Tennessee state law permits a creditor to repossess a defaulting debtor's property that is used as collateral to secure a loan, including an automobile for a car loan. State law also requires the creditor to follow certain procedures and provide certain notices, especially if the creditor wishes to also sue the debtor following a repossession.
Vehicle Repossession Laws
State statutes allow a lender who made a car loan to legally seize the car if the borrower defaults on making the required loan payments. What constitutes a default is governed by the terms of the loan agreement. The law requires that such an action be through a peaceful repossession, meaning that use of violence or breaking and entering the debtor's residence is not legal. The creditor then can sell the repossessed vehicle and apply the sales proceeds to pay the loan balance.
Deficiency Judgment
Absent of any contrary provision in the loan agreement, the lender can sue the borrower following the repossession if the proceeds of the sale of the repossessed car are not enough to pay the loan balance. This is called a deficiency judgment action. However, the lender must show that they sold the car in a commercially reasonable manner and gave the borrower sufficient notice of the impending sale. The notice requirement allows the borrower to exercise his right to redeem the car by paying the loan balance. If these requirements are not met, the court will not give the lender the deficiency judgment and thus no wage garnishment can occur.
Wage Garnishment Procedure
A wage garnishment is a legal action taken by a creditor to enforce payment of a judgment against a debtor. A car lender who has secured a deficiency judgment can take such an action against the borrower. The borrower's employer must be legally served with a summons and notice of wage garnishment, with copies also being sent to the borrower. The borrower has 20 days from such notice to contest the garnishment order, including challenging the validity of the underlying deficiency judgment.
Wage Garnishment Amount
If the wage garnishment order is not overturned, the borrower's employer is legally compelled to withhold a percentage of the borrower's wages and turn them over to the lender. State law limits this amount to either 25 percent of the disposable periodic wages or the amount of weekly earnings that exceed 30 times the minimum hourly wage, whichever is less. Disposable earnings is the total gross pay less only legally required payroll deductions. The borrower can also request that the court agree to an installment arrangement for a lesser amount, based on the borrower's financial situation. Granting such a request is at the discretion of the court.
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