Arizona Collection Laws

A collection agent or law firm that owns a collection account is a creditor. A creditor has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. See the Bills.com resource Served Summons and Complaint to learn more about this process.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor's bank accounts, and a lien on the debtor's property. A creditor that is granted a judgment is called a "judgment-creditor." Which of these tools the creditor will use depends on the circumstances. We discuss each of these remedies below.

Wage Garnishment

The most common method used by judgment-creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor's employer and require the employer to deduct a certain portion of the debtor's wages each pay period and send the money to the creditor. However, several states, including Texas, Pennsylvania, North Carolina, and South Carolina, do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the "preferred" method of judgment enforcement because, although possible, it is a tedious and time consuming process for creditors.

In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state.

Garnishment of Social Security benefits or pensions for consumer debt is not allowed under federal law. Garnishment is allowed for child support under Arizona Title 33, Chapter 8, Article 2 33-1131. Definition; wages; salary; compensation.

In Arizona, wage garnishment is allowed under Arizona Title 12, Chapter 9, Article 4.1 12-1598. If the judgment-creditor is aware of the debtor's place of employment, it may seek wage garnishment.

Under federal law, the garnishment applies to 25% of the debtor's net take home pay, (i.e. gross pay less statutorily mandated deductions). A calculation, that takes 25% of disposable income and minimum wage into consideration, determines the correct garnishment amount (see Title 12, Chapter 9, Article 4.1 12-1598.16 for the exact calculation. Garnishment can occur only after the person being garnished has received a 10-day's notice.

However, under Arizona Title 12, Chapter 5.1, Article 2 12-592, periodic installments for future damages for loss of earnings or loss of support for beneficiaries of a judgment entered in a wrongful death action are exempt from garnishment, attachment, execution and any other process or claim to the extent wages or earnings are exempt under any applicable law. Periodic installments for all other future damages are exempt under garnishment, attachment, execution and any other process or claim except to the extent they may be assigned pursuant to section 12-591.

If you reside in another state, see Advice on Judgment Garnishment to learn more about wage garnishment.

Levy Bank Accounts

A levy means that the creditor has the right to take money in a debtor's account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state's laws to find if a bank account can be levied. Some states call levy attachment or garnishment.

In Arizona, levy for family support is allowed under Arizona Title 25, Chapter 5, Article 1 25-521. If there is a court-ordered judgment or if the obligor is in arrears in an amount equal to twelve months of support, the department may issue a levy and collect the amount owed by the obligor by levy on all property and rights to property not exempt under federal or state law.

Arizona levy laws are also found in Title 23, Chapter 4, Article 5 23-752, and 23-755. What Arizona calls its levy law covers what other states consider garnishment. Personal property and wages can be seized under Arizona Title 23, Chapter 4, Article 5.

Lien

A lien is an encumbrance -- a claim -- on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinances the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.

Under Arizona Title 33, Chapter 7, Article 5 33-964, a judgment shall become a lien for a period of five years from the date it is given, on all real property of the judgment debtor except real property exempt from execution, including homestead property, in the county in which the judgment is recorded, whether the property is then owned by the judgment debtor or is later acquired. A judgment lien for support, as defined in section 25-500, remains in effect until satisfied or lifted.

Statute of Limitations

Each state has is own statute of limitations. Arizona law regarding consumer accounts is found in Title 12, Chapter 5, Article 3. The statute of limitations for open accounts (credit cards) and oral contracts is three years (12-543), and written contracts is six years (12-546).

Arizona Title 47 contains three references to statutes of limitations relating to property:

• Default Under a Lease Contract, must be commenced within four years after the cause of action accrued. See Chapter 2A, Article 5 47-2A506.
• Breach of any Contract for Sale, must be commenced within four years after the cause of action has accrued. See Chapter 2, Article 7 47-2725.
• Taxpayer's obligations for any tax, interest or penalty required to be collected by the department for any tax period are extinguished, if not previously satisfied, six years after the amount of tax determined to be due becomes final unless extenuating circumstances apply. See Title 42, Chapter 2, Article 2 42-2066.

Regarding judgments, a judgment-creditor has 5 years to enforce a judgment unless the judgment is renewed. See § 12-1551(B). A judgment may be renewed by filing an action to enforce the judgment or by filing an affidavit with the court within 90 days before the expiration of the 5-year period. See § 12-1611 and § 12-1612.

Arizona Foreclosure

Arizona foreclosure laws are found in Title 33, Chapter 6, Article 2.

Under Arizona law, a lender may be prevented from suing the borrower for the deficiency following a foreclosure. However, Arizona's anti-deficiency laws are tricky. Under Arizona 33-814, a homeowner is liable for a deficiency judgment if they have not resided in their home for six consecutive months. A deficiency on a purchase-money mortgage is not allowed on residential property if a single one-family or single two-family dwelling that is on 2.5 acres or less (33-814G). The Arizona anti-deficiency laws apply to second mortgages and deeds of trust if they are purchase money loans (Baker v. Gardner, 160 Ariz. at 104, 770 P.2d; and Ross Realty Co. v. First Citizens Bank & Trust, 296 N.C. 366, 250 S.E.2d 271, 275 (1979); and Nydam v. Crawford, 181 Ariz. 101, 887 P.2d 631 (App. 1994))A deficiency is allowed if the value of the house has declined because the homeowner has committed waste (33-814A).  Consult with an Arizona attorney with experience in property law to understand your rights and liabilities in your situation.

Recommendation

Consult with an Arizona attorney experienced in civil litigation to get precise answers to your questions about liens, levies, and garnishment in Arizona.

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Bill

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