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I know that this question has a lot of inherent complications, such as state laws and profitability for debtors, but I ask this because there are laws in place to protect people who owe money and I'm curious about how far someone could take these protections to their advantage.

For example, if you have tons of student debt, can an agency [lawfully] take a car from you that you have already payed for in full? I have a friend who owes over $40k in debt because of college loans, and he still drives around a beat up honda that he probably will have to scrap sometime in the near future. Nobody has insinuated that they are going to take it from him, and he also doesn't appear to be in danger of having his wages garnished.

Being in debt is a scary concept to me, but banks don't go around breaking people's knee caps. How are legal agencies allowed to punish people who go into debt?

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    "How are legal agencies allowed to punish people who go into debt?" You seem to have a SERIOUS misunderstanding, because NO ONE will PUNISH you for going into debt. (Ok, maybe fanatical family, friends or weirdo church will berate or shun you, but that doesn't count as legal agencies punishing you.) – RonJohn Sep 14 at 21:12
  • @RonJohn Very important caveat to that: there are many ways to owe the government, and in addition to things like court ordered child support, failure to pay can result in legal agency punishment above and beyond mere money (garnishment of wages and tax returns, taking your license, not allowing you to renew car registration, arrest and/or jail time, etc.). You are definitely right about civil debt, though! – BrianH Sep 14 at 22:54
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    @BrianH "failure to pay" a debt is not the same as being in debt. – RonJohn Sep 15 at 2:58
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It depends on whether the debt is secured or unsecured. Student loans are virtually always unsecured so there is nothing for the lender to repossess. Auto loans are virtually always secured by the car so if you stop paying on the car loan, the lender can take the car back. The lender can only ever take back the property, if any, that was used to secure the loan. If you have $100k in student loans that you stop paying and a $5k car loan that you are up to date on, neither lender could repossess anything. The student loan lender can't repossess anything because their loan is unsecured. The car loan lender can't repossess anything because you're current on that loan. If you fall behind on the car loan, the car loan lender could repossess the car but only the car.

  • thanks this is very useful information, one thing im really curious about though are the powers of collection agencies that buy debt. One time when i was in college i owed $500 for an emergency room visit and when they called me i just told them i wasn't paying it, and they clearly had no legal authority because the company that bought the debt reduced what i owed them, doesn't seem incredibly smart to me on their part lol but hey im not going to judge their game till i understand it... – thinksinbinary Sep 15 at 3:28
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    @thinksinbinary Not all collection agencies own debt, some just collect on behalf of the original creditor. In either case the owner of the debt can take legal action to get the debt repaid. It's impractical to file lawsuits to go after every cent owed, they'll write off smaller debts as a cost of doing business or sell them at a discount to someone else. It's not that they had no legal claim, it's that they determined you weren't worth going after. Credit scores make it harder for people to abuse credit, but the ER can't refuse people, so they charge more to make up for people that don't pay. – Hart CO Sep 15 at 14:16

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