My wife signed a car loan before we were married. If the car is repossessed, will my wages be garnished?
My wife got a car with her dad, she is the primary, and he cosigned the loan before we got married. We got married 4 months after the car was financed. My question is, if the car is repossessed will they be able to garnish my wages?
Two short answers:
- No, if you live in a state that follows common law
- Maybe, if you live in one of the 10 states following community property law
Let us discuss the common law states first. With the understanding that your state’s laws may trump the general rule, if a spouse did not co-sign the loan, that spouse is not a party to that transaction. As a consequence, the non-debtor spouse has no contract law or state law giving the non-debtor spouse liability if the signor defaults on the loan.
|Community Property States|
However, as I mentioned, your common law state may have different rules. Consult with a lawyer who specializes in family law in your state to get a more accurate answer that reflects your state’s laws and your particular facts.
Spousal Debt in Community Property States
Generally in community property states, debt incurred by a spouse during the marriage for the benefit of the family is considered a “community” debt, and therefore both spouses are responsible for repaying their debts.
Pre-marital debt is tricky to analyze because some community property states specifically exclude pre-marital debt from community debt. Pre-marital debt is considered separate. If you live in a community property state, follow the hyperlinks in the "Community Property States" table in this article to learn more about your state's rules for pre-marital debt.
Doctrine of Necessaries
Many, but not all states have a “doctrine of necessaries” rule. The doctrine on necessaries rule requires spouses to pay for each other’s necessities of life. The doctrine also applies to parents of minor children.
If your state has a doctrine of necessaries rule for spousal debt, you may have liability for your spouse’s debt, even if you were completely unaware of the expense. See the Bills.com article Doctrine of Necessaries Rules For Each State to learn the rules for your state.
Let us talk about the repossession. The primary problem with repossession is that the owner will likely be left owing a deficiency balance on the loan, meaning that your wife may still owe a significant amount of money to the lender even though she no longer has the vehicle.
When a vehicle is repossessed, the lender usually sells the car at auction, and applies the amount it receives at auction to the balance owed on the loan. The borrower is generally responsible for any amount of the loan which is not covered by the auction proceeds. The problem is that lenders usually sell repossessed vehicles for significantly less than the cars are actually worth, which can leave a borrower owing thousands of dollars for a vehicle the borrower no longer even owns.
Let Debt Coach Help You
Unsure how to handle your debt? Let the Bills.com Debt Coach tool give you a customized report on your debt resolution options. It’s free!
To learn more about auto loans, I encourage you to visit the Bills.com Auto Loans page.
To learn more about spousal liability of credit card debt, read Is My Spouse Liable for My Credit Card Debt?
I hope this information helps you Find. Learn & Save.
Struggling with debt?
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2023 was $17.06 trillion. Auto loan debt was $1.582 trillion and credit card was $1.031 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Each state has its rate of delinquency and share of debts in collections. For example, in North Dakota credit card delinquency rate was 3%, and the median credit card debt was $474.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.