When you are experiencing problems with debt, knowing you rights can help you sleep at night and deal with what may seems an impossible task.
1. Creditor Harassment
When you have fallen behind on your bills, the inevitable calls and letters attempting to collect that debt will begin. Collection agencies are regulated under the Fair Credit Reporting Act, which limits what they can and cannot do in their attempts to collect a debt. Violation of the Act can prove very expensive for a collection agency. Not only do you not need to prove that you were damaged by their violation of the Act, you can recover statutory fees and costs, including attorneys’ fees. While this Act only applies to actions made by a collection agency, knowing your rights is an invaluable tool in protecting your assets and peace of mind. If the collection agency has not violated the Act, but continues to harass you, you have the right to send the collection agency a letter, that in essence states, “put up or shut up.” Basically, you can send them a letter stating that you do not have the ability to pay the debt, and that you will not pay the debt and therefore if they wish to continue collection proceedings, they must file a lawsuit. This should stop the harassment, but the collection activity may then proceed to a lawsuit. Be prepared.
2. Lawsuits and Wage Garnishment
If the creditor elects to file a lawsuit, you must file an answer to the complaint within 20 days, plus three days for mailing. If you dispute the debt, or the amount of debt, you must file an answer. If you do not file an answer within the 23 days after service of the complaint (someone must serve you or an adult in your household) the creditor can then ask the court to enter a default judgment. This gives you an additional 10 business days to file an answer. If you do nothing, the Court can then enter a judgment against you. If a creditor has obtained a judgment, the creditor can collect against your assets. These would include nonexempt assets (explained below), bank accounts (if they know where you bank) or, the most common collection tool, garnishments of your wages. The most that a creditor can garnish is the lesser of 25% of your disposable income, or the amount of your weekly income that exceeds 30 times the federal minimum wage. If you can show the Court that taking 25% of your income will impact your ability to pay for your living expenses, the Court can reduce the garnishment to 15%.
3. Electronic Funds Transfers (EFT)
If you have allowed a creditor to deduct funds electronically from your bank account (something you really should not do) you have the right to stop such payments under the Electronic Funds Transfer Act. To stop payment on an automatic bank withdrawal, you can contact your bank, and the creditor, in writing to stop any further funds being transferred. Be sure to keep a copy of the notification. This contact should be received by the bank and creditor at least 10 days prior to the scheduled withdrawal. If the bank proceeds with the automatic withdrawal, you can take action against the bank. In addition, you should close your account with the bank where electronic funds have been transferred to avoid this from happening in the future.
4. Judgment Proof
One category of debtors that usually is protected from collection activity (unless the debt is for child support, a tax liability, or student loan debt) is a person who is judgement proof. Such a person would include individuals whose sole source of income is from exempt assets such as social security, and the balance of other assets are also exempt under state law. While the creditor may continue to try to collect on the debt, if you make it clear to that collector that you do not intend on paying and that you are judgment proof, more often than not the creditor will cease collection activity.
If you believe that bankruptcy may be the only option available to you, you have taken the first big step toward reestablishing yourself financially and obtaining a fresh start. Many people are unaware that they have bankruptcy rights. To best protect your rights, it is important to hire a bankruptcy attorney who is familiar with bankruptcy laws. While you may believe that you can file a bankruptcy on your own, the majority of people who file a Chapter 7 bankruptcy will fail, or loss assets that they would otherwise have not lost with the assistance of an attorney. As for filing a Chapter 13, the success rates for an unrepresented debtor are in the low single digits. When you file a bankruptcy, certain assets are protected from your creditors and the bankruptcy court. These assets are called exempt assets. Such protected assets are established under state law, and include 75% of your disposable income, household goods and furnishings, electronics, vehicles, social security, retirement account, and real property. There are limitations as to the amounts that you can exempt. Therefore, it is crucial to understand the exemption statutes applicable to your case.
1. Chapter 7 Bankruptcy
If you have filed a Chapter 7 bankruptcy, the most common form of bankruptcy filing in the United States, most of your debt will be discharged, eliminated, when you complete your bankruptcy. Certain debts such as secured debts (unless you surrender the asset that secures the debt owed), certain taxes, student loans (in most cases and only if you file a complaint to determine a hardship), and child support, will survive your bankruptcy filing. If you have nonexempt assets such as a tax refund, or other assets that exceed your allowed exemptions, you can lose those assets to your chapter 7 trustee who has the right to sell such assets and distribute the proceeds of the sale to your creditors.
2. Chapter 13 Bankruptcy
There are times when you cannot file a Chapter 7. Either your income is too high, you have filed a previous bankruptcy, or a Chapter 13 filing is the best bankruptcy option for you. A Chapter 13 Bankruptcy reorganizes your overall debt into a monthly payment that is made once a month to a Chapter 13 trustee. The payment is determined based on your overall ability to pay and is established through the filing of a Chapter 13 Plan. A Chapter 13 Bankruptcy can
• Cure a default in a mortgage on your home and stop a foreclosure
• It can reduce the rate of interest on secured loans, such as car loans, and in some
instances reduce the amount that you need to pay on a secured debt such as a car loan
• If you are subject to a tax levy by the Internal Revenue Service or the state of Arizona
through a levy, a Chapter 13 bankruptcy will stop a levy
• If you are being garnished by a creditor, a Chapter 13 Bankruptcy will stop a garnishment
• If you owe tax debt, a Chapter 13 Bankruptcy plan will pay off the priority amount of the
tax debt, with no interest, discharging old taxes, penalties and interest
• Protect assets that you would otherwise lose in a Chapter 7 Bankruptcy filing
• Force the return of a vehicle that has been repossessed
In addition to the petition, schedules and statements that are filed in a Chapter 7 bankruptcy, a Chapter 13 Bankruptcy requires that you file a Chapter 13 Plan. That plan is noticed out to all of your creditors. The Plan will set forth what you will be paying on a monthly basis and what will be paid to your creditors. To be acceptable, the plan payment must be in an amount that you can afford to make on a monthly basis. An experienced bankruptcy attorney should be able to calculate what your minimum plan payment would be at your initial consultation.
In the majority of cases, many debtors find that the plan payment is less than the payments they are currently able to make and, in three to five years, once they receive a discharge, they are free of short-term debt such as tax debt, car loans, etc.
A Chapter 13 does require a debtor to live off a budget. This is not a bad thing. While in a Chapter 13, many debtors learn how to budget their income and live a life without credit card or personal loan debt.