Having a judgment entered against you can be scary. Creditors may try to take your valuables, including your car, to satisfy the judgment. However, there are protections in place for debtors – your vehicle may be safe from creditors depending on its value and your state’s exemption laws. This article will provide an overview of judgments, liens, exemptions, and steps you can take if a creditor attempts to seize your car.
What is a Judgment?
A judgment is a court order that requires you to pay money to a creditor. Judgments are entered after a creditor sues you for an outstanding debt and wins the lawsuit. Common types of debts that lead to lawsuits include:
- Credit card debt
- Medical debt
- Personal loans
- Business debt
If you lose a debt collection lawsuit, the creditor becomes a “judgment creditor” and can use the judgment to collect what you owe through certain methods, like wage garnishment or bank account levies.
Can a Judgment Creditor Place a Lien on My Car?
Yes, a judgment creditor can place a “judgment lien” on your car in an attempt to collect the debt. Here’s how it works:
- The creditor records the judgment with the county clerk where you live. This puts the public on notice that you owe the creditor money.
- The recorded judgment acts as a lien against your personal property, including your car.
- The lien gives the creditor the right to seize your car and sell it to satisfy the judgment debt.
However, there are important limitations creditors must follow when trying to take your car, which are discussed next.
Do Exemptions Protect My Car?
Yes, every state has exemption laws that protect some of your property from creditors. Exemptions are dollar amounts that creditors can’t touch. Here’s how exemptions work for vehicles:
- The exemption protects your equity in the car – the difference between what you owe and what it’s worth.
- If your equity is less than your state’s exemption, your car is 100% protected.
For example:
- Your car’s value is $15,000
- You owe $10,000 on your car loan
- Your equity is $5,000
- Your state’s exemption is $7,500
- Since your equity is less than the exemption, your car is fully protected.
The table below shows auto exemptions in every state:
| State | Exemption Amount |
|---|---|
| Alabama | $5,000 |
| Alaska | $3,350 |
| Arizona | $6,000 |
| Arkansas | $2,500 |
| California | $3,325 |
| Colorado | $7,500 |
| Connecticut | $3,500 |
*(See the full list of exemptions here.)As you can see, exemptions vary widely by state – some states protect more equity in your car than others. Check your state’s exemption amount to see how much of your car’s value is shielded.
When Can a Creditor Take My Car?
If your car’s value exceeds your state’s exemption, a creditor may be able to seize and sell your vehicle to satisfy the judgment. For example:
- Your car’s value is $15,000
- Your state’s exemption is $3,000
- Your equity is $15,000
- Since your equity exceeds the $3,000 exemption, the creditor can take your car.
However, the creditor must pay you the exemption amount ($3,000) and only keep the excess equity ($12,000) to apply to your judgment.
What if I Owe Money on My Car Loan?
If you have an outstanding car loan, this reduces your equity and makes it less likely a creditor can take your car. Here’s why:
- Your car’s value is $15,000
- You owe $10,000 on your car loan
- Your equity is only $5,000
- Your state’s exemption is $7,500
- Since your equity is less than the exemption, your car is protected
The creditor can’t take your car just to pay off your existing car loan – that provides no benefit to them. As long as you keep making payments on your loan, the creditor cannot repossess your vehicle.
What Steps Can I Take to Protect My Car?
If a creditor threatens to take your car, here are some options to consider:
- Claim your exemption – File court papers asserting that your equity is fully exempt. This makes the creditor prove why they can seize your car.
- Sell your car – You may be able to sell your car yourself and keep the proceeds up to your state’s exemption amount. This eliminates the creditor’s ability to take your car.
- File bankruptcy – Filing Chapter 7 or Chapter 13 bankruptcy stops creditors from trying to take your property. Most car loans can be “reaffirmed” so you get to keep your vehicle.
- Convert to business use – In some states, vehicles used for business get a higher exemption. Switching your car’s title to business use may protect more of its value.
- Pay the judgment – If possible, paying off the judgment debt will stop the creditor’s collection efforts and prevent your car from being taken.
Conclusion
Losing a lawsuit is difficult, but knowledge is power when it comes to protecting your property. Judgment creditors can place liens on cars, but state exemptions limit their ability to seize your vehicle. Evaluate your specific situation, claim available exemptions, and consider options like bankruptcy if a creditor threatens to take your car. This will help you keep your wheels on the road.