North Carolina Collection Laws

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North Carolina Capitol at night | North Carolina collection laws
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.

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.

Wise Advice In 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.

Wise Advice Collection 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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Comments (145)


Beverly W.
Charlotte, NC  |  April 15, 2014
My bank account was garnished recently, even though I did not know about any summons. This has been over 14 years ago, and the creditor states I was served back in 2003 and it was given to my roommate. So they received a judgment by default, my concern is how can they get a judgment if I was not informed properly. They renewed the judgment in 2008 to an address I had prior to the 2003 address. This left me destitute and without any money to pay my bills. What can I do regarding this situation?
Bills.com
April 15, 2014
Consult with a North Carolina lawyer who has consumer law experience immediately. If you cannot afford a lawyer, contact Legal Aid of North Carolina, or Law Help NC or another North Carolina pro bono program to receive no-cost legal advice.
Renee K.
Selah, WA  |  April 07, 2014
I live in WA state and my ex-husband resides in NC. A personal judgment was filed with our divorce decree (WA State) and has since been re-entered. Is it possible for me to collect on this judgment using a collection agency? And if not, how do I go about collecting? I do have his checking account information, can I file something directly with the bank?
Bills.com
April 08, 2014
It's really easy to make a mistake when using a judgment to collect a debt. You have three options:
  • Hire a North Carolina lawyer to domesticate the Washington judgment and collect the debt.
  • Sell the judgment to a collection agent
  • Consult with a Washington lawyer to learn the rules for renewing a Washington judgment. Renew it before it expires. If your ex-spouse ever wins the lottery, then use the judgment to collect the debt

If the judgment is large, then take the first option. If it's small, the second option is the best.

Greg S.
Charlotte, NC  |  March 25, 2014
I have an unpaid $5 parking ticket that ballooned to $25 and now to $100. It has been turned over to a collection agency. Any advice on what to do? Can they go after my wages? What is the likelihood a court would side with them? I just want this to go away.
Bills.com
March 27, 2014
Negotiate a settlement with the collection agent to resolve the debt. You may be able to knock-down the amount from $100 to a more reasonable amount.Yes, it is possible in theory for the collection agent to obtain a judgment to levy your bank account.
Colleen S.
Jacksonville, NC  |  March 23, 2014
I have come under financial difficulties due to having to close my business and have been unable to pay credit card payments for 3 months now. My father is 85 years old and myself and my sister are on his bank accounts as users and owners to take care of his needs. Can a creditor with a judgement against me take any of the money that is in my dad's account? Also, myself, my sister and my brother are on the deed for my father's home with him having lifetime rights to the property. Will a creditor with a judgement against me be able to place a judgement on this property?
Bills.com
March 24, 2014
I can't give you legal advice. You have to consult with an attorney to receive authoritative legal advice. I will, however, share my opinion with you.

If your social security number is linked to the account, then it could be subject to a bank levy if a judgment exists against you. Similarly, a lien could be filed that would encumber any property on which you are listed as owner.

The safest solution seems to be to remove yourself from the bank account and quitclaim your interest in the property.
John T.
Winterville, NC  |  March 17, 2014
Debt collection agency (Legal Prevention Services) has been calling my wife on her cell phone and work number in an attempt to reach me. Im not sure how they got her number as we have only been together for 3 years. The debt in question was from 2006 and was charged off around 2009. They are now contacting me threatening action in federal court over this debt that has ballooned from 2k to 7k. I believe they are past the Statute of Limitations as noted above in the article. what am I to do to prevent from being threatened and harrassed over this issue from over 7 years ago? Thank you
Bills.com
March 17, 2014
Take these two steps:
  1. Validate the debt. A debt that cannot be validated cannot be collected. Roughly half of all collection accounts cannot be validated. Follow the hyperlink just mentioned to learn how to send the collection agent a debt validation notice.
  2. If the statute of limitations clock for this contract has expired, then send the collection agent a cease communications notice.

It is possible the contract you signed for this debt includes a clause where you agreed to use another state's statute of limitations.

Therefore, if you receive a notice of a lawsuit, or if the collection agent claims another state's statute of limitations applies, consult with a lawyer. Ignoring a lawsuit will not make it go away and will almost certainly make your situation worse.

Tony T.
Fayetteville, NC  |  March 12, 2014
An attorney for a collections agency has sued for an unsecured credit card debt and won a judgement against me. Still I have nothing to give them. I own no property, and only have a couple of hundred dollars in my credit union account. I read somewhere on the internet that when an attorney can't take any assets from you and you refuse to pay them any money, that they can ask the judge to order you to pay whatever you have. And if you refuse to pay the money, then have the judge to hold you in attempt of court and threaten to send you to jail. So basically, you can't be sent to jail for not paying the debt, but they send you to jail for refusing the court order to pay the debt. So either way, the collection agency is getting the money that they want, as they would just post your bond at the amount of money they were suing for in the first place. Can a judge order you to pay money to a collections agency for an unsecured credit card debt in North Carolina?
Bills.com
March 12, 2014
Your information is partially correct.

People do not go to jail for debt, and have not done so in the US since the Civil War. People get into trouble when they ignore or do not receive court orders and do not appear in court when summoned. That is the source of occasional hysterical news reports claiming a consumer spent a night in jail because of an unpaid credit card bill. The unpaid credit card wasn't the problem — it was the consumer either ignoring the summons to appear, or never receiving the summons.

You wrote, "...you can't be sent to jail for not paying the debt, but they send you to jail for refusing the court order to pay the debt." In some states, it is possible for a parent who is able to but refuses to pay child support to serve jail time. However, I am not aware of any state that gives that option to judges in judgment-creditor situations involving consumer debt. Therefore, I do not believe the statement I quoted from you is accurate.

Readers, please chime in with your thoughts. Citations of North Carolina statutes or case law would be helpful.

You asked, "Can a judge order you to pay money to a collections agency for an unsecured credit card debt in North Carolina?" Let's say you appear at your hearing, which I recommend, and you present your defense. The judge decides in favor of the party suing you, and awards it damages. That decision results in a judgment. With the judgment in hand, the judgment-creditor can garnish your wages (if your state allows it), levy your bank accounts (subject to state exemptions), place a lien on your property (subject to state homestead exemptions), and ask the sheriff to seize your personal property (subject to state exemptions). We discuss North Carolina's exemptions in the article above.

Consult with a lawyer when you receive notice of a lawsuit. If you cannot afford a lawyer in North Carolina, contact Legal Aid of North Carolina, Law Help NC or another North Carolina pro bono program to receive no-cost civil law advice.
Marc B.
Burlington, NC  |  March 08, 2014
I had a truck repossessed back in 2003...i got a 1099-C form for 2012 from the IRS say I owe $1,042 in taxes for cancellation of debt. They said when debt was canceled it was consider a gift(I don't see how it's a gift if the came and got the truck) Is it a statue of limitation on this because that was over 12 years ago? Just when I have got my credit back in good standing here they come with this crap.
Bills.com
March 10, 2014
Read the Bills.com article Cancellation of Debt Income to learn if this will help you handle the 1099-C you received.
J. G.
Maiden, NC  |  March 07, 2014
i have just found a debt that my wife had we cant remember ever having anything with the original creditor and the debt collector that now owns the debt's licence is inactive in the state of n.c. i need to get this removed quickly and will pay if need be trying to buy a house and this is holding things up any advice will be greatly appreciated thanks for the help in advance
Bills.com
March 10, 2014
Take these five steps:
  1. Validate the debt. A debt that cannot be validated cannot be collected. Roughly half of all collection accounts cannot be validated.
  2. Learn your state's statute of limitations. If the clock for your state's statute of limitations for written contracts expired, then send the collection agent a cease communications notice.
  3. If the collection agent validates the debt, and the statute of limitations clock has not expired, then negotiate a settlement to the debt. A settlement can be for less than the amount the collection agent claims you owe.
  4. If you receive a notice of a lawsuit, consult with a lawyer to file an answer. Ignoring a lawsuit will not make it go away and will almost certainly make your situation worse.
  5. You mentioned North Carolina, and that the collection agent is not licensed. Collection agencies must be licensed to operate in North Carolina. File a complaint with the North Carolina attorney general's office about this unlicensed collector's behavior.

Also, send the collection agent a notice it is in violation of North Carolina law and, as a consequence, you have no legal obligation to pay it a dime.

MIchele Z.
Charlotte, NC  |  March 07, 2014
I am a medical provider needing to refund a patient that originally paid out of pocket, but later Medicare paid the patients claim causing a refund. Am I, as a medical provider required to pay the patient interest on their refund?
Bills.com
March 07, 2014
Consult with a Medicare provider representative to receive an accurate answer.
Terry P.
Arden, NC  |  March 04, 2014
I am 56 years old and will have an arrearage for alimony (not child support) owed when I am eligible to apply for social security. Are social security retirement benefits garnishable for back alimony in North Carolina? Limits? Thanks.
Bills.com
March 10, 2014
Alimony and child support are treated the same under Sec. 459. [42 U.S.C. 659] of the Social Security Act, and both are valid reasons to allow garnishment.
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