Can the auto lender garnish our wages?

Dear Liz: My husband and I have made every mistake when it comes to finances. We filed for bankruptcy protection last year. We were able to keep our car but it’s worth much less than what we owe. We want to buy a better car and return this one to the lender, but when I called the lender the representative said they would garnish our wages. Can they really do this or is it a scare tactic? Do you know a better way to get rid of this debt?

Answer: You really need to talk to your bankruptcy attorney to see what your risk might be. If you “reaffirmed” the loan and promised to keep paying it, then the lender may be able to sue you for the difference between what you owe and what the car is worth. In many cases, the best way to deal with an “underwater” vehicle — one that’s worth less than you owe — is to “drive out of the loan” by continuing to make the payments until the obligation is paid off.

Then you should continue to drive the car for a few more years while you save up enough cash to buy your next car, or at least to make a big down payment so that you’re not underwater.

The fact that you want a better car is really no excuse for reneging on your commitment. By the way, you wouldn’t be “returning the car to the lender.” You would be agreeing to a voluntary repossession, but that doesn’t get you off the hook.

In most states, lenders can indeed come after you for the difference between what a repossessed car is worth and what you owe. Sometimes, bankruptcy is inevitable when people are facing insurmountable debt. But you took the wrong lesson from yours: Instead of realizing you needed to change your financial habits, you seem to think there’s a “get out of jail free” card when it comes to debt.

Liz Weston is “The most-read personal finance columnist on the Internet” (Nielsen/NetRatings) and author of “The 10 Commandments of Money” and “Your Credit Score.”