North Carolina Collection Laws

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Highlights


  • North Carolina's statute of limitations on most debts is 3 years.
  • North Carolina does not permit wage garnishment.
  • Bank accounts are not exempt from attachment by judgment creditors.
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Learn North Carolina's Rules For Garnishment, Liens, and Foreclosure

A collection agent or law firm that owns a collection account is a creditor. A creditor has several legal means of collecting a debt, if you are unable to pay the debt voluntarily. Before the creditor can start trying to force you to pay a debt, 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.

If you do not have a persuasive defense, admit to owing the debt, or fail to respond to the lawsuit or appear in court, the presiding judge 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, if any, depends on the circumstances. We discuss each of these remedies below.

North Carolina Wage Garnishment

The most common method used by judgment-creditors to enforce judgments is wage garnishment, in which a judgment creditor contacts your employer and requires the employer to deduct a certain portion of your wages each pay period and send the money to the creditor.

n most states, creditors may garnish between 10% and 25% of your wages, with the percentage allowed determined by state law. See the Bills.com Wage Garnishment article to learn more.

The North Carolina Department of Labor Web site sums up the state’s garnishment laws: “Under North Carolina law, an employer may be ordered to withhold wages from an employee and pay them to a creditor for the following types of debts: taxes, student loans, child support, alimony, and payment of ambulance services in certain North Carolina counties. However, the courts of North Carolina are not permitted to order an employer to withhold wages for other types of debts such as car loans, credit card debt, and other personal debt items.”

North Carolina treats sister-state judgments differently, however. “If a court from another state issues a valid order under that state’s laws requiring an employer to withhold a North Carolina employee’s wages for payment of a debt, the employer does not violate the North Carolina Wage and Hour Act by obeying that order.”

North Carolina garnishment restriction is found in Chapter 1, Section 362 of the North Carolina General Statutes. In addition, various North Carolina court cases, such as Harris v. Hinson, 87 N.C. App. 148,360 S.E.2d 118 (1987) have confirmed that future earnings are not subject to creditor attachment for non-priority debts.

Involuntary attachment of Social Security benefits or pensions for payment of consumer debt is not permitted under federal law, and is therefore forbidden in all states, including North Carolina. These benefits generally retain their exempt status even after they are deposited into a bank account, so a creditor cannot levy a bank account if the debtor can demonstrate that the money in the account came from pension or Social Security payments. We often recommend that people segregate those funds from by depositing the benefits into a separate bank account to avoid comingling of exempt and non-exempt funds, which can make defending an exemption claim much more difficult.

Levying Bank Accounts

A levy means that the creditor has the right to take whatever 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. In some states levy is called attachment or account garnishment. The names may vary but the concept is the same.

In North Carolina, bank accounts are not generally exempt from attachment by judgment creditors, so be careful about depositing money into a bank account if you have a judgment against you. Even though wages are exempt from garnishment in NC, once you deposit your paycheck into your bank account, a judgment creditor may be able to seize 100% of the funds on deposit. For this reason, it may be wise to ask your employer to pay you by physical check instead of direct deposit until you can resolve any outstanding judgments against you; receiving a physical check will give you the flexibility to cash the check rather than depositing it, thereby preventing the seizure of the funds through a bank levy.

To claim an exemption under NCGS § 1-362, go to the North Carolina Court System Web site and search for form AOC-CV-415.

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 the debtor’s home, then the lien may prevent him from selling or refinancing until he can pay off the judgment.

North Carolina laws governing the execution of judgments, including liens and other means of enforcement, are found in the North Carolina General Statutes, Articles 23 - 33. In regard to the creation of liens, NCGS §1-234 states, “A judgment docketed pursuant to G.S. 15A 1340.38 shall constitute a lien against the property of a defendant as provided for under this section;” this means that a properly entered judgment automatically creates a lien on any property belonging to the judgment debtor. In addition to liens created by court judgments, mechanics and contractors (and similar laborers and professionals) have the right to place liens on a property on which they have worked, if the owner fails to pay for the repairs or improvements made by the worker; such liens are created without judicial process and can be enforced without court intervention. For example, a mechanic who has repaired your automobile is not required to return the car to you until you pay him as agreed for his services.

You can find a list of the types of personal and real property that are exempt from seizure to pay outstanding judgments in Article 16, § 1C 1601 of the North Carolina General Statutes; while this list is not exhaustive, it is a good starting point when researching North Carolina laws concerning the enforcement of judgments.

If you reside in another state, see the Bills.com Liens & How to Resolve Them article to learn more.

North Carolina Statutes of Limitations

Each state or commonwealth has its own statute of limitations on civil matters. Here are some of North Carolina’s statute of limitations for consumer-related issues:

Account/Type Years Statute
North Carolina statutes of limitations. Source: Bills.com
Credit card 3 Channel Grp., LLC v. Cooper, No. COA09-874, 2010 N.C. App. Lexis 312 (N.C. Ct. App. Feb. 16, 2010)
Spoken contract 3 N.C. Gen. Stat. § 1-52(1)
Written contract 3* N.C. Gen. Stat. § 1-52(1)
Mortgage contract 3 N.C. Gen. Stat. § 1-47(4)
Promissory note 3 N.C. Gen. Stat. § 1-52(1)
Judgment 10 N.C. Gen. Stat. § 1-47(1)
* A contract signed under seal has a 10-year statute of limitations (N.C. Gen. Stat. § 1-47(2)). North Carolina adopted the 4 year Uniform Commercial Code (UCC) statute of limitations with regard to contracts for the sale of goods and lease contracts (N.C. Gen. Stat. § 25-2-725(1)).

North Carolina law prohibits any collection efforts on accounts owned by a debt buyer (such as collection agents) where the statute of limitations clock has expired. North Carolina requires collection agents make specific disclosures to the consumer about the time-barred nature of the debt before collecting and when accepting payments on accounts owned by the original creditor.

When the statute of limitations clock starts depends on the circumstances and the particular statute. In North Carolina, the clock starts when the contract is breached. In other words, a contract to repay the balance owed on a credit card is breached when the defendant fails to make a payment when due. The clock may be paused (called "tolled") under some circumstances, or renewed. In North Carolina, a new promise to repay an existing debt will toll the statute of limitations period, but this promise must be in writing. A partial payment resets the clock.

ollection agents violate the FDCPA if they file a debt collection lawsuit against a consumer after the statute of limitation expired (Kimber v. Federal Financial Corp. 668 F.Supp. 1480 (1987) and Basile v. Blatt, Hasenmiller, Liebsker & Moore LLC, 632 F. Supp. 2d 842, 845 (2009)). Unscrupulous collection agents sue in hopes the consumer will not know this rule.

North Carolina Collection Agency Act and North Carolina Debt Collection Act

The NC Debt Collection Act is similar to the federal Fair Debt Collection Practices Act (FDCPA) in many respects, but broadens some definitions of terms and people defined narrowly by the FDCPA. For example, the FDCPA does not apply to original creditors, but the NC Debt Collection Act applies to any person engaged in debt collection from a consumer.

NC Collection Agency Act governs the behavior of collection agencies and debt buyers. Both laws prohibit abusive debt collection conduct and provide for civil liability in the amount of actual damages, statutory damages, and reasonable attorney’s fees. In addition to actual damages, a consumer may recover statutory damages of at $500 to $4,000 per violation, plus attorney’s fees.

Collection agencies must be licensed to operate in North Carolina (N.C. Gen. Stat. § 58-70-15(a)), and non-resident collectors must post a $10,000 bond. A collection agency must identify itself in correspondence, including its permit number, true name and address, on all correspondence (N.C. Gen. Stat. § 58-70-50). When working for the original creditor, the collection agency must provide a written receipt for any consumer payments, including:

  1. Pre-numbered receipt by the printer and used and filed in consecutive numerical order
  2. The name, street address and permit number of the permit holder
  3. The name of the creditor or creditors for whom credited
  4. The amount and date paid
  5. The last name of the person accepting payment.

Copies of all receipts issued must be kept in the collection agent’s office for 3 years.

When the collection agent owns the collection account, it must issue a receipt that complies with the five requirements just mentioned, plus:

  1. Show the name of the creditor or creditors for whom collected, the account number assigned by the creditor or creditors for whom collected, and if the current creditor is not the original creditor, the account number assigned by the original creditor
  2. Clearly state whether the payment is accepted as either payment in full or as a full and final compromise of the debt, and if not, the receipt shall state clearly the balance due after payment is credited.

See N.C. Gen. Stat. § 58-70-70 to learn more about the receipt requirements in particular, and Chapter 58 to read the entire statute.

North Carolina Spousal Debt

Generally, spouses are not liable for the other spouse’s debts in North Carolina. However, North Carolina follows the common law doctrine of necessaries (also called the doctrine of necessities). Spouses are responsible for each other's medical costs (Alamance County Hospitals, Inc. v. Neighbors, 315 N.C. 362, 338 S.E.2d 87 (1986) and North Carolina Baptist Hosps., Inc. v. Harris, 354 S.E.2d 471, 472 (N.C. 1987)). The Harris court mentions the North Carolina doctrine of necessaries applies to minor children, too.

North Carolina Payday Loans

North Carolina outlaws payday loans both at in-state storefronts and from online lenders. According to the North Carolina attorney general’s office, "Internet payday loans are not legally enforceable in our state, although some Internet lenders who are based overseas or on Indian reservations claim not to be subject to North Carolina law. We are currently fighting online payday lenders in court."

Recommendation

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

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  • JT
    Apr, 2013
    Jeremy
    I live and work in Japan but my home of record is in North Carolina. During a routine trip home in early 2012, I discovered a negative entry on my credit report by DFAS (Defense Finance & Accounting) for a supposed delinquency in June 2011 for about $1300. Although I am a Veteran, the last time I worked on a military base was in 2007 as a contractor. To make a long story short, through much investigation and going back and forth with a collections agencies (they were nice to me for whatever reason), I eventually found out that the delinquency is from a hospital stay on Yokosuka Naval Hospital, Japan. Putting aside the fact that I was billed almost $7,000 for a two night stay in the hospital just for an infection, it turns out that my health insurance provider didn't pay the full amount. I had provided accurate mailing and contact information to the Navy Hospital several days after my stay but it appears that their system could not input all of the parts of my Japan address so they just mailed it out with an incomplete address. I had also told the hospital to call me if there are any problems but I never heard anything and never saw anything on my credit report so I just assumed that it got paid and all is great. The information above is what I gathered over the past year trying to figure out what the hell is going on. I submitted disputes to Equifax but they just say that the information on file is accurate. I contacted the collection agencies to let them know that I don't think the bill is accurate because I don't know what it is for (at the time) but the agencies say that this is a difficult situation since I live in Japan. Apparently they are not allowed to communicate to foreign addresses. I then sent DFAS a 26-page tome of everything that had happened with evidence of my correct mailing address and attempts to make sure I had no billing issues. However, the packet was returned because the address listed on Equifax's report was incorrect. I then filed a complaint with the Consumer Financial Protection Bureau which of course, they just replied with an updated DFAS address and stating that they contacted Equifax and DFAS but I need to work with the Collection agency to resolve the issue. Arrghh!!!! This is so frustrating. I guess I should contact my health insurance provider to find out why they didn't pay the full amount but I don't think this is fair to be thrown into collections for the Navy Hospital's screw up as I can't resolve or pay something that I didn't know about. Not only that, I was denied a credit card limit increase even though I keep the balance at zero because of the entry on my credit report. I was also supposed to receive a claim from the TSA because they destroyed my luggage a few years back but the funds where garnished by DFAS because of my alleged delinquency. Is there anything I can do to get a favorable outcome besides just sucking up my pride and paying the bill? Thank you in advance for your advice.
    0 Votes

    • BA
      Apr, 2013
      Bill
      You are in uncharted waters as far as I am concerned regarding all parties' relationships to DFAS. The only suggestion I can offer, and I admit it is not very insightful, is to contact your local DFAS office of customer service representative to learn if the DFAS offers a dispute procedure for these types of situations. The DFAS Web site is unclear on this subject, but I would be surprised if none were available.
      0 Votes

  • JS
    Nov, 2012
    john
    I had a gym membership before I left for the military, and a called and cancelled it a month before I left and they said, "You're good to go, be safe." Now I'm back and I go to the gym to rejoin and they said, "Your account is turned over to collections, call them, you owe $800." I called the collector and he was really rude and basically said f- off. I asked to talk to a manager, and he refused. The gym is refusing to fix their mistake. I'm mad because I went to serve, and they screwed me over. What should I do?
    0 Votes

    • BA
      Dec, 2012
      Bill
      Four routes to work on this are:
      1. Continue speaking with the gym, addressing the management or owner, and impressing upon them what you were told and your desire to continue being a member of the gym.
      2. If you have any access to the JAG office or other resources available through the VA, find out if you have any protections due to your service duty.
      3. Speak with an attorney, to see if you have any cause of action.
      4. Try to work out a settlement with the collector.
      0 Votes

  • TC
    Jun, 2012
    Tim
    My wife lost a car due to job loss. She went from making $70k/year to $34k. The balance is just a little over $10k and the creditor has repeatedly stated they will not settle. They have now served her with a Civil Summons. My thought process is to let them get the judgement. Our home, solely in her name, still has a balance of what the current market says its worth. Would they still be able to place a lien on it and if so would it expire after 10 years, unless they renewed the judgement.
    0 Votes

    • BA
      Jun, 2012
      Bill
      I dislike your idea of waiting passively for a judgment. Consult with a lawyer about filing an answer and make the creditor prove your spouse owes the debt.

      A lien is a possible outcome of a judgment. A lien is possible regardless of how much or little equity the owner has in the property.
      0 Votes

    • TC
      Jun, 2012
      Tim
      After thinking about it I consulted an attorney. His idea is a Chapter 13 so we'll see what happens next week. Thanks for taking the time to answer.
      0 Votes

    • BA
      Jun, 2012
      Bill
      Glad to hear you consulted with a lawyer. A chapter 13 will force the creditor to accept the payment plan the bankruptcy trustee determines you can afford, and may discharge any remaining balance after the plan concludes. This is strong medicine for both parties, but sometimes this is the only option when a creditor refuses to negotiate in good faith.
      0 Votes

  • MH
    Apr, 2012
    michael
    I went through a messy divorce 4 years ago in North Carolina. As a result I had serval credit cards default and my house foreclosed. How long until I can clear it off my credit report?
    0 Votes

    • BA
      Apr, 2012
      Bill
      Please read the Bills.com article Fair Credit Reporting Act for answers to your credit report-related questions.
      0 Votes

  • TS
    Apr, 2012
    Tracey
    If there is a judgment against me can my house be in jeopardy if it is in both my and my spouse's name? The debt is only in my name?
    1 Votes

    • BA
      Apr, 2012
      Bill
      Reread the original answer above to see your general rights and liabilities. In particular, read the section on liens. I assume based on the page where you posted your question you reside in North Carolina. For more specific legal advice about your situation, consult with a North Carolina lawyer who has consumer law experience.
      0 Votes