Can a Judgment Creditor Take My Car?

Can a Judgment Creditor Take Your Car?

The short answer is yes, but it’s not always easy or common for a judgment creditor to take your car. If a creditor sues you and wins, they can request a judgment lien against your property, including your car. 

However, whether they can actually take your car depends on a few factors: your state’s exemption laws, how much equity you have in the car, and whether the creditor decides it’s worth the time and expense to pursue it.

In many cases, creditors prefer faster collection methods, like garnishing your wages or levying your bank account, instead of seizing and selling personal property like a car. 

Still, if your car has significant equity above your state’s exemption limit, it could be at risk. The rest of this article will explain how judgment liens work, how exemptions protect your car, and how bankruptcy may help if you’re facing this situation.

Understanding the Basics: Debt Collection Lawsuits

If you miss payments on your credit card bills, medical bills, student loans, personal loans, or other debts, the first thing you’ll likely notice is contact from the original creditor in the form of phone calls or written notices reminding you about the missed payments. These late or missed payments will also show up on your credit report and can lower your credit score.

If you can’t catch up on payments or negotiate a repayment plan with the lender, they may send your account to a collections department or sell it to a third-party debt collection agency. These debt collectors will then try to contact you to collect the balance. If you ignore their attempts or can’t pay, they may eventually decide to take legal action against you to collect the debt.

If the creditor or debt collector sues you and wins the case, the court will issue a judgment in their favor. If they sue you and you don’t fight back, they’ll win a default judgment. Either type of judgment is a court order that gives creditors access to stronger tools to collect what you owe, including:

• Wage garnishment

• Bank account levies

• Property liens

While wage garnishment is the most common method, a lien could allow them to take your vehicle or other property in certain conditions.

What Is a Judgment Lien and How Does It Work?

A lien is a legal claim that a creditor places on your property to secure repayment of a debt. If a creditor sues you and wins a court judgment, they may ask the court for a judgment lien against your property. 

This lien transforms an unsecured debt — like a credit card debt or medical bills — into a secured debt. That means the secured creditor has more power to collect what you owe because your property is now collateral for the debt.

To make a lien enforceable, the creditor usually has to “perfect” it. Perfecting a lien is the legal process of making the lien valid and enforceable against third parties, such as other creditors or buyers. 

For example, with a car, the creditor might record the lien with your state’s department of motor vehicles. Once perfected, the lien gives the creditor the right to take and sell the property to satisfy the debt.

How Does a Lien Affect Personal Property?

Liens can be placed on both real property, like your house, and personal property, like your car. When it comes to personal property, a lien allows the creditor to seize and sell the item to recover what you owe. This is different from wage garnishment or bank account levies, which involve taking money directly from your paycheck or a bank account like a checking or savings account.

For personal property like a vehicle, the process usually works like this: After perfecting the lien, the creditor may ask the county sheriff to seize your vehicle. The sheriff will come to your residence, inventory the property, and arrange for it to be appraised and sold at a public auction. 

The proceeds from the sale are then used to pay off the debt. If the sale doesn’t cover the full amount, the creditor might still pursue you for the remaining balance.

What Does It Mean to Be Judgment Proof?

If you’re judgment proof (or collection proof), creditors can’t collect from you even if they win a court judgment. This is because your income and assets are protected under the law. For example, income from Social Security benefits, disability benefits, or public assistance is considered exempt and can’t be garnished. Similarly, if you don’t own property with enough equity for creditors to pursue, like a paid-off car or house, they have no practical way to collect.

While creditors may still try to contact you through phone calls or letters, they can’t legally take exempt income or assets. However, being judgment proof doesn’t erase your debt. It just means creditors have limited options to enforce collection. The debt will still show on your credit report and could affect your financial future.

How Common Are Car Liens?

It’s relatively uncommon for creditors to pursue car liens because the process of seizing and selling a vehicle is often slower, more expensive, and more complicated than other collection methods like wage garnishment or bank levies. 

On top of that, many people don’t own cars with enough equity to make it worthwhile for creditors. Cars tend to lose value over time, and if a car loan or state exemption protects most of the vehicle’s value, creditors might not recover much from the sale. 

That said, car liens can happen, especially if your car is paid off and its value significantly exceeds your state’s exemption amount. Understanding your state’s exemption laws and the equity in your car is critical for protecting your vehicle from a creditor’s lien.

What Is the Personal Property Exemption?

Every state has laws that protect certain types of property from being taken by creditors. These are called exemptions. The idea behind exemptions is to ensure that people can keep enough essential property to maintain a basic standard of living, even if they owe money to creditors.

Exemptions apply to a variety of property types, including your home or other real estate (often referred to as a homestead exemption), household goods, money in bank accounts, and motor vehicles. However, the amount of protection varies widely depending on where you live. Some states offer more generous exemptions, while others are more limited.

If a creditor is trying to place a lien on your property, or worse, sell it to satisfy a debt, you’ll need to act quickly to claim your exemption. Simply owning exempt property isn’t enough — you must formally assert your exemption rights, usually by filing a claim of exemption form with the court. If you don’t, you could lose the property even though it’s protected under the law.

How Do Exemptions Apply to Cars?

Your car is considered personal property, so it may be protected by your state’s motor vehicle exemption. This exemption allows you to keep a certain amount of equity in your vehicle safe from creditors. 

Equity is the difference between your car’s current market value and what you still owe on the loan. For example, if your vehicle is worth $10,000 and you still owe $8,000 on your loan, your equity is $2,000.

Each state sets its own exemption limit for motor vehicles.

If the equity in your car is less than your state’s exemption amount, creditors can’t touch your car. But if your equity exceeds the exemption, the creditor could attempt to seize and sell your car to recover the remaining value. 

What If You Still Owe Money on Your Car?

If you still have a car loan, it’s unlikely that a creditor will pursue your car unless you’ve paid off most of the loan and have significant equity. That’s because any money from the car’s sale would first go to pay off the car loan, leaving little or nothing for the judgment creditor.

What Happens If Your Car’s Equity Exceeds the Exemption?

Problems may arise when your car is paid off (or nearly paid off) and its equity exceeds your state’s exemption amount. In that case, a judgment creditor may perfect a lien on your car and take steps to seize and sell it. 

For example, if your car’s equity is $8,000 but your state only exempts $4,000, the creditor could seize and sell the car. They would use $4,000 to pay off the exempt portion, and the remaining $4,000 would go toward paying the debt you owe.

If you’re in this situation, you might consider filing for bankruptcy as a way to protect your car. Bankruptcy exemptions are often more generous and may allow you to keep your vehicle, even if a judgment lien has been placed on it.

Can Filing Bankruptcy Save Your Car?

If your car’s equity exceeds your state’s exemption limit and a judgment creditor has placed a lien on it, filing for bankruptcy may help you protect your car. However, the outcome depends on the type of bankruptcy you file and whether the lien has been perfected. 

A lien becomes “perfected” when the creditor completes all the legal steps required to enforce it, such as recording it with your state’s motor vehicle office. If the lien hasn’t been perfected, filing for Chapter 7 bankruptcy can stop the creditor from seizing your car. In this case, the debt is treated as unsecured — similar to credit cards or medical bills — and can be discharged entirely in bankruptcy.

If the lien has already been perfected, the debt becomes secured by your car, giving the creditor the legal right to seize or sell it. Bankruptcy can still help, but the situation is more complex. In Chapter 7, you may lose the car if the equity exceeds your exemptions. In Chapter 13, you may be able to keep your car by creating a repayment plan or even “avoiding” the lien if it interferes with your exemptions.

How Chapter 7 Bankruptcy Can Help

Chapter 7 bankruptcy can be a powerful tool to help you protect your car, depending on your situation. If your car’s equity is within your state’s exemption limit, you can likely keep it. For example, if your state allows a $6,000 vehicle exemption and your car’s equity is $5,000, your car is fully protected.

If your car is paid off and its equity exceeds the exemption, the creditor may still be able to seize and sell it. However, Chapter 7 bankruptcy can erase your personal responsibility for any remaining debt if the car is sold, relieving you of further financial obligations.

For those still making payments on a car loan, you can choose to reaffirm the loan during bankruptcy. This means you agree to continue paying the loan to keep the car, even though other debts are discharged. Reaffirming is a good option if you can afford the payments, but if not, you may still lose the vehicle.

In short, Chapter 7 bankruptcy can help you navigate exemption limits, liens, and car loans to protect your car as much as possible.

How Chapter 13 Bankruptcy Can Help

Chapter 13 bankruptcy offers additional tools to help you protect your car, especially if a creditor has placed a lien on it or your car’s equity exceeds your state’s exemption limit. 

One key advantage is the ability to "avoid" certain liens. If a lien interferes with your exemptions, the court may be able to strip it off, meaning the lien is no longer enforceable, and you can keep your car.

If your car’s equity is too high to be fully protected or if you’re behind on car payments, Chapter 13 allows you to include the car loan or other secured debts in a repayment plan. This plan gives you three to five years to catch up on missed payments and resolve secured debts, helping you avoid repossession and keep your vehicle.

Because Chapter 13 is more complex than Chapter 7, especially when dealing with liens, it’s advisable to hire a bankruptcy attorney to get legal advice and ensure your car is fully protected.

Bankruptcy Exemptions and Federal vs. State Laws

Bankruptcy laws provide federal exemptions, but some states require you to use their state-specific exemptions instead. These exemptions determine how much equity in your car is protected during bankruptcy. In some states, like Texas or Florida, exemptions are very generous, allowing you to keep high-value vehicles. In others, the limits are much lower.

If you’re filing bankruptcy and your car’s equity exceeds the exemption, it’s crucial to understand whether you qualify for federal or state exemptions and how they apply to your situation. This is often the key to determining whether you can keep your car.

What If You Can’t Afford a Lawyer?

Filing for bankruptcy can feel overwhelming, especially if you’re already struggling financially. If you can’t afford a bankruptcy attorney, there are tools and resources to help you. For example, Upsolve’s free web app can help you file for Chapter 7 bankruptcy on your own, so you can protect your car and move toward a fresh financial start.

Let’s Summarize…

In conclusion, remember that a creditor placing a judgment lien on your automobile is an unlikely scenario since there are faster and easier methods of collection. But it rarely pays to wait in this situation. Filing a bankruptcy case is a great option for dealing with unsecured creditors attempting to place liens on property, but is only effective if filed quickly. Upsolve’s web app can help you file for bankruptcy.