- 6 min read
- A judgment becomes a lien on your real property in Indiana.
- The statute of limitations for most consumer transactions is 6 years.
- Indiana I-9 workers are subject to wage garnishment in Indiana.
Table of Contents
Dealing with debt collection in Indiana? It's important to know the rules. This guide breaks down Indiana's debt collection laws in simple terms. These laws ensure fair and legal practices, protecting both creditors and debtors. From how collectors can contact you to what happens with unpaid debts, we cover the essentials. Whether you're collecting or owing, understanding these laws helps keep things above board.
What are Indiana Collection Laws?
Indiana Collection Laws are the rules about how debts can be collected in the state. They're there to make sure everything is done right and fairly. These laws cover various topics including:
- How much of your wages can be taken to pay debts (garnishment)
- When your property can be claimed (liens)
- What happens to your home if you can't pay your mortgage (foreclosure)
- What part of your money and property can't be taken by creditors.
Court judgment and judgment creditor
A lender, collection agent or law firm that owns a collection account is a creditor. The law gives creditors several means of collecting delinquent debt. But before a creditor can start, the creditor must go to court to receive a judgment. See the Bills.com article Served Summons and Complaint to learn more about this process.
The court may grant a judgment to the creditor. A judgment is a declaration by a court the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, a lien on the debtor’s property, and in some states, ask a sheriff to seize the debtor’s personal property. The laws call these remedies. A creditor granted a judgment is called a judgment-creditor. Which of these tools a judgment-creditor will use depends on the circumstances. We discuss each of these remedies below.
Debt collection practices and limitations
Consistent with the Fair Debt Collection Practices Act Indiana enforces certain practices and limitations on debt collection to maintain fairness and legality in the process:
- Limitation on Contact: Collectors are restricted in terms of when and how often they can contact debtors, including prohibitions on calling at inconvenient times or places.
- Prohibition of Misrepresentation: Debt collectors cannot use deceptive or misleading tactics, including misrepresenting the amount owed or their authority.
- Restrictions on Wage Garnishment: There are specific limits on how much of a debtor's wages can be garnished, protecting a portion of income for essential living expenses.
- Legal Recourse for Violations: Debtors have legal recourse if a collector violates state or federal debt collection laws, including the right to sue for damages.
Indiana wage garnishment
The most common remedy judgment-creditors use to enforce judgments is wage garnishment. Here, the judgment-creditor contacts the debtor’s employer and requires 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 — 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, although 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.
Garnishment of Social Security benefits or pensions for consumer debt is not allowed under federal law. Indiana law permits earnings garnishment for child support and maintenance up to 25% of the debtor’s disposable income (IC 24-4.5-5-105(2)). Indiana considers independent contractor (I-9) earnings as wages subject to garnishment (Ind. Surgical Specialists v. Griffin, 867 N.E.2d 260).
If you reside in another state, see the Bills.com Wage Garnishment article to learn more.
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Levy bank accounts in Indiana
A levy means that the creditor has the right to take whatever money is 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.
Not all funds in your bank/credit union are open to levy/garnishment. Indiana’s bankruptcy exemptions found at IC 34-55-10-2 also apply to account levy. Note that these exemption amounts change relatively frequently, and the notices of exemption changes are found at the Indiana Dept. of Financial Institutions Web site.
Under Indiana law, the following may not be garnished, or a certain amount is exempt from garnishment:
- Real estate or personal property constituting a residence of less than $17,600 in value.
- Other real estate or tangible personal property: $9,350
- Deposit accounts and cash: $350.00
- Professionally prescribed health aids for debtor or dependent of the debtor.
- Interest in real estate held as tenant by the entireties, unless the spouses are jointly liable.
- Contributions or parts thereof, made to retirement plans or funds for debtor or their spouse, provided they are not subject to federal taxation at the time of the contribution, or which are made to an IRA, nor earnings on the contributions describe above nor rollovers of same.
- Money in Medical Care Account under IC 6-8-11 or health savings accounts under the IRS Code
- Qualified Tuition Programs as defined by the IRS Code where the debtor has an interest, but only to the extent the funds are not excess contributions or earnings on an excess contribution.
- Interests held in Education Savings Accounts as defined in the IRS code, provided they are not excess contributions.
- Federal or state income tax refunds
- Veterans disability awards, unless the garnishment or levy is for child or spousal support
- State Fair Relief Funds
As stated above, these amounts vary over time. If you reside in another state, see the Bills.com Account Levy resource to learn more about the general rules for this remedy.
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 your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.
In Indiana, a judgment by a Indiana Court in the county where the consumer’s real estate is located is a lien against all the real estate owned by or acquired by the consumer for 10 years. However, if the court is in County A and the consumer resides in County B, the judgment does not become a lien automatically. The judgment-creditor must transfer the judgment to a County B court on its own (IC 34-55-9-2).
If you reside in another state, see the Bills.com Liens & How to Resolve Them article to learn more.
Indiana Statute of Limitations
Each state has its own statute of limitations on civil matters. Here are Indiana’s statutes of limitations for consumer-related issues:
|Credit card||6||IC 34-11-2-7 and IC 34-11-2-9|
|Judgment Lien||10||Needham v. Suess, 577 N.E.2d 965, 1991.|
|* Can be extended another 10 years (Lewis v. Rex Metal Craft, Inc., 831 N.E.2d 812)|
Indiana statutes of limitations. Source: Bills.com
When the statute of limitations clock starts is somewhat unsettled in Indiana. Under IC 34-11-3-1, the clock starts from the "date of the last item proved in the account on either side." Case law interprets this as the date of the last purchase. (McMahan v. Snap on Tool Corp., 478 N.E.2d 116.) However, the McMahan court left it unclear if this rule applies to credit cards or non-credit card open accounts only.
Indiana mortgage and foreclosure laws can be found in IC 32-29 and IC 32-30. A lender must foreclose judicially in Indiana, and give 30-days notice before doing so. A lender can collect a deficiency if doing so is written into the loan contract.
Indiana spousal debt liability
Indiana is not a community property state, so the general rule is one spouse not liable for the other spouse's separate debt, with the exception of medical debt.
Indiana's Necessaries Doctrine is not a state statute, but a product of court decisions. Both spouses have "secondary liability" the entire medical debt they incur. The debtor spouse retains primary liability for necessary expenses. If the cost of medical care exceeds the debtor spouse's separate funds and the debtor spouse is dependent on a financially superior spouse, then secondary liability is imposed on the non-debtor spouse. This secondary liability imposes liability only for the portion of the medical debt that exceeds the debtor spouse's available funds (Porter Mem. Hosp. v. Wozniak, 680 N.E.2d 13 (1997); and Barstrom v. Adjustment Bureau, Inc. 618 N.E.2d 1 (1993)).
Consult with a Indiana lawyer who is experienced in civil litigation to get precise answers to your questions about liens, levies, garnishment, and foreclosure.
Dealing with debt
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Housing debt totaled $12.489 trillion and non-housing debt was $4.802 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Collection and delinquency rates vary by state. For example, in California, 11% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 3%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.