Can Your Car Be Repossessed for Unpaid Credit Card Debt?

Generally speaking, your car cannot be repossessed for unpaid credit card debts. You credit card debts are almost always unsecured, meaning no collateral has been put down for access to the credit. Now, there are situations where unpaid, unsecured debts (like a credit card) can lead to a car repossession, but they are few and far between.
Read on to learn more about how this can happen.

If Your Credit Card and Auto Loan were Issued by the Same Bank

If you received an auto loan and credit card from the same bank, you'll need to check your contracts to find out if the bank can repossess your car for a default on the credit card debt, but nine times out of ten, this can't happen.

Banks generally treat each loan individually, and the contractual agreements in place to set them up do not reference other agreements. So, your car loan will include a lien against the car securing the debt, but your credit card agreement would not. This means, as long as you stay current on the car note payment, a default on the credit card payment wouldn't result in a car repossession.

Special Cases for Credit Unions

While it's not unique to credit unions, it is common for them to cross-collateralize all the loans they offer you. Cross-collateralization basically means that any collateral you have in place for a secured loan (like the car or truck for the auto loan) also functions as collateral for any unsecured loans from the same institution.

In this type of case, it is possible that the credit union could repossess your car for defaulting on credit card debt you have with the same credit union.

Again, to find out for sure, you would need to go through the legal jargon in your credit card agreement.

What Options Do You Have to Prevent a Car Repossession?

Obviously, paying your car note as agreed is the best way to prevent your car from being repossessed. For some people in over their head in debt, this can become impossible.

If you find yourself unable to keep up on payments toward your debts, and you have significant outstanding debt, you can consider filing for bankruptcy. This would stop all debt collection actions like repossessions, and provide temporary relief from creditors.

It would then give you options with regard to your car debt, like potentially reducing the amount of the loan while still keeping your car. It also would relieve you of other unsecured debts (like credit cards, medical bills, payday loans, etc) which might make it possible to maintain your car payments.

To learn more about your options to deal with auto loan debt in bankruptcy, and whether you can (or should) keep the car, check out this post on reaffirming auto debt in bankruptcy.