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Debtors' Rights

What are Debtor's Rights?

Debtor's rights are those rights which are guaranteed under debtor laws to individuals who borrow money, known as debtors. These laws apply whether the individual is purchasing a home, a vehicle, or using the funds for personal use.

There are both federal and state laws which protect debtors from unfair treatment by creditors, including the Truth in Lending Act (TILA) and the Fair Credit Billing Act (FCBA). The TILA is a federal law which applies to certain creditors and requires them to provide certain information to consumers, including the amount lended and the applicable percentage rate.

The FCBA provides guidelines for the steps a creditor must take when there is a dispute regarding a credit card bill. It also provides the rights of the consumer when there is an error on their credit card bill.

What are Garnishments?

A garnishment is a legal procedure which permits a creditor to collect funds which a debtor owes by accessing the property of the debtor when that property is in the possession of an individual or entity other than the debtor, such as in a bank account or in the account of an online investment company. A creditor may also collect payments from a debtor's wages or salary before the employer pays it to the debtor, known as a wage garnishment.

In order to obtain a garnishment, a creditor is required to file a lawsuit in a civil court and win a judgment against the debtor. A garnishment typically occurs following the entry of a judgment when the creditor obtains a court order authorizing the garnishment.

There are certain types of property which cannot be garnished. This includes:

A garnishment can be ended in two ways. One way is to pay off the debt in full. The other way is for the debtor to file a Garnishment Exemption Claim Form in the court which issued the judgment. This form is complex and is best completed with this assistance of an attorney who is familiar with wage garnishment laws.

What are Levies and Attachments?

A levy, which is also called an attachment, is the taking and selling of a debtor's property in order to pay off the debt owed to a creditor. A creditor is only permitted to levy the property of a debtor if there has been a judgment issued against the debtor.

The creditor must then obtain a writ of execution from the court prior to requesting law enforcement to execute the levy or attachment and taking possession of the property. A writ to execution identifies the property which can be taken and sold.

There is certain property which is exempt from a levy. The law protects debtors from having all of their possessions or income taken away, so that they can survive.

The following property is exempt from a levy:

  • Up to $5000 in household goods;
  • Up to $1000 in clothing;
  • Prescription drugs and medical aids;
  • Up to $10,000 worth of tools and equipment that is used for work or school purposes; and
  • Some amount of equity in the debtor's home and vehicle as determined by the state.

This is not an exhaustive list of all exemptions. Once law enforcement has seized the property, they will sell it at a public auction and apply the profits from the sale to the outstanding debt. The levy process will be complete when the debt is paid in full.

A debtor may attempt to prevent the sale by filing a claim exemption within the timeframe provided by the state law in which the sale is to take place. If, however, the debtor does not file this objection, the sheriff will put the item up for sale.

If the proceeds from the sale of the property do not pay off the debt, the creditor may continue to pursue the debtor for the remaining balance which is still owed. It is important to note that if a debtor has a secured loan from a creditor which is secured by property, the creditor may take that property without obtaining a writ of execution. For example, if a debtor borrowed money to purchase a vehicle, that vehicle may be security for the loan.

In other words, if the debtor does not pay the car loan on time, the creditor may repossess the vehicle without going to court and obtaining a judgment and writ of execution. If a creditor is attempting to levy an individual's property, that individual should consult with an attorney who is experienced in levy and attachment law.

What are Repossessions?

A repossession is the taking of property by a creditor when that property was used as security for the loan. In most cases, loan documents will include a provision stating that if the loan payments are not made as required by the contract, the creditor has the right to repossess the property.

For example, if an individual obtains a car loan and does not make their payments on time, the creditor has the right to repossess the vehicle. In many states, there are steps a creditor must take prior to repossessing the property from the debtor.

The creditor must provide the debtor with notice that the loan is overdue and that notice must provide the debtor a time period in which to make a payment and prevent the repossession. In some cases, an individual may attempt to hide the property, especially a vehicle.

Most vehicles now, however, are equipped with GPS and can easily be found. In addition, attempting to hide the property is often considered a criminal act.

What are Collections?

Collections refers to the process by which a creditor attempts to obtain a payment from a debtor who is not paying. Collections can be performed by a creditor or by a collection agency.

A collections agency typically collects a fee for obtaining payment from debtors. A debtor, however, is protected from being harassed during the collections process by the Fair Debt Collection Practices Act (FDCPA).

The FDCPA prohibits a debt collector from:

  • Calling prior to 8:00 a.m. and after 9:00 p.m. in the debtor's time zone;
  • Calling a debtor at work;
  • Harassing the debtor;
  • Using obscene or abusive language;
  • Making false or misleading statements;
  • Adding unauthorized charges to the debt;
  • Making threats; for example, a debt collector cannot threaten to report the debt to law enforcement or otherwise suggest that the law enforcement can become involved.

Since the FDCPA prohibits collections agencies from engaging in these practices, the act also gives the debtor the right to demand that the collection agency stop contacting them. The only exceptions would then be that the collector can tell the debtor that collection efforts have ended or that the creditor or collection agency is going to file a lawsuit to collect the unpaid debt. Keep in mind that a debtor's demand that a debt collector stop contacting the debtor must be in writing.

There are other limitations on whom a debt collector may contact in trying to collect a debt. For example, a debt collector may only contact certain people other than the debtor. They are:

  • The debtor's attorney;
  • A credit reporting agency (if permitted by local law);
  • The creditor;
  • The creditor's attorney;
  • The debt collector's attorney.

This means that a debt collector cannot contact a debtor's employer or their friends, neighbors and relatives. There is an exception and that is if the debt collector cannot locate a debtor. In that case, the debt collector may ask a third party, e.g. an employer, neighbor, friend or relative, for the debtor's home address, telephone number, and place of employment.

If the debt collector does make such contacts, they must give their name and must state that they are confirming or correcting information about the debtor's location. The debt collector may not identify the collection agency or reveal that the debtor owes any money.

What's more, the debt collector may not contact any third party more than once unless the collector believes that the information from the first contact was wrong or incomplete and that the third party has new and better information that justifies more contact. Or, the debt collector may contact a third party if the third party specifically requests additional contact.

Does the FDCPA Also Apply to Vendors or Merchants?

The Fair Debt Collection Practices Act applies only to debt collectors who work for collection agencies. It does not apply to vendors or merchants themselves. Several states also have laws that bar debt collectors working for a collection agency or for the creditor itself from harassing, abusing, or threatening a debtor or making any false or misleading statements. These state laws, however, usually do not give the debtor the right to demand that the collector stop contacting them.

For example, in California, the state fair debt collection practices law, the Rosenthal Act, defines the term “debt collector” to include:

  • The original creditor who lent money to the debtor;
  • Collection agencies;
  • Anyone who collects consumer debts in the regular course of business; this could apply to sellers of products who try to collect on their own loans and others also;
  • Anyone who creates and sells forms, letters, and other material designed for us in debt collection.

So, the California version of the federal FDCPA applies to more types of debt collectors than does the FDCPA itself. This may be true in other states as well. A debtor may want to contact an experienced consumer rights lawyer to find out what the law is in the state where they live.

Is a Form Demand Letter with a Lawyer's Signature a Legitimate Collection Technique?

Under the FDCPA, a lawyer has to personally review each individual collection case before putting their name on a collection letter. This means that the lawyer cannot simply order that a form letter be sent, sign it and then let the bill collector send it with the lawyer's signature. A lawyer has to have more significant involvement with the case than simply signing a form letter.

The lawyer must have reviewed a particular debtor's file before ordering communication with the debtor. If a lawyer violates this provision of the FDCPA, a debtor may be able to sue the lawyer for up to $1,000 in small claims court for violation.

Can a Debt Collector Insist That Payment Be Sent by Express Mail or Wire Transfer?

A debt collector cannot insist that payment be sent by express or priority mail or by wire transfer. These expensive methods of transmitting funds are not required by law. When a debt is over 90 days past due, debt collectors might suggest that the debtor use one of several “urgency payment” options, including:

  • Sending money by express, overnight or priority mail when an ordinary envelope with a first class stamp is sufficient;
  • Wiring money;
  • Putting payments on a credit card.

However, a debtor is not required to agree to any of these options if the debtor does not want to use them. A debtor is obligated only to agree to pay the debt in a reasonable manner.

A debtor may want to send a check by express or priority mail in order to be able to track its progress through the United States Postal Service and to have the added security that the check will reach its destination. But that is the debtor's choice and not a legal requirement.

Can a Collection Agency Add Interest to My Debt?

A collection agency can only add as much interest to the amount of a debt as is called for in the original agreement that gave rise to the debt. So, for example, if the debtor has failed to make payments as required by a contract for the purchase of some furniture, the debtor can only be charged interest or late fees as called for by the contract of purchase.

State law in the state in which a debtor lives may authorize adding other amounts to an unpaid and overdue debt. If a debtor believes that charges and fees are being added to a debt illegally or unfairly, they may want to contact an experienced consumer contracts lawyer for advice and guidance. An experienced consumer contracts lawyer can review any contracts or purchase agreements that are involved in the situation and tell if interest or fees are being added that are not authorized by law.

Do I Need an Attorney If I Am Being Harassed by Debt Collectors?

Harassment by debt collectors can be very stressful. If you are being contacted by debt collectors in ways you believe are improper, consult with an experienced debt collection lawyer. who knows the legal and illegal debt collection practices in your state. An experienced debt collection lawyer might be able to negotiate a payment plan with a creditor to whom you owe money. They can review any contracts involved and advise you as to how much you are legally required to pay.

You do not have to tolerate harassment from debt collection agencies. If you are being harassed, you should contact a consumer rights lawyer to find out what your rights and obligations are.

Can an Attorney Help Me Defend My Rights as a Debtor?

Yes, it is essential to have the assistance of a financial attorney if you are facing any issues related to debt collection. If you are behind on payments or are being pursued by a creditor, an attorney can help protect your rights under both federal and state laws.

Your lawyer can advise you of your rights and the steps you may take to protect your property. At the very least, your attorney can help stop the harassment regarding payments.

In some cases, your attorney may be able to negotiate with your creditor. Having an attorney may be the difference between keeping your property and having it taken away.

Call our office today at 212-994-7777 or complete the convenient online contact form to set up a consultation.