender may notate on your account that the repossession was voluntary, it is still a negative item on your credit report. The repossession will remain on your credit report for up to seven years. This may prevent you from obtaining a new car loan or other lines of credit such as a mortgage or credit card account.

Vehicle Auction

After you turn your car into the lender, it will be sold at a public auction. The proceeds of the sale will go toward paying the remaining balance on your car loan. Typically, the proceeds from the auction sale are not enough to cover the full balance of the loan. Your lender will then hold you responsible for paying off this remaining balance. You may contact your lender to work out a payment arrangement to avoid being sued in court.

Lawsuit

If you and your lender cannot work out a payment arrangement to pay off the balance of your loan, your lender will likely sue you for the remaining balance. Once a judge rules in the lender's favor, the lender has the right to garnish your wages to collect on your remaining loan balance. The judgment will also damage your credit score and appear on the Public Records section of your credit report for up to seven years.

Garnishment

Once a judge grants the garnishment order to the lender, your employer will soon begin garnishing your wages. If your wages are less than 30 times the current federal minimum wage per pay period, then the garnishment cannot occur. If your wages are more than 3-0 times the federal minimum wage, the garnishment can occur. The maximum garnishment percentage allowable by federal law is 25 percent of your income remaining after state and federal tax deductions.