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Extent of Security Interest

Question: I had a title loan. The engine went bad and the car was towed and scrapped. I bought another car. The loan went to collections. Can they seize my present car?

Answer: No. The only way they can legally do anything about the new car is to obtain a judgment and levy against the new car, in which case they would have to pay you’ the amount of the statutory exemption for a vehicle ($2460). They cannot just seize it; if they do, you have a claim for damages against them.

A security interest is generally limited to the property described in the contract, items that are added to the property in such a manner as to be inseparable (for example, if the car is repaired, the security interest extends to new parts), and “proceeds,” such as amounts paid by insurance on account of a car that is destroyed while insured. A replacement vehicle is not covered unless it is purchased with insurance paid on account of the destruction of the car that is covered by the security interest.

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