The Laws on Collecting on a Defaulted Car Loan in North Carolina

A loan for a car is usually documented and secured by both a promissory note and a document making the car collateral for the loan. The lender can enforce payment for the loan by repossessing the car and also by suing the borrower if there is a default on the note. North Carolina state law regulates such legal actions within the state.

Repossession of Car

North Carolina state law permits the lender to seize the car that was made collateral for the loan by repossession. Such a repossession must not breach the peace, meaning that no use of violence is permitted, nor breaking and entering into the borrower's residence. Repossession is allowed for any default of the promissory note, including any missed payments or not maintaining required insurance. The lender does not have to give any prior notice or warning before repossessing the car.

Deficiency Judgment

After a car is repossessed, the lender has the right to accelerate the loan balance. This means that the full balance on the loan becomes immediately due and payable. The lender can also add costs to this balance. The lender will notify the borrower of this amount and if the borrower does not reclaim his car by making this payment, the lender then can sell the car. The lender will apply the proceeds from this sale to the loan balance. For any amount still remaining, called a deficiency, the lender can sue the borrower and obtain a deficiency judgment.

Enforcement of Judgment

The lender who obtains a deficiency judgment can seek to enforce payment of such a judgment by the borrower. North Carolina law provides that any properly obtained and filed judgment against a debtor automatically creates a lien on the debtor's property in favor of the creditor. This includes money, personal and real property. However, state law restricts how a creditor can enforce the judgment. North Carolina does not permit wage garnishment to enforce a judgment for a car loan. The law does allow seizing money in a bank account or other property belonging to the debtor, subject to certain state-mandated exemptions.

Exemptions

While wages cannot be garnished from the debtor's employer, money including deposited wages can be seized from the debtor's bank accounts. However, money from retirement or pensions, including Social Security, is exempt from seizure. Funds in a college savings plan account or an IRA account are also exempt. Money received from a lawsuit for personal injury or wrongful death is exempt. The debtor can exempt another owned automobile up to $3,500 and personal belongings up to $5,000. If the debtor does not claim a homestead exemption, he can exempt any otherwise non-exempt funds or property up to $5,000.