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.
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. In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed determined by each state. Luckily, North Carolina is one of the handful of states that do not permit wage garnishment as a means to collect judgments arising from consumer debt transactions.
The North Carolina Department of Labor Web site sums up the N.C. 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 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.
If you reside in another state, see the Bills.com Wage Garnishment article to learn more.
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 you may want to be careful about depositing money into your 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.
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 has is own statute of limitations for the collection of outstanding debts. The statute of limitations for the collection of most consumer debts in North Carolina is three years, as stated in North Carolina General Statutes §1-52. The statute of limitations starts running on the date of default, which, for most consumers, is approximately 30 days following the consumer's last regular payment on the debt in question. The statute of limitations on a judgment is 10 years (§ 1‑47). If you are being contacted about a debt which you believe to be beyond the statute of limitations, I encourage you to consult with an attorney in your state to help you decide how to proceed.
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.
I hope this information helps you Find. Learn & Save.