Could You Be Sued by Creditors? Know Your Rights

How have you been doing with your finances since the pandemic started?

Your world may have been turned upside down by the events that unfolded since COVID-19 reared its ugly head. Your hours or pay may have been reduced, or worse, you may be unemployed, wondering if you’re ever getting back to work. Your emergency fund is depleted, and your credit cards are tapped out.

If you were already too deep with debt and surviving by paycheck to paycheck - like most - before the pandemic hit, you're probably just doing what you can to get by. 

Soon enough, you could be late in paying your bills, if at all, and debt collectors will be contacting you if you get yourself in too deep. Just like this virus is disrupting our lives, the bill collectors exist to do the same.

The good news is local and state government officials are putting rules to protect you. Keep apprised on their latest endeavors by visiting their official websites.

Regardless of your mayors and governors enacted policies based on our current environment, you have the FTC (Federal Trade Commission) to protect you.

THE FDCPA PROTECTS YOU FROM UNFAIR DEBT COLLECTION

The Federal Trade Commission (FTC) enforces the Fair Debt Collection Practices Act (FDCPA). This Act prohibits debt collectors from using abusive, unfair, or deceptive practices to collect money from you.

The FDCPA describes a debt collector as either a person, agency, or organization that regularly collects money from those who owe debts. This collector can be a lawyer, collection agency, or a company that purchases explicitly delinquent accounts and then attempts to collect money from the debtor to pay the money owed.

Your debts are covered under the FDCPA. This debt includes money you owe on a credit card, car loan, medical bill, and mortgage. The Act does not cover debts you incurred to run a business.

Under the FDCPA, debt collectors can't contact you at inconvenient times and places. This inconvenience includes before eight in the morning or after nine at night. Also, collectors may not contact you at work if they're told (orally or in writing) that you're not permitted to get calls.

THE PROBLEM WITH UNSECURED DEBT

If you fall behind on payments to a lender of unsecured credit (such as credit cards and medical bills), the lender has the legal right to sue to get their money back. Since unsecured debt is not supported with collateral such as a house, a court judgment is required for the lender to seize your property or assets to pay the debt.

You can fight the lawsuit, which, in some cases, is enough to get the lender to drop the case. If you don't contest the claim, then the creditor wins a default judgment against you. 

However, don’t be alarmed since the creditor may not follow through to seize your property or assets. Most of the time, threats to seize personal property don't happen. The resale value of your furniture or heirloom jewelry is probably negligible. 

Still, the threat of someone taking your personal belongings may very well convince you to pay up.

SO, WHAT CAN HAPPEN TO YOU?

If a creditor wins a lawsuit against you, here’s what can happen:

1. JUDGMENT LIENS

When your property such as your house or car has a lien, the title on the property isn't evident. Until the debt is settled (by clearing the title), the owner is prohibited from selling or refinancing the property or asset associated with judgment. Once the lien is won, the creditor has the right to examine the property. Then, the creditor must make a formal request to the court to seize or sell the property. Certain possessions are exempt, which include household items of little resalable value

2. WAGE GARNISHMENTS

Wage garnishment is when your employer withholds a portion of your salary to pay your debts. Up to 25% of your take-home pay can be garnished. More than 25% can be withheld if the debt involves unpaid child support.  Keep in mind, you're entitled to a hearing before wages are garnished in most cases. If a court order is won, the request for garnishment is sent directly to your employer.

WHAT BENEFITS ARE EXEMPT FROM GARNISHMENT?

Many federal benefits are exempt from garnishment. These benefits include:

• Social Security Benefits
• Supplemental Security Income (SSI) Benefits
• Veterans' Benefits
• Civil Service, Federal Retirement, and Disability Benefits
• Service Members' Pay
• Military Annuities and Survivors' Benefits
• Student Assistance

However, these benefits may be garnished under certain situations, including to pay delinquent taxes, alimony, child support, or student loans. Laws vary from state to state regarding wage garnishments

PUT IT IN WRITING

When a debt collector reaches out to you regarding a debt they claim you owe, you may initially want to chat with them. It may be in your best interest to resolve it as long as the debt is valid.

If you decide after talking to the collector that you don't want them to contact you again, tell the debt collector to stop contacting you. You must do this notification in writing.

Here's what to do next:

You want proof that you sent the collector a letter, so make a copy of your message. Then, send the original letter by certified mail and pay for a "return receipt." They are not authorized to contact you once your letter is received. 

There are two exceptions. Collectors can:

1. Notify you there will be no further contact.
2. Let you know that the creditor intends to take action, such as filing a lawsuit.

Sending a letter to a debt collector you owe money will not eliminate the debt. The collector (or creditor) can still sue you to collect the debt that you owe.

VALIDATION NOTICE

Every debt collector must send you a written "validation notice." This notice informs you how  much money you owe and is sent within five days after they first contact you. This notice must include the creditor to whom you owe the debt, and what steps to take if you don't think you owe the money.

After you receive this validation notice, you have 30 days to send the letter. Nonetheless, a collector can start contacting you again if the collector sends written verification of the debt (such as a copy of a bill for the amount you owe).

RETAIN AN ATTORNEY

If you have retained an attorney to represent, the debt collector must contact the attorney, not you. Hiring an attorney is highly recommended. 

Debt collectors aren't allowed to contact third parties more than once. Other than getting contact/location information about you, a collector is not permitted to discuss your debt with anyone other than you, your spouse, or your attorney. 

SEEK ASSISTANCE FROM A DEBT RELIEF ADVISOR

Another option is to seek assistance from a debt relief advisor. An advisor can help you understand and manage your debt, and assist you with the necessary steps to get out of debt. Remember, debt is not a one-size-fits-all problem. A debt relief advisor will get you on the right plan that works for you.

While dealing with debt, employment uncertainty, and a pandemic is very stressful, you will get through it. Take one step at a time, get help when you need it, and don’t let anyone get in your head or take advantage of you.

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You got this!

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