- Review the debt collection process.
- Understand the importance of debt validation.
- Respond to any summons you receive.
I have some big debts. What can creditors do to me? What are my rights?
I have several debts -- a couple of them are quite large. What can the creditors do? What are my rights?
Thank you for your question about your debt, how the debt collectors will pursue collections, and what options you have.
When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to "charge-off" or "write-off" the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.
The charge-off date has almost nothing to do with the statute of limitations for debts. To learn more about the distinction between these issues, read Charge-Off & Credit Report.
At the charge-off point, the creditor will transfer the debt to a late-accounts department, or has the option to sell the debt to a collection agent. The collection agent will buy the debt at a discount. However, the collection agent has the right to collect the entire balance due plus interest.
If a collection agent a debt it states you owe, you have the right to do what is called debt validation. If the debt is many years old or you do not recall the debt, validate it.
Fair Debt Collection Practices Act
Collection agents often use aggressive tactics, when contacting the debtor. Collection agents are know to threaten to call the debtor’s employer, file charges with the local sheriff, or say they will park a truck in front of the debtor’s house with a sign that reads "Bad Debt" on it. All of these tactics and many others are illegal under the Fair Debt Collection Practices Act (FDCPA). Start here to learn the rights consumers have in collections under the FDCPA.
A creditor -- a debt collector that owns a debt account is a creditor -- has several legal means of collecting a debt. Before the creditor can start legal collections, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a "summons to appear" or a "summons and complaint." In some jurisdictions, a process server will present the summons personally. In others the sheriff’s deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See Served Summons and Complaint to learn more about this process.)
If you ever receive a summons, you should do as it instructs! This is not a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.
Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you will have exercised your right to be heard.
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. Which of these tools the creditor will use 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. 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, while 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. See the Bills.com article Wage Garnishment to learn more about wage garnishment.
Levy 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. See the Bills.com resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules.
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 refinance 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. Again, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state’s laws to learn creditor can and cannot do to enforce its judgment. See the Bills.com resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules. Also see the Bills.com Liens & How to Resolve Them article to learn more.
If you have a judgment against you, consult with an attorney licensed in your jurisdiction to learn how the judgment will affect you, based on your individual financial circumstances and your local rules.
It is not too late to contact the creditor or the law firm that either represented the creditor or bought the debt, and present them a settlement offer. Even with a judgment in place, the law firm must spend money to try to collect the debt. Getting a wage garnishment, levy, or lien takes time, and time to a law firm is money. The law firm may settle for a lump-sum payment. See "Debt Negotiation and Settlement Advice" before opening negotiations with a creditor. See "What Are My Debt Consolidation Options?" to learn more about your rights and options for resolving the debt.
Important! Get all settlement offers in writing before sending a check to the law firm or collection agent.
I hope this information helps you Find. Learn & Save.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2022 was $16.91 trillion. Student loan debt was $1.60 trillion and credit card debt was $0.99 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Montana, 20% have any kind of debt in collections and the median debt in collections is $1589. Medical debt is common and 11% have that in collections. The median medical debt in collections is $702.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.
We know original creditors sell collection accounts for pennies on the dollar — some more and many for less. Let's assume for the sake of argument Alphera Financial Services sold your account to a collection agent for 10 cents on the dollar.
I'll assume you started your $200 payment plan in January 2013, and the balance was $2,568. You didn't mention an interest rate, which makes the rest of my calculations a bit hazy, but I'll be close enough to convey my idea. After 11 payments of $200, your balance should have been cut to $368, plus a small amount for interest. Let's say the balance was $450.
The collection agent bought your account for about $50, although I hasten to add it has the legal right to ask for the face value of the account ($450). When the collection agent contacts you, explain all of these facts, and that you want to settle the matter once and for all. Offer it $70, and negotiate up from there.
If that doesn't work, then your best option is to speak with a lawyer. The fact that you paid for one week and they cashed and accepted the check gives credence to your claim that your departure was mutually agreed upon. The emails from the apartment complex give further strength that you don't owe the debt.
Take the time to dispute the debt with the credit bureaus, supplying the emails that state that you don't owe the debt.
Let us fast-forward in time and the lender sells your vehicle at an auction, and the amount it fetches is less than the balance of the loan. This shortfall is called a deficiency balance, and you and any co-signers have liability for this amount. The lender can pursue you and the co-signer using your state's court system. If it files a lawsuit against you and you do not defend yourself adequately, the lawsuit will result in a judgment against you and any other co-signer(s). With a judgment in hand, the lender can ask the court to garnish your wages, put a levy on your bank accounts, and pursue other remedies.
I assume you work pro re nata, which means "as needed" and not part of a set schedule. The judgment-creditor (the lender) can garnish your wages according to federal and your state's laws. See the Bills.com wage garnishment article to understand your rights and state exemptions for wage garnishment in your state.
Regarding the offer the lender rejected, talk to a lawyer in your state who has consumer law experience to learn if there is any case law supporting your theory that you have liability only for the difference between the offered amount and the balance due, and not the difference between the balance due and the auction amount.