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North Carolina Collection Laws

North Carolina Capitol at night | North Carolina collection laws

Updated: Sep 12, 2013

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.

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.

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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159 Comments

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  • SS
    Jun, 2014
    sally
    If your house is being foreclosed on in NC can they put a lien on a vehicle that is paid for?
    0 Votes

    • BA
      Jun, 2014
      Bill
      Vehicle liens for judgments are usually not allowed. Unfortunately, the remedy available to creditors is much worse than a lien.

      If a court gives a creditor a judgment in North Carolina, it can ask the sheriff to seize your vehicle and sell it. The vehicle exemption amount for North Carolina is $1,500. If the market value of the vehicle is worth less than $1,500, the creditor will almost certainly not take this step because it doesn't make sense economically.
      0 Votes

  • JA
    Jun, 2014
    Jonathan
    I own a small lawn care business and do work for other landscapers on their customers' houses. I have a landscaper who collected the money from his customers but refuses to pay us. We have a judgment against him, but my question is do we have any other recourse to collect this debt? Can we have him charged for embezzlement or can we send the bills to the homeowners where the work was performed and demand payment?
    0 Votes

    • BA
      Jun, 2014
      Bill
      You should make sure that you have a lien that backs up your judgment. The lien would encumber property he owns, allowing you to get your money if he sells any property.

      Speak with an attorney that handles debt collection. There may be way of going after assets he owns or receivables he is owed.

      Speak with the DA or the Police about criminal issues. I am not sure that his conduct, while reprehensible, rises to the level of criminality.

      Billing people who paid already seems like a bad idea to me. It is not their fault the wrong person came to collect on the debt.
      0 Votes

  • AM
    May, 2014
    Anne
    We were turned over to a collection agency for one relatively small medical bill for which we NEVER received a bill. They were sending the bills (so they say) to an address that doesn't exist and claim the post office never returned any of the 6 letters they sent. Our credit was essentially perfect and we have no debt, none. If we pay the dr.'s office directly, how will this effect our credit? Thanks!
    0 Votes

    • BA
      May, 2014
      Bill
      Derogatory information such as delinquent accounts are not removed when an old debt is paid. Negative information remains on a consumers credit report for 7 years (or longer) from the date of first delinquency. Paying an old delinquent debt will not cause the account to be removed from a consumer's credit report. Paying an old delinquent debt will change the status of the account only. Read the Bills.com article Get Delinquent Accounts Off Credit Reports to learn more.

      When it comes to credit scores, the cliche "The bigger they are the harder they fall," applies. Read the Bills.com article Foreclosure, Delinquency, Debt Settlement & Credit Scores to learn how account delinquencies and other negative events harm a FICO credit score.
      0 Votes

  • R
    May, 2014
    Ryan
    I had a motorcycle repo'd in 2007. It's almost been 7 years but we're trying to buy a house and lady at the bank said that they could renew the debt as long as they wanted to. They just renewed in Jan 2014. I live in North Carolina.
    0 Votes

    • BA
      May, 2014
      Bill
      The person you spoke to may or may not be correct. She is correct if the motorcycle finance company or its collection agent has a valid judgment against you.

      If there is no judgment in play here, and the statute of limitations clock has run out (which it almost certainly has if North Carolina law applies and you made no payments after 2007), she is wrong.

      The key question is, does someone have a judgment against you for this (or another) debt?
      0 Votes

    • RJ
      May, 2014
      Ryan
      No judgments show up. Just the charge-off. Can they go back now and put a judgment on me? Is there a certain time frame they have to obtain a judgment?
      0 Votes

    • BA
      May, 2014
      Bill
      When you write, "no judgments show up" I assume you mean there's no judgment appearing on the credit reports published by Equifax, Experian, and TransUnion. Credit reports are not a reliable indicator a judgment does not exist. Go online to your local county's court Web site to learn if there is a judgment filed against you. If the finance company is in your state, go to that county's Web site (assuming it's in another county) to learn if there's a judgment filed against you in that county.

      Let's assume the finance company (or a collection agent) sat on its rights and never filed a lawsuit against you and obtained a judgment. If there is no judgment, it is possible for the original creditor to file a lawsuit against you now, even though the statute of limitations clock has long since run out. However, you can almost certainly defeat a lawsuit against you by filing a motion to dismiss based on the expired statute of limitations.

      Therefore, the short answer to your question is yes, it is possible for the original creditor to obtain a judgment today. But you would have to stick your head in the sand and not defend yourself to allow it.
      0 Votes

  • SB
    May, 2014
    Sharon
    As a medical office, we occasionally turn uncollectable debts over to a collection agency. Once it is turned over to them, are we allowed to have further contact with that patient regarding their balance in our office? I am under the impression that no further statements or request for monies owed from our office should cease.
    0 Votes

    • BA
      May, 2014
      Bill
      Do you sell your collection accounts to collection agents? If you sell your collection accounts, it's the same as if you sold someone your car or house. Once the car, house, or collection account is sold, the seller has no rights whatsoever to the property: zip, zero, nada.

      Do you hire your collection agents to try to collect the accounts? If your collection agents work on a contract basis, then you still have rights to the collection account. Your contacting the consumer about the collection account would not be illegal, but it certainly would be confusing to the consumer, especially if they are in negotiations with your collection agent to settle the debt.
      0 Votes