From Paul Bland of Public Justice:

There are a couple of things about this case, as explained in the video, that are striking. 

First, the corporate behavior – a payday lender misleading customers, getting them into a cycle of debt, lying about its nature, abusing the law – is truly ugly. Nearly every American should hate this kind of behavior, and see why it’s important for the legal system to address it.

Second, the video explains how the civil justice system, and class actions, got real justice for the consumers: tens of millions of dollars in refunds to consumers, illegal debts wiped away, and peoples’ credit records fixed. 

Third, the video focuses a great deal on Mr. Inetianbor, showing that the class action wasn’t just a lawyer-driven thing, but that the consumer played a huge role in protecting other consumers and working to fight this problem.

Finally, the video helps explain how vile a system forced arbitration is, and why the defendants’ efforts to use forced arbitration were a real scam.
 

library.nclc.org
What Every Homeowner Should Know About Mortgage Payments:
Consumer Debt Advice from NCLC [National Consumer Law Center]

by John Rao

First in a series of three articles dealing with home mortgages. This article covers

* how to get information about your mortgage payments
* what happens if you make only a partial payment
* disputing the amount due, and
* key information about escrow, property taxes, and insurance.

The next article will cover new guidelines to modify mortgage loan payments, and the third article will explain rights to defend or delay a foreclosure.

First Considerations
Mortgage problems tend to have a snowballing effect if not resolved quickly. Small issues grow into big problems that can eventually lead to foreclosure—always act sooner rather than later.


If you are having trouble resolving mortgage-related problems on your own, try a nonprofit housing counselor or attorney. The Department of Housing and Urban Development (HUD) certifies housing counseling agencies and you can locate such an agency by calling HUD at 800-569-4287 (TDD 800-877-8339) or by going to www.hud.gov.

[In Oregon, try Oregon Homeowner Support]

If a housing counselor cannot help, the counselor may refer you to a local attorney or legal services program.

Do not wait too long to get assistance.
An experienced advocate in your corner may help you fix the trouble before it grows.


Your Mortgage Servicer Plays the Key Role.

To resolve an issue with your mortgage, do not contact the lender owning your mortgage loan.
Always contact your mortgage servicer who has been hired by whoever owns your mortgage loan.

The servicer receives your mortgage payments, applies them to your mortgage balance, and deals with other day-to-day activities on your account. If you have any questions about your mortgage—always contact your mortgage servicer.

Occasionally the owner of your mortgage, the servicer, and the original lender are the same entity, but more often they are three different companies. For example, Acme Mortgage Company may have given you a loan, and then sold your loan to Best Bank that has hired ABC Servicing Company as its mortgage servicer.

You may have several different servicers during the life of your loan. Your servicer changes if the owner of your mortgage loan decides to hire a new servicer, or if the owner sells your loan to someone who uses a different servicer. Whenever your mortgage loan is sold to a new owner, you will get notice of the contact information for both the new owner and your new servicer. You also can request in writing that the servicer tell you the name and contact information for the owner of your mortgage loan.


Your Rights When Your Servicer Changes. Federal law requires that you get notice whenever your servicer changes, including the effective date of transfer and the new servicer’s contact information, including a toll-free number to call with questions. You also get notice as to the date when you should start sending payments to the new servicer instead of the old one.


You can keep sending on-time payments to the old servicer for up to 60 days after that date, and the new servicer must treat it as a timely payment, and cannot charge a late fee, claim your account is in default, or report the payment as late on your credit report. This applies even if the old servicer does not forward the payment in a timely way to the new servicer.


Surprising Facts About Partial Mortgage Payments

Try not to make a mortgage payment for less than the amount due (a partial payment). The servicer typically does not apply a partial payment to your mortgage. Instead the servicer may return your partial payment check back to you un-cashed. If so, you should set the money aside and not use it to pay other bills, so you can use it later to help with your mortgage payments. In the worst case scenario, if foreclosure becomes inevitable, you will have some money saved for moving expenses.


Other servicers keep your partial payment in a “suspense account” until you pay the remaining amount due for that one monthly payment and instead assess you a late fee. As a result, it is easy to get confused as to how much you owe. To avoid problems, check your most recent mortgage statement for the monthly payment amount, since it can change over time. Also check your statement each month to be sure last month’s payment was applied correctly. If a partial payment is put in a suspense account, the statement must explain what you must do for the payment to be applied.


How to Determine the Status of Your Mortgage Loan

You receive monthly statements from your mortgage servicer or a coupon book with similar information. The statements include the amount due for the billing period; an explanation of the total amount due on the account including fees; a breakdown of how your last payment was applied; transaction activity; partial payment information; and contact and account information.


If you are more than forty-five days behind on your mortgage payments, the monthly mortgage statement also includes: the date when the account became delinquent; a notification of possible risks, such as foreclosure, and of the expenses that may be charged if the account is not brought current; an account history for the previous six months or the period since the last time the account was current; a notice indicating any loss mitigation program to which you have agreed, if applicable; a notice of whether the servicer has started foreclosure; the total payment amount needed to bring the account current; and a list of homeownership counselors and counseling organizations that you can contact.


Disputing the Amount Due

You can dispute the amount the servicer says is due in a monthly statement. For example, your servicer may have failed to or incorrectly credited your payment, neglected to make payments out of your escrow account and instead forced you to pay for extra insurance, charged unnecessary or duplicative fees, or improperly refused to accept a payment. Contact the servicer right away.


Dealing with your mortgage servicer can sometimes be frustrating. Many mortgage servicers are large companies that handle tens of thousands or even hundreds of thousands of mortgages. You may speak to a different person each time you call, and you may get conflicting or confusing information from one person to the next. Make a note in a notebook each time you talk to someone at the mortage servicing company, including the date, time, name of the person you spoke with, and what you talked about.


Provide any documentation that the servicer requests and keep copies for yourself. Make a note in your notebook of what you provided, when you provided it, and how you sent it to the servicer (email, fax, mail, overnight mail service). If the servicer does not provide you with the information you requested or if you dispute how the servicer is handling your account, you may send the servicer a more formal request, called a “notice of error” or “request for information,” to ensure that they respond in a timely manner and correct any errors.


Sending Your Servicer a Notice of Error or Request for Information.

Your servicer must respond to a written request for information or investigate any claims of error concerning your account, including your escrow account. Your writing must identify your account, such as an account number, along with your name and the address of the property. Include the reasons you believe the account is in error. Be clear and as specific as possible about any question you have or information you are requesting. Your letter can both dispute an error and ask for more information.


Your request should not be written on a payment coupon or included with your payment, but should be in a separate letter to your servicer. Make a copy and send the letter return receipt requested, so that you have a record of when the servicer receives it.


You must send the notice to the address the servicer has identified as appropriate for such a request, which often is different than the address for mailing payments. Otherwise, the servicer may not respond or you may lose the legal right to force your servicer to correct the error. The servicer may have sent you a separate letter listing the address or it may be listed on a transfer of servicing statement, an annual escrow statement, or a monthly billing statement. You can also check the servicer’s website or call the servicer’s customer service center. Be sure to send your notice to the correct address as your servicer may have many different addresses listed on its website and statements.


Here is an example of such a letter to the servicer:


SAMPLE “REQUEST FOR INFORMATION/NOTICE OF ERROR”
Ken and Susan Consumer
12 Budding Bloom Lane
Elizabeth, New Jersey

January 23, 2019

Last Dollar Mortgage Co.
398 Rockefeller Drive St.
Albans, WV 25177

Attention: Borrower Inquiry Department RE: Account #123234 Dear Last Dollar Mortgage Co.:

We dispute the amount that you claim is owed on our monthly Mortgage Statement and request that you send us information about the fees, costs, and escrow charges on our loan. Please treat this letter as a “notice of error” and a “request for information” under the Real Estate Settlement and Procedures Act (section 2605(e)).

Specifically, we are requesting the following information:

• • A payment history or schedule that can be easily read and understood listing the dates and amounts of all payments and transactions credited or debited to our account, including any escrow account and any suspense account, and showing how they have been applied or credited or, if not applied, showing how they have been treated;
• • A breakdown of the amount of claimed arrears or delinquencies on our account, including an itemization of all fees and charges you claim are currently due;
• • The current balance in any suspense account and the reason why such funds were deposited in the account;
• • The payment dates, purpose of payment, and recipient of all foreclosure fees and costs that have been charged to our account or have been advanced on our behalf since [insert date Last Dollar Mortgage took over the servicing];
• • The payment dates, purpose of payment, and recipient of all escrow items charged to our account in the last twenty-four months;
• • A breakdown of our current escrow payment showing how it was calculated and the reasons for any increase or decrease in the last twenty-four months (include a copy of any annual escrow statements prepared within the last twenty-four months); and
• • Any notes created by your personnel reflecting communications with us about our mortgage account.
• Also, on October 1, 2018, we sent our October payment to First Dollar Mortgage Co., which had been servicing our mortgage before it was transferred to you. Our October payment was never credited to our account. Please correct this error. Thank you for taking the time to acknowledge and answer this request as required by the Real Estate Settlement Procedures Act (section 2605(e)).
  
• Very truly yours, Ken and Susan Consumer [certified mail]
  

The servicer must acknowledge receipt of your request within five business days of receipt, and must respond within thirty business days (forty-five days if it notifies you of the extension). The response cannot simply state that it was right or that it has no information. Federal law requires that the servicer conduct a “reasonable investigation” based on your request. Its written response should show that it did this investigation. For sixty days after you send a notice of error about a payment dispute, the servicer cannot give any information to credit reporting agencies that a payment related to your inquiry is overdue.


Request Validation of the Debt. The first time an attorney for the lender or for the servicer sends you a letter demanding payment, that letter should include a notice of your right to dispute the mortgage debt. Sometimes the notice of your right to dispute will arrive seperately within five days after the attorney first communicates with you about the debt. If you then dispute the debt in writing within the next thirty days, the attorney must stop collection efforts while your dispute is investigated.


Setting Up a “Tender” Defense. If you dispute the amount you are delinquent on your mortgage loan, you may want to offer the undisputed amount that is delinquent, while not paying the amount you dispute. This is called a “tender.” The letter should also state that the amount is offered in “full satisfaction of the dispute.” That way, if you are right about what is owed, you are not delinquent and the servicer should not be able to foreclose. On the other hand, if you also withhold the amounts that are not in disputed, the servicer can claim it has the right to foreclose.


Most often, your tender will be returned and then you may have the defense that the money was offered and refused, depending upon your state law. Keep your letter and the servicer’s response as proof. You should set the money aside, if possible in a bank account, while the dispute is being resolved. You can add the claim of tender to your defenses in the legal process, if the matter reaches foreclosure.


Escrow, Taxes, and Insurance

Your Rights Concerning Your Escrow Account. If your monthly mortgage payment includes an amount to cover property insurance and taxes on your home, you have a mortgage with an “escrow” or “impound” account. Your servicer is supposed to pay the insurance and tax bills for you when they are due.


Under federal law your servicer must give you an initial statement when your escrow account is first set up and periodic statements at least once per year after that. These statements must include the amount of your current escrow payment, the amount your escrow payment will be for the next year, the total amount you paid into the escrow account during the past year, and the total amount paid out of the escrow account during the past year for taxes, insurance premiums, and other escrow bills. However, the servicer is not required to send this statement if you are more than thirty days behind in payments.


If your annual escrow account statement shows that there is a balance of $50 or more from the previous year, you are entitled to a refund. If your statement shows that your account has a balance smaller than expected (a “shortage”) or a negative balance (a “deficiency”) your servicer will include this amount in your next annual escrow statement so that it is paid back in future escrow payments over the next year. If you want to spread out repayment of this shortage or deficiency for more months than the servicer is offering you, ask the servicer. If that does not work, ask for the supervisor in the escrow or collection department. On the other hand, as long as you pay what the servicer requests for escrow, the servicer must pay your property tax and insurance even if there is not enough money in your escrow account.


Servicers should pay from your escrow your taxes, property insurance, and other escrow bills on time, before the deadline for avoiding penalties such as interest or late fees. You should not have to pay for interest and late fees, and should ask the servicer for a refund if these are included in your escrow account statement. If the bill for interest or some other penalty is sent to you instead, send this bill to your servicer (keeping a copy) and insist that they pay it with their funds.


Avoid Force-Placed Insurance.

If you do not have an escrow account and the servicer believes you do not have homeowner’s insurance covering your home, it will purchase over-priced insurance providing you only limited protection, and then charge you for it or add it to your monthly payments. This is called “force-placed insurance” and you should avoid this at all costs.


If your own insurance company or servicer notifies you that you do not have homeowner’s insurance, take this seriously and act immediately. If you do have insurance, provide the servicer with proof—the policy number, the name of your insurance company or agent, and written proof you have the insurance. If you don’t have insurance, obtain your own insurance as soon as possible, and provide the servicer with proof and request that they cancel the insurance that they purchased for you.
If your insurance is being canceled for nonpayment and there is an escrow account on your mortgage, the servicer must pay your existing insurance policy rather than purchase force-placed insurance, even if there is not enough money in the escrow account to pay your policy. The servicer will then require that you repay any money it advanced to pay your policy, usually by adding the amount to your future escrow payments.


Private Mortgage Insurance.

Most mortgage borrowers are required to purchase private mortgage insurance (PMI) protecting the lender against a mortgage loan default. This cost is included in your monthly payments. PMI is expensive and only protects the lender. Cancelling PMI brings down your mortgage payments and has no down-side for you. If you have PMI, the servicer must cancel it on your request if your remaining mortgage loan balance is less than 80% of your home’s purchase price. Also try to ask the servicer to cancel PMI whenever your home is worth a lot more than your mortgage balance.


Credit Life and Disability Insurance.

Credit life, disability, and unemployment insurance coverage pays off some of your mortgage loan if you pass on, become disabled, or unemployed. This insurance is overpriced, expensive, and offers limited protection. Consider cancelling it, particularly when you are having trouble paying your mortgage. Look at your loan documents and monthly statement to see if it is listed there.

Reduced Mortgage Rates for Active Duty Military

When a homeowner entered into a mortgage loan prior to become active duty military, federal law requires that the homeowner while on active duty and for one year thereafter shall not pay an interest rate exceeding 6%. This includes any fees or other charges payable on the loan (late charges, for example). Any interest that you have been paying over 6% is eliminated while you are on active duty and for another year—the excess interest is not just put off until later.


If you are paying more than 6%, you not only can get your rate reduced, but the lender has to give you a credit for any interest charged to you above that rate while you were on active duty. One year after you leave active duty, the rate can be increased to the old rate.

To take advantage of this law, you must provide the lender or other creditor with written notice including a copy of the orders calling you to military service and any orders extending active duty. This must be done no later than 180 days after the date of the termination of military service. The interest rate reduction is then retroactive to the date active duty began.

(Continued in Parts II and III)

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Criminal Justice Debt: Consumer Debt Advice from NCLC
Brian Highsmith

An important and increasingly widespread category of consumer debt is fines, fees, surcharges, and other costs assessed by courts, state agencies, or even private parties as a result of a consumer’s law violation—everything from a traffic ticket to a fee for using a government-appointed lawyer to the premium on a commercial bail bond. Nonpayment of these criminal justice debts can have serious consequences, and you should never ignore them, but instead understand your rights and deal with these debts in a careful and reasoned manner.

This article helps you identify your criminal justice debts, explains why such debts require immediate and careful attention, and then provides advice on dealing with these debts. The article explains your defenses to incarceration for nonpayment, provides advice on how to keep your driver’s license when it was suspended for nonpayment of criminal justice debt, and describes your ability to obtain a payment plan or otherwise reduce or delay payment. Finally the article sets out your rights in responding to a collection action on criminal justice debt—that a debt is too old, that state law protects your income or assets from seizure, and what a bankruptcy filing can and cannot do to deal with criminal justice debt.

More than for most other debts, the advice of an attorney is recommended and this article has tips on finding an attorney.


Identifying the Type of Criminal Justice Debt You Have
When you are being dunned for a debt, it is important to determine if it is criminal justice debt, and if so, the type of debt and to whom the debt is owed. This will often determine how you respond to that debt. If you think it might possibly be criminal justice debt, contact your lawyer in the criminal proceeding to ask them to send information about how much you owe, to whom, for what, and what your options for payment are. If you don’t have a lawyer, ask the court clerk or the company or government office that is demanding payment.


Types of Government and Court Debt:

• • Fines: Monetary fines are imposed by courts as penalties for committing an infraction, misdemeanor, or felony.


• • Fees: User fees or costs are imposed to help government recover the costs of prosecuting, incarcerating, or supervising criminal defendants, or to otherwise pay the costs of the legal system. Examples include jury fees, expert witness costs, costs of extradition, costs of incarceration, and appointed defense counsel costs. Unlike fines, fees and costs are not intended to be punitive and the amount charged may be based on the cost of providing the service or based on a preset schedule.


• • Surcharges: Surcharges are a flat fee or percentage added to a fine to fund a particular government function, rather than being tied to the cost involved in prosecuting the defendant.


• • Interest, collection costs, payment plan costs, and penalties: If you do not immediately pay your fine, fee, or surcharge, the amount may grow with interest, collection costs, late payment penalties, and costs associated with a payment plan.


• • Restitution: A defendant pays restitution to compensate crime victims for losses suffered as a result of the defendant’s actions. Usually it is sent to the victim, but in some states it goes to a government agency.

Debts Owed to Private Companies.

Surprisingly, many criminal justice debts are now owed to private companies rather than to the state. These private companies may offer and charge you for bail bonds, prison phone and video-calling services, debit release cards, probation, court-ordered rehabilitation programs, and GPS monitoring. Your rights may be different dealing with debts owed to a private company than to the government.

Who Is Now Seeking to Collect the Debt?

Often the government, court, or private party that imposed the debt on you is the person who is now trying to collect on the debt. Other times, private debt collection agencies are even hired to collect debts owed the government.


Why You Must Pay Special Attention to Criminal Justice Debt

In some states, not paying criminal justice debts can result in your imprisonment. Outstanding criminal justice debt can lead to your arrest on debt-related warrants and your detention in jail while awaiting a hearing to explain the reasons for your failing to pay. Your payment also may be a condition of your sentence or probation, and your probation is extended until the debt is paid. Many “clean slate” programs that expunge criminal records require participants to have fully paid off their fines and fees.


If you have outstanding criminal justice debt, you may be required to appear at regular court review hearings, which can be disruptive of your other obligations. The government can also seize your tax refunds and bank accounts and part of your wages, offset your public benefits, and even seize your property. Government agencies can also hire debt collectors and report your debt to a credit bureau.


Unpaid criminal justice debt also can get larger over time, due to mandatory interest, penalties for late payment or nonpayment, or other collection costs that accrue from the date of judgment or missed payment. In some states, interest may even accrue when you are in prison or jail.


For these reasons, pay close attention to criminal justice debt. Both governments and private companies have the unique ability—beyond what is available to most other creditors—to enforce collection of criminal justice debt through the criminal legal system. These are high priority debts, which should be prioritized ahead of credit card, medical, and many other debts.


Carefully read any mail from courts or government agencies. Show up to court appointments, or contact the court as soon as you can if you can’t make that date. If going to court interferes with a job or otherwise is a hardship, ask about ways to make reports or payments to the court online or over the phone rather than in person. If you cannot pay criminal justice debts, explain to the court or government agency why you cannot pay. Talk to an attorney about ways to cancel or reduce your debt.


The Risks of Using a Bail Bondsman.

If you cannot pay your bail, a bail bondsman may pay your bail, and charge you a premium of around 10% of the bail. You permanently lose this 10% even if you show up in court and even if you win the case. You also agree that you and anyone who guarantees your bail must repay the bondsman if you fail to appear and the bail is forfeited.


If the bail is forfeited, you or your guarantors who put up property as collateral for the loan may lose that property if the amount is not paid immediately.

You and your guarantors are also likely to be subject to harsh and deceptive collection attempts, including threats to send arrestees back to jail without a legal basis to do so, forcing bail bond cosigners to turn over property that was used as collateral in cases where the arrestee complied with the terms of the bail, and threatening or apprehending individuals in order to coerce them to make premium payments. Bail bondsmen may seek to collect undisclosed or illegal fees and may engage in deception about the terms of the bail agreement and your legal options. Do not always believe what a bail bondsman tells you.


Defending Against Incarceration for Nonpayment of Criminal Justice Debt

If you face incarceration for nonpayment of criminal justice debt, you should seek legal counsel and press your constitutional rights. The government should not imprison you because you cannot afford to pay a debt. The U.S. Supreme Court has ruled that it is unconstitutional to imprison you for debt without a meaningful consideration of your ability to pay or the availability of alternative punishments.


Nevertheless, not all courts in practice consider your ability to pay and some do so only in a cursory or inadequate manner. This is where having a lawyer can help. You can ask the court to appoint a free attorney for you, or contact your local public defender office, legal services office, or bar association for help finding an attorney.


If you do not have an attorney, you should tell the court that you are unable to pay the court debt and should not be punished for that reason. Be prepared to explain why you cannot afford the debt, and to provide evidence of your inability to pay, such as proof of your income, necessary expenses for yourself and your family, receipt of public benefits, outstanding debts, and reasons you have been unable to work or to earn more, such as disability, incarceration, childcare obligations, or unsuccessful efforts to get a new job.


The more information and details you document the better. Documenting your financial circumstances is not an assessment of character. In most cases, honestly conveying financial hardship will help you and will not result in more jail time due to your inability to pay.


Keeping or Reinstating Your Driver’s License

Forty-three states and the District of Columbia suspend millions of drivers’ licenses for nonpayment of traffic violations as well as other criminal justice debts—even if you cannot afford to pay the fine. In many states, driving with a suspended license is misdemeanor offense that can lead to a criminal conviction, violation of probation or parole, and additional fines and fees.


Reinstating a suspended driver’s license can be an onerous process. Many states keep a suspension in place until you have either made full payment on your all criminal justice debts owed to the state or entered into a payment plan to do so. Some states also charge an additional reinstatement fee.


Contact the Department of Motor Vehicles in your state to find out what criminal justice debts resulted in your license being suspended and how to go about getting the license reinstated. Using this information, contact they appropriate court or state agency to whom the debt is owed. Ask how much you owe and whether you are eligible for a payment plan or payment alternatives like community service. If interest was accruing on the debt while you were incarcerated, you may ask to have the interest charges waived.


If your court debt is related to probation, parole, or a suspended jail sentence, you may want to check with a criminal defense attorney before contacting the court on your own. Although unlikely, it is possible that contacting the court about unpaid court debt could lead the court to take enforcement action against you.


Payment Plans and Other Ways to Delay or Reduce Payment

Especially with the assistance of an attorney, you may be able to reduce or even cancel (often called “remit”) your criminal justice debt, either in whole or in part. Alternatively, you may be able to enter into a payment plan—or modify a plan you are currently on—based on your financial situation or other relevant factors. In some states, courts may also be able to stop your payments altogether for a certain period if you are on public benefits or have little income.


Many states allow judges, based on financial hardship, to modify or cancel a criminal justice debt owed to the government. You can ask for this relief in a hearing to show cause for nonpayment, in a probation or payment status hearing, or through an affirmative petition to the court to remit the debt.


A payment plan might be a good way to manage payment of a criminal justice debt that you cannot afford to pay off all at once. Only agree to a payment plan you can afford. Be honest about your ability to make future payments. Ask about payment plan options as soon as possible; your ability to get into a payment plan may depend on how long you have been behind on your payments. In some states you must request a payment plan before your debt is sent to a collection agency.


Sometimes lawyers can work things out with a probation officer or other monitoring official to gain you more time to make a payment. Again, this is easier to do if you raise it as soon as possible.


Community Service As an Alternative.

If you cannot get criminal justice debts waived, and are unable to pay them, in at least some states you can ask the court to consider community service instead of a fine or fee. Community services can be an excellent option for you if the work will be meaningful, promotes useful job skills or connections, and is reasonably convenient. But it is not for everyone, particularly if you have physical or mental disabilities, substance abuse issues, lack of access to transportation, or inflexible schedules due to work or child care obligations, or other responsibilities. If you have debts from different courts, it may not be possible to complete community service for each of them simultaneously.


Asserting Your Rights Against Collection

Statute of Limitations.

In some states, after a certain number of years, you no longer have to pay your unpaid criminal justice debt. How many years this will be depends on your state—the answer is found in laws sometimes called “statutes of limitations” or “statutes of repose” or laws that say that after a certain number of years your criminal justice debt shall be “written off.” Federal court criminal justice debt, on the other hand, can be collected up to twenty years after the debt is imposed or you are released from incarceration on the underlying charge, whichever is later.

Protecting Assets and Income Against Garnishment.

While governments can seize part of your wages, your bank account, and other assets to pay your criminal justice debt, there are limits to their ability to do so. As explained in a prior article, federal law protects most of your wages, payments for Social Security, Supplemental Security Income (SSI), VA, and certain other federal benefits, from seizure to pay criminal justice debt.


Whether a state court or agency can seize your state public benefits, your bank account, or even your home, car, or other assets is a more complicated question. The assets that state exemption laws protect vary by state, but may include state public benefit payments, tools of your trade, your home and car up to a certain value, and even a certain amount of cash. Nevertheless, in some states these exemption laws do not apply to the collection of criminal justice debt. Your best approach is to find a lawyer to help you understand how much of your income and property can be seized to pay your criminal justice debts and how much is protected from seizure.


Filing for Bankruptcy.

Bankruptcy is a powerful tool for dealing with criminal justice debt. Filing bankruptcy can eliminate some of your criminal justice debt entirely and provide an orderly way for paying those criminal justice debts that bankruptcy cannot eliminate.


Bankruptcy can also allow you to take advantage of state programs to expunge or seal your criminal record that may otherwise be unavailable to you due to your outstanding criminal justice debt. A bankruptcy filing can also protect your driver’s license or vehicle registration from being suspended if that suspension is based on your nonpayment of traffic fines or other court debt that you can discharge in bankruptcy.


The relief you will receive from criminal justice debt by filing bankruptcy will depend on whether you file under chapter 7 or chapter 13.

The purpose of a chapter 7 bankruptcy will be to eliminate or “discharge” certain debts entirely. A chapter 7 bankruptcy can discharge only certain criminal justice debt, but not most other types. It cannot discharge traffic debts, parking debts, and other fines and civil penalties. Also not dischargeable in a chapter 7 bankruptcy are criminal justice debts flowing from a court order for you to pay restitution. Parents can discharge restitution debts based on the actions of a juvenile.


More complicated is whether debt based on “costs” and surcharges are dischargeable in a chapter 7 bankruptcy, such as costs of prosecution, indigent defense fees, costs of probation, and surcharges assessed to a defendant. Also complicated is whether forfeited bail and bond debt owed either to the state or a bail bondsman is dischargeable in a chapter 7 bankruptcy. You should discuss these issues with a bankruptcy attorney.


A chapter 13 bankruptcy will offer more effective options for dealing with criminal justice debt. When you file a chapter 13 bankruptcy, you submit a plan to repay your creditors all or part of what they are owed. When you have successfully completed your chapter 13 plan, you receive a discharge that typically resolves much of your criminal justice debt.


In a chapter 13 bankruptcy, you can spread out payment for all of your criminal justice debt in installments over the life of your chapter 13 plan, typically from three to five years. In addition, with the exception of punitive fines or restitution entered as part of a sentence in a criminal case, you typically do not have to pay 100% of your criminal justice debts over the life of the plan. Instead you may have to pay only 10 cents or even zero cents on the dollar if your income is low enough and your assets fully exempt. For punitive fines and restitution you have to make full payment, but you can do so in installments over the three to five year length of your chapter 13 plan.


Seeking Legal Advice.

If you have low or no income, you may be able to obtain free legal representation on criminal justice debt issues, particularly if you are facing incarceration for nonpayment. If you were represented by a lawyer in a criminal case in which the fines, fees, or other debts were imposed, you may want to contact that lawyer. Your lawyer may be able to represent you or at least counsel you about your options for dealing with the debt, or refer you to another lawyer who can. If you were not represented by a lawyer when the debt was imposed, you may want to look into whether legal help is available by contacting the court that imposed the debt or the local public defender’s office.


Legal services offices, pro bono attorneys affiliated with local bar associations, and other civil attorneys may also play important roles in representing clients in collection-related proceedings—including when incarceration is a potential risk. Attorneys with expertise in debt collection actions and in representing indigent clients may provide a valuable service by defending clients in collection actions or representing them in hearings related to criminal justice nonpayment. Additionally, legal services and pro bono attorneys may provide valuable representation in affirmative proceedings to modify a debt obligation or repayment plan.

Knopick v. Jayco, Inc.


Docket: 17-2285

Opinion Date: July 11, 2018
Judge: HAMILTON
Areas of Law: Business Law, Consumer Law, Contracts

Knopick purchased a Jayco recreational vehicle from an independent Iowa dealer for $414,583, taking title through an LLC he alone controlled. Jayco’s two-year limited manufacturer’s warranty disclaims all implied warranties and “does not cover … any RV used for rental or other commercial purposes,” explains that an RV is “used for commercial and/or business purposes if the RV owner or user files a tax form claiming any business or commercial tax benefit related to the RV, or if the RV is purchased, registered or titled in a business name,” and states that performance of repairs excluded from coverage are "goodwill" repairs and do not alter the warranty. Almost immediately, Knopick claims, the RV leaked, smelled of sewage, had paint issues, and contained poorly installed features, including bedspreads screwed into furniture and staples protruding from the carpet. Knopick drove it to Jayco’s Indiana factory for repairs. He later picked up the RV to drive to his Texas home. Concerned about continuing problems, Knopick left it at a Missouri repair facility, from which a Jayco driver took it to Indiana for further repairs. Jayco later had a driver deliver the coach to Knopick in Arkansas.

Knopick remained unsatisfied and sued for breach of warranty under state law and the Magnuson-Moss Warranty Act, 15 U.S.C. 2301. The Seventh Circuit affirmed summary judgment for Jayco, finding that Knopick had no rights under the warranty because the RV was purchased by a business entity.

Stopping Debt Collection Harassment: Consumer Debt Advice from NCLC
by April Kuehnhoff

This article focuses on stopping debt harassment. Do not let debt collectors pressure you. The article explains the limits on what a debt collector can do and sets out eight ways to stop debt harassment—including four sample letters. The article also enumerates illegal debt collection practices and explains how it is practical to hire an attorney to sue the collector for damages.


Do Not Let Collectors Pressure You

Do not let debt collection harassment force you into wrong decisions. Make your own choices about which debts to pay first based on what is best for you.

You are not a deadbeat—circumstances outside your control prevent you from paying all your debts. The most common reasons most people cannot pay their bills are job loss, illness, divorce, or other unexpected events. And, creditors and collectors know this. The debt collector’s job is to try to convince you to pay their debt first. Your job, however, is to make the right choices for you and your family.


What Collectors Can Legally Do to Collect on a Debt

Most debts, such as almost all credit card obligations, medical bills, and cell phone charges are “unsecured.” You do not have to put up any collateral such as your home or car to secure repayment. An unsecured creditor collecting a debt that is not owed to the government (for example, tax debts or federal student loans) can only legally do the following four things if you do not pay their debt:

1. Stop doing business with you. A credit card issuer can cancel your card or a dentist might refuse to let you continue as a patient. Usually, even if one merchant stops doing business with you, you can find someone else who will do so, on a cash basis or even on credit.


2. Report the delinquent debt to a credit bureau. The fact that you are behind on your bills will likely end up on your credit record. You cannot stop this, short of always being current on all of your bills. While this is unfortunate, it still may not make sense to prioritize this particular bill first just because that collector is threatening to ruin your credit record.

Many creditors routinely report the status of all of their accounts each month to a credit bureau. When the account is turned over to a collection agency, this also may be indicated on your credit report. By the time a collection agency is threatening you about your credit report, your report may already include the fact that the debt is a number of months delinquent and has been turned over for collection. If that is true, the damage to your credit score has already happened. Paying now will not do much to improve your credit rating and failing to pay will not likely do much more damage to your credit rating. Moreover, if the creditor does not normally report information to a credit bureau, the creditor will not start with you.


3. Contact you to ask you to pay. Creditors will attempt to contact you to arrange for payments on overdue accounts. Your account may then be placed with debt collectors who also attempt to reach you. Traditionally most of these communications have been in writing or by phone, but some collectors now use email, text, or other types of communication. Below you will find several different sample letters that are effective in stopping a debt collector from contacting you if you want to avoid debt harassment. In addition, federal law prohibits third-party debt collectors from telling friends, relatives, employers or other third parties about the debt they claim you owe.


4. File a lawsuit to collect the debt. It is hard to predict whether a particular creditor will actually sue on a past-due debt. How aggressively a collection agency threatens suit is no indication whether the creditor will sue, even if the threat appears to come from an attorney.


If the creditor sues you, you have a right to respond and raise defenses. Doing so may stop the creditor from pursuing the case. However, failing to respond to a lawsuit or failing to show up in court when required may result in a win by default for the creditor.


If the creditor does pursue a lawsuit to its conclusion and the judge rules that you owe the debt, the unsecured debt becomes a court judgment. A court judgment is a higher priority debt than the previous unsecured debt. Post-judgment the creditor may be able to use powerful collection tools such as wage or bank account garnishment (depending on state law).


Eight Ways to Stop Debt Collection Harassment

1. Investigate the collector. You may receive calls from scammers pretending to be debt collectors. Do not make any payments unless you are sure that the collector is legitimate. Investigate whether the person calling you is legitimate by asking for the caller’s name, company, phone number, and business address. Simply asking these questions may discourage a phony debt collector from contacting you again.


Also check to see if your state licenses debt collectors and if the company that is contacting you is licensed. If your state does not license debt collectors, check the registry for a neighboring state. A few states also provide licensing information to the Nationwide Multistate Licensing System at www.nmlsconsumeraccess.org. That website will thus provide a few more states where the debt collector might be licensed.


2. The “stop contact” or “cease” letter. The simplest strategy to stop collection harassment is to write the collector a “stop contact” letter, also called a “cease” letter. Then the collector can only acknowledge the letter and notify you about legal steps the collector may take. This a federal right, however, and only applies to collection agencies hired by the creditor and does not apply to creditors collecting their own debts. But even creditors collecting their own debts will often honor such requests. Below is a sample letter:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about an alleged debt you are attempting to collect. You contacted me by [phone/mail], on [date]. You identified the alleged debt as [any information they gave you about the debt].
• Please stop all communication with me and with this address about this alleged debt.


• Thank you for your cooperation.
• Sincerely,
• [Your name]

Important: Even if debt collector stops contacting you because of the letter, you will still owe the debt.

Keep a copy of the letter and send the original by mail, return receipt requested. If a debt collector still continues to contact you, send another letter and once again keep a copy. Let them know that you are aware that they are violating the federal law by continuing to contact you. Keep a careful record of any letters and phone calls you receive after sending the letter, which will be helpful if you sue the debt collector.

You do not need a lawyer to send a cease letter. However, if a cease letter does not stop collection calls, a letter from a lawyer usually will. Collection agencies must stop contacting a consumer known to be represented by a lawyer, as long as the lawyer responds to the collection agency’s inquiries. Even though this requirement does not apply to creditors collecting their own debts, these creditors usually honor such requests from a lawyer. A collector’s lawyer is bound by legal ethics not to contact you if you are represented by a lawyer.


3. The “exempt income” letter. If your only sources of income are state or federal government benefits, your income may be “exempt” or protected from collection. If you inform the collector that government benefits are your only source of income, the collector may voluntarily stop contacting you about the alleged debt.


You can inform collectors over the phone if all of your income is exempt, and you can also send a letter like this one:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about an alleged debt you are attempting to collect. You contacted me by [phone/mail], on [date]. You identified the alleged debt as [any information they gave you about the debt].


• I am living on _______________/month which comes from [name of government benefit(s)]. I believe that all of my income is exempt from collection and creditors may not garnish these payments.


• Sincerely,
• [Your name]

You may want to ask in the letter or a separate letter that the debt collector stop contacting you—see #2, above, for a stop contact or cease letter. Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


4. The “verification” letter. Often it is not even clear what debt a collector is calling you about, and in that case you should never pay the collector, at least not until you obtain more information. Federal law gives you the right to obtain a verification of a debt from a third-party collector if you send a letter within thirty days of receiving the first written notice from the third-party collector. However, if you have questions, you can still send a verification letter even after the thirty-day period has passed. The collector may still respond.


This sample letter outlines some of the different types of information you might request about the debt—you typically do not need to ask for all this information:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name]:
• I am responding to your contact about an alleged debt you are trying to collect. You contacted me by [phone/mail], on [date] and identified the alleged debt as [any information they gave you about the debt].
• Please supply the information below so that I can be fully informed about the alleged debt:
• Why you think I owe the debt and to whom I owe it, including:
• • The name and address of the creditor to whom the alleged debt is currently owed.
• • The name and address of the original creditor and any other names used.
• • A copy of the original contract or other agreement.
• • The name of any other person that is or was required to pay the alleged debt.
• The amount and age of the debt, including:
• • Provide a copy of the last billing statement sent to me by the original creditor.
• • State the amount of the alleged debt when you obtained it.
• • State the date when you obtained the alleged debt.
• • Provide an itemized list of any alleged interest, fees, or charges since the last billing statement from the original creditor.
• • Provide a copy of any agreement expressly authorizing such interest, fees, or additional charges.
• • Provide an itemization showing any payments since the last billing statement from the original creditor.
• • State when the creditor claims this debt became due and when it became delinquent.
• • Identify the date of the last payment made on this account.
• • State when you think the statute of limitations expires for this debt, and how you determined that.
• Details about your authority to collect this debt, including:
• • Provide the number of any license to collect debt in [insert name of the state where you live] and the name of the issuing agency.
• • Provide the number of any license to collect debt in the state where you are located and the name of the issuing agency.
• Please treat this debt as disputed until you provide the information requested.
• Thank you for your cooperation.


• Sincerely,
• [Your name]

Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


5. The “dispute” letter. If you do not think the debt is yours, you should send the collector a dispute letter. Collectors make a lot of mistakes, and disputing the debt may resolve the matter. The letter also stops collection contacts until they send you more information verifying the debt. Here is a sample letter.

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about collecting an alleged debt. You contacted me by [phone/mail], on [date] and identified the alleged debt as [any information they gave you about the debt]. I do not have any responsibility for the debt you’re trying to collect.


• Record that I dispute having any obligation for this debt. If you stop your collection of this debt, and forward or return it to another company, please indicate to them that it is disputed. If you report it to a credit bureau (or have already done so), also report that the debt is disputed.
• Thank you for your cooperation.


• Sincerely,
• [Your name]

Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


You may want to ask the debt collector to stop contacting you in the same letter. Alternatively, you may wish to combine a dispute with a request for verification of certain information. See #2 and #4, above.


6. Negotiating work-out agreements. Too often consumers respond to debt harassment by agreeing to make payments to the collector. You should not pay even a little on a credit card, medical, or other unsecured debt if doing so means that you become delinquent on high priority debts like your rent or payments for a car that you need to get to work or have insufficient resources for essential family expenses like food.


Be wary of making a partial payment on old debts. You cannot be sued on a debt that is a certain number of years old (depending on your state). If you make even a small payment on an old bill, courts may treat this as starting the time period over again, and you can then be sued on the debt only because you made that payment.


Beware of debt settlement companies that promise to negotiate with the creditor on your behalf. These companies typically take large fees and often produce far less than promised. If you do decide to negotiate a payment plan for a reduced amount of the debt, you may get a better deal if you try to work with the creditor and not the debt collector.


Drive a hard bargain on any payment plan you agree to—ask them to reduce the debt. Be careful not to agree to pay more than you can afford. If you’re uncomfortable negotiating on your own, ask a social worker, trusted friend, or relative to help you. Get any deal in writing. Also negotiate to get the creditor to help you with your credit report.


Determine if you are judgment-proof. Being judgment proof means that if the creditor sues you, that creditor will not be able to seize your income or property because they are all exempt under your state law. If you are judgment-proof, offer the creditor little or nothing and just say that it is not worth pursuing you since you are judgment-proof. Also tell them to stop contacting you. See letters at items #2 and #3, above.


7. Complaining to the Consumer Financial Protection Bureau. Send a complaint about a debt collector to the Consumer Financial Protection Bureau at www.consumerfinance.gov/complaint. The agency will forward your complaint to the debt collector and work to get you a response, usually within fifteen days. You can also complain to the consumer protection division of your state attorney general’s office. Some states offer mediation services for consumer disputes.


8. Bankruptcy. Filing your initial papers for personal bankruptcy instantly triggers the “automatic stay” that stops all collection activity against you. As a rule, a bankruptcy filing does not make sense where your only concern is debt harassment since you can stop the harassment with a cease contact letter (see #2, above). Save the bankruptcy option for when you have serious financial problems. For this reason, be wary of an attorney offering to file bankruptcy for you if the only problem is debt harassment.


Illegal Debt Collection Conduct

The major law dealing with illegal debt collection conduct is the federal Fair Debt Collection Practices Act (known as the FDCPA). The FDCPA only applies to debt collectors (including collection attorneys), but state law may have similar requirements for the creditor’s own collection efforts.


The FDCPA requires collection agencies to take certain actions, including:

• • The collection agency must stop contacting you if you make a request in writing.


• • The collection agency, in its initial communication or within five days, must send you a written notice identifying important information about the debt. If you raise a dispute in writing within thirty days of receiving that notice, the collector must suspend collection efforts on the disputed portion of the debt until the collector responds to the request.

The FDCPA also prohibits collection actions from engaging in harassing conduct, including:

• • Communicating about a debt without your permission with your relatives, employers, friends, neighbors, or others. Collectors may contact attorneys, credit bureaus, cosigners, and your spouse. They can contact others only to locate you and cannot reveal that a debt is involved.


• • Using any communication, language, or symbols on envelopes or postcards that indicate that the sender is in the debt collection business.


• • Communicating with you at unusual or inconvenient times or places. The times 8:00 a.m. to 9:00 p.m. (in the time zone where you live) are generally considered convenient, but daytime contacts with a consumer known to work a night shift may be inconvenient.


• • Contacting you at work if the collector should know that your employer prohibits personal calls.


• • Contacting you if you are represented by a lawyer.


• • Using obscene words, racial slurs, insulting remarks, or threats of violence.


• • Telephoning repeatedly with intent to annoy, abuse, or harass.


• • Falsely representing the character, amount, or legal status of a debt.


• • Falsely stating or implying a lawyer’s involvement.


• • Stating that nonpayment will result in arrest, garnishment, or seizure of property or wages, unless such actions are lawful, and unless the collector fully intends to take such action.


• • Failing to disclose in communications that the collector is attempting to collect a debt.


• • Collecting fees or charges the collector is not entitled to collect.


• • Depositing post-dated checks before their date.


• • Creating the false impression that the collector is an affiliate or agent of the government.

Finding an Attorney to Sue a Debt Collector.

You can sue debt collectors that violate your rights under federal law. If you win a lawsuit under the FDCPA, you can recover money for any injuries, up to $1000 in additional damages, and attorney fees.


The National Association of Consumer Advocates (NACA) is a good resource to help you find an attorney to take your case to sue a debt collector for illegal debt collection conduct. Members by state and specialty are listed at www.consumeradvocates.org/find-an-attorney.


Families with low incomes and limited assets may be eligible to obtain free legal services from a neighborhood legal services office. You can find legal aid programs at www.lawhelp.org/find-help. Other consumers can contact local bar associations for attorney referrals.


What You Should Tell Your Attorney. Once you find an attorney, tell him or her how the collector’s misconduct affected you and your family. Overcome any reluctance to discuss your feelings about the harassment, since the details will be critical in determining what kind of legal case you have. All symptoms of emotional distress should be discussed, including: anxiety, embarrassment, headaches, nausea, indignation, irritability, loss of sleep, and interference with family or work relationships. Did you consult a doctor? Were there illnesses brought on by the harassment?


Share information about out-of-pocket losses with your attorney, from loss of employment to loss of wages because of time taken off from work to try to resolve the dispute. In addition, telephone charges, transportation, medical bills, and counseling services could all be part of your actual damages. Keep a record of all expenses related to the collection effort.


Make a log of all collection contacts with as many details as possible for each contact: time, date, company, caller, and what was said. Abusive voicemail messages should not be erased, if at all possible.

Wells Fargo -- the bank with the getaway vehicle for a logo -- blames its widespread criminal conduct not on its management but instead on thousands of rank and file employees who weren't in charge of anything.

library.nclc.org


Wage Garnishments and Bank Account Seizures:

Consumer Debt Advice from NCLC
Author --- Carolyn Carter


This article focuses on consumer rights and strategies to deal with your civil court judgment debt. Creditors and debt buyers bring millions of collection lawsuits which usually result in a court judgment for the creditor or debt buyer. A court judgment for the creditor triggers the creditor’s right to seize your wages, benefits, bank accounts, cars, and even your home. This article sets out consumer rights and strategies for responding to and limiting these creditor rights.As discussed below, once a debt becomes judgment debt, it can quickly lead to loss of wages, benefits, bank accounts, personal property, and even your home. In extreme cases, it can even result in your incarceration.

You have rights to limit these consequences, but to protect your property you must understand these rights and raise them aggressively when a creditor tries to take these steps.


Although you should have received notice of a lawsuit against you and notice of any ruling from the court that you owe a debt, surprisingly often consumers never know that a judgment was entered against them. The first they learn about the court ruling is when their wages are garnished, their bank accounts frozen, or their property seized. Always pay close attention to any legal documents sent to you so that you can head off the worst.


On the other hand, a creditor cannot seize your wages, bank account, or property unless and until it brings a law suit and a court enters a judgment against you. There are two exceptions to this:

1.  * Secured creditors, such as your auto or mortgage lender, can seize their collateral if you get behind on your payments to them.
2. * The government can garnish your wages and seize tax refunds to repay student loans or other debt owed to the government.

But for credit card, medical, and other unsecured debt owed to private creditors, your wages, bank account and property are not at risk until a court issues a judgment against you.


Even if a court does enter judgment against you, there are still legal limits on how much or if any of your wages, government benefits, and money in your bank account can be seized and limits on whether property can be sold to pay off your debts. For many people, these limits mean that there is nothing that a creditor or court can do to make you pay a court judgment. This is called being “judgment proof” or “collection proof.”


To be collection proof, your income must be low enough that it is fully protected from garnishment, that all of the money in your bank account (if you have one) consists of government benefits or is otherwise protected from seizure, and that your personal property and home are all exempt from seizure. In that case, you do not have to worry about the judgment debt until your financial situation substantially improves. When your financial situation does improve, however, the creditor may be able to collect on its debt at that point.


If you are not collection proof, then you must pay careful attention to the implications of a court judgment against you. This article outlines how to protect your wages and property from seizure to pay your court judgment debt and other steps you should take when your wages and property are at risk.


Garnishment of Your Wages

When there is a court judgment against you, the creditor has the right to “garnish” your wages. This means that the creditor can get a court order requiring your employer to deduct a portion of your wages from your paycheck and send it to the court to be applied to the judgment debt. With the exception of a student loan debt or a debt owed the government, garnishment can take place only after the creditor obtains a court judgment against you.


After obtaining a court judgment, the creditor must file a request for garnishment with the court clerk, sheriff, or another local official depending on state practice. A notice is then issued to the “garnishee” (your employer), directing it to turn over a portion of your paycheck at a specified time. You must be given notice of the garnishment and you can request a hearing to prove that state or federal law protects your money from garnishment. In some states, you have the right to ask the court to reduce the amount of the garnishment because of hardship or because you have recently received public assistance.


A portion of your wages is protected from seizure. Federal law protects most of your wages from garnishment, and, if your wages are very low, your paycheck is entirely protected. “Wages” that are protected include commissions, vacation pay, sick pay, disability benefit payments, and pension and retirement payments. The first $217.50 from weekly take-home pay, after taxes and Social Security are deducted, cannot be garnished at all. This amount will go up if the current federal minimum wage of $7.25 per hour goes up.


If your take-home pay is between $217.50 and $290 a week, then only the amount over $217.50 can be garnished. If your take-home pay is more than $290 a week, then 25% of your wages can be garnished. For example, if your weekly take-home pay is $250, then $32.50 a week ($250 minus $217.50) can be garnished. If your take-home pay is $600 a week, $150 a week (25% of your pay) can be garnished. A higher amount can be garnished if the debt is for child support or alimony. If your wages are garnished, your employer will be given instructions about how to make these calculations. You do not have to do anything to trigger the protected amounts, but you may want to double-check your employer’s calculations.


Importantly, this is the federal limit on garnishment.

State law may limit garnishment even more or even prohibit wage garnishment. However,

Neither the federal nor state limits on wage garnishment may apply once your paycheck has been deposited into your bank account.


Federal law also protects you from being fired because you are being garnished for a debt. This protection does not apply, however, if your wages are being garnished for more than one debt.


If you are an independent contractor. Some workers are classified by their employers as independent contractors. (Your employer is probably treating you as an independent contractor if it is not deducting your Social Security contribution from your pay check.) Most courts rule that federal limits on wage garnishment do not apply to payments you receive as an independent contractor.


In theory, a creditor could get an order seizing all of the payments to you as an independent contractor to repay a judgment debt. However, this will be complicated for the creditor and many creditors won’t even try to do so. In addition, some states protect independent contractor payments the same as wages.



Government Benefits Completely Protected from Garnishment
Many types of federal and state benefits are completely protected from garnishment. Examples are Social Security, Supplemental Security Income (SSI), and veteran’s benefits (except to pay certain child support obligations). These benefits are protected no matter how much you receive. States also usually exempt TANF (Temporary Assistance for Needy Families) and unemployment compensation benefits from garnishment as well. But once you put these benefits into your bank account, different rules apply.



Freezes and Seizures of Your Bank Account

A creditor can get a court order seizing money from any of your bank accounts to repay a judgment debt. Certain federal benefits, such as Social Security, SSI, and VA benefits, that are deposited in your bank account are protected (with exceptions for child support and debts owed to the federal government).


Federal law requires your bank to protect certain benefits that are direct-deposited into your account within the last two
months. The bank is prohibited from turning over any Social Security, SSI, or VA benefits deposited within the last two months. The bank must send you a notice telling you what it is doing, but you do not have to take any steps to protect these benefits.


Social Security, SSI, or VA benefits deposited into the account more than two months beforehand are also protected—but the protection is not automatic. You will usually have to fill out papers and possibly go to court if you need to protect more than the last two months of benefits.


An easy way to protect all your Social Security, SSI, or VA benefits is to have them loaded onto a Direct Express prepaid card, instead of sent to a bank account. Those funds will then be automatically protected, no matter when they were received. You can sign up for the Direct Express card by calling 1-800-333-1795 or by visiting www.USDirectExpress.com.


As discussed below, other protections for your bank accounts require you to fill out papers and possibly go to court. For example, states usually protect workers compensation, unemployment compensation, and state employee retirement benefits from seizure, and some even allow you to protect wages deposited into your bank account. Some states have laws that protect a set amount in a bank account, such as $200 or $1,000, regardless of the source of the funds.


When a creditor obtains an order to seize your bank account, the bank typically will freeze the funds in your account, giving you a short period of time to claim that the funds are protected from seizure. The burden is on you to show that the funds are protected.


Usually you will find out that your funds have been frozen when you try to withdraw money, write a check, or use your debit card. Social Security, SSI, or veterans benefits directly deposited into your account during the last two months cannot be frozen. But other benefits can be frozen, and you must act quickly to show that at least some of the frozen funds are protected by law and should be unfrozen.


If some of your money on deposit is protected from seizure but some isn’t, it may be helpful to set up two accounts, one of which receives just protected funds. That way, it’s easier to prove that all the money in that account is protected. Spend the money in the unprotected account first.


Protecting Your Car and Personal Possessions from Seizure

In theory, after a creditor gets a court judgment, it can ask a sheriff to seize your car, household goods, or other personal property and then creditor would sell the property to repay the debt, often called “judgment execution.” In practice, most states limit this kind of seizure so much that a creditor has no financial incentive to have this property seized and sold. You have more to fear from wage garnishment or seizure of your bank account than from loss of personal property.


In many states, exemption laws protect your car and other personal property from seizure to pay a court judgment. (Exemption laws do not apply to secured creditors. For example, an auto lender can repossess your car if you do not keep up on your car payments.)


Exemptions laws vary considerably by state. Some laws specify that a specific dollar amount of all your personal property is exempt from seizure, such as $8,000. You can choose which items of your personal property you want to keep, as long as what you keep has a value of $8,000 or less. Others specifically exempt an item of personal property, such as a car, if its value is under a certain amount.


The value of your car or personal property typically is not determined based on what the property is worth, but how much “equity” you have in the property. Your equity is how much the property is worth now minus any amount you still owe on a loan that takes that property as collateral. For example, if your car is worth $10,000, but you owe $7,000 on your car loan, your equity in the car is only $3,000. A $3,000 property exemption would fully protect your $10,000 car from seizure to repay a judgment debt. Remember, however, that if you do not keep up on your payments for the $7,000 car loan, the auto lender can still repossess the car.


States may list certain types of personal property that are totally exempt from seizure, no matter how much money they are worth, such as tools and supplies required for your occupation, clothing, a bible, and certain household goods.


Some creditors or their attorneys or collection agents may try to force you to turn over property that by law is exempt from seizure, pointing to small print in the contract that says you agreed to waive rights under state exemption laws. Do not give in—these contract provisions are illegal and unenforceable.


If the creditor asks a sheriff to seize personal property that is exempt, file a notice of exempt property or take similar steps specified by your state law. In many states, you will need to file papers with the sheriff or a public official by a certain deadline in order to get the benefit of an exemption. The sheriff also cannot seize property in your possession which does not belong to you. To stop its seizure, the property’s rightful owner may have to file a declaration of ownership with the appropriate office.


If the sheriff is able to properly seize your property, it will then be sold at public auction, and the part of the proceeds that are not exempt will go to the creditor to help pay off the judgment. These auctions are usually poorly attended and bring low bids. For this reason, creditors rarely seize used household goods, which will have minimal resale value. If property is sold at auction, you or your friends can attend the auction and re-purchase the possessions at a bargain price. After a sale, if the sale proceeds are not enough to pay the judgment in full, the creditor may keep trying to collect the remainder.


Court judgments remain on the books for many years. Even if a creditor does not try to seize and sell your property after obtaining a judgment, it still may try to do so years later.


Because state exemption laws are complex, you may want to get professional help to understand which items of your personal property are subject to seizure. Look also for a guide to exemption laws for your state, which may be available from the local bar association, a legal services office, or a nonprofit consumer credit counseling agency. Make sure the guide is up-to-date.


Protecting Your Home from Seizure

Your home is at risk of foreclosure if you do not keep up on mortgage payments. Your home is also at risk of being sold if you owe a judgment debt, but that risk is much smaller. When a creditor obtains a court judgment on a debt, even just credit card or medical debt, the creditor can then put a lien on your home for the amount of the debt. With a lien in place, the creditor can then force a sale of your home or the creditor can simply hold onto its lien and wait for you to sell the home before trying to collect on the lien.


In some states, if husband and wife own a home jointly, the home cannot be seized to pay the debts that only one spouse owes. On the other hand, if both spouses are obligated on the debt, the judgment creditor can force a sale.


Most states have a homestead exemption that protects your home from being sold to pay a judgment debt as long as your equity in the home is less than a certain amount. While some states protect $100,000 or more, many states protect less. And few states completely prohibit a creditor from forcing the sale of your home to pay a judgment debt, no matter how much the home is worth.


A homestead exemption can protect your home from seizure based on a judgment debt. However, a homestead exemption does not protect you if you are in default on a first or second mortgage, on a home equity line of credit, or on any other debt if your home is collateral for that debt. In addition, in some states, to benefit from a homestead exemption, you must file a declaration of homestead with your registry of deeds office. In a few states, the declaration must be filed before the credit is granted. If you live in a state where a declaration is required, you should always file it as early as possible. In other states, the protection is automatic.


The homestead exemption is a powerful protection. The exemption’s dollar amount applies not to your home’s value, but instead to the equity in your home—home equity is your home’s present value minus the amount you owe on your first and second mortgages as well as any home equity lines of credit or other loans if your home is collateral for the loan.

• Example:
• Mr. J lives in a state with a homestead exemption of $75,000.


• His home is worth $200,000.
• He has $100,000 in principal still due on his first mortgage.
• And Mr. J has $25,000 owed on a home equity loan.
• The total secured debt on his property = $125,000.

In this case Mr. J’s equity in his home is $200,000 - $125,000 = $75,000.


Since the homestead exemption is $75,000, his home is fully protected. A creditor cannot force the home to be sold to pay a judgment debt.


If Mr. J’s home increases in value to $220,000, and if the total secured debt on his property stays the same, then his equity increases to $220,000 - $125,000 = $95,000. The homestead exemption of $75,000 no longer protects all of Mr. J’s equity. The creditor can force a sale.


The first $100,000 from the sale goes to pay off the first mortgage holder. The next $25,000 pays off the home equity loan. Mr. J. keeps $75,000, the amount of the homestead exemption. After these deductions from the sale price, the judgment creditor gets whatever is left up to the amount of the debt. If there are still any sale proceeds left over, those go to Mr. J.


Even though the home is worth $220,000, the creditor under such facts will probably not try to sell the home to satisfy its lien. If the forced sale of the home only brings in $210,000 and selling expenses are $10,000, then there will be nothing left for the judgment creditor. The judgment creditor instead may wait until Mr. J sells the property, since the judgment creditor’s lien stays on the home for many years. When Mr. J sells his home, anything Mr. J clears over $75,000 (after paying off the first mortgage and home equity line of credit) goes to pay off the judgment creditor’s lien, up to the amount of the debt.


One possible way of getting rid of judgment liens is to file for bankruptcy. To the extent the property is exempt when you file for bankruptcy, the lien can be permanently removed.


The Debtor’s Examination and Debtor’s Prisons

There are no debtor’s prisons in the United States, but you can still be imprisoned if you do not show up for a debtor’s examination. After obtaining a court judgment, a creditor can ask a judge to order you to appear in court or in the office of the creditor’s attorney to answer questions about your income and assets to help the creditor find income or property that the creditor may seize. In some states this procedure is called a debtor’s examination, but the procedure goes by other names in other states. Some creditors routinely request a debtor’s examination. Others never do.


A debtor’s examination is a court-ordered appearance. Failure to show up can result in arrest, citation for contempt, and a jail sentence. A notice to appear for a court examination should never be ignored. Always appear or ask the court in writing for a postponement. Courts usually grant a postponement if the creditor agrees to the request or if you have a good reason.


In responding to a notice of a debtor’s examination, review your assets well before the examination. Determine if all your property is protected by law and if all your income is exempt from garnishment. If so, immediately tell the creditor’s attorney listed on the notice. This may be sufficient to get the creditor to drop the request for an examination since it will just be a waste of everyone’s time. But make sure to get this in writing—do not rely on an oral promise that the examination will be dropped.


If there is an examination, be careful how you answer questions since your answers are made under oath and often are recorded by a court reporter. Lying under oath is perjury, which is a crime punishable by jail. On the other hand, do not volunteer information until you are asked for it. If the examination reveals that you have assets or income not protected by law, the creditor can obtain court orders allowing it to seize those assets or income.


In some states, judges also have the authority to order debtors to make payments on the judgment debt. If you do not pay, the judge can hold you in contempt of court and put you in jail. But even in these states, you must be given an opportunity to prove that you do not have the financial ability to make the payments.


Exemption Planning

If you have property that can be seized to pay a judgment debt, consider “exemption planning” that maximizes the protection of your state’s exemption laws by converting property that can be seized (for example, cash) into property that cannot be seized (for example, household goods or your home).


For example, Mrs. Q has $10,000 in equity in her home and $10,000 in a bank account. Her state has a $20,000 homestead exemption and lets her exempt $3,000 in cash. Her home is thus completely exempt from seizure by a judgment creditor, but $7,000 in her bank account is at risk of seizure.


Instead of losing $7,000 to the creditor, Mrs. Q can prepay the mortgage by $7,000. Her equity in the home increases from $10,000 to $17,000, but her home is still protected by the $20,000 homestead exemption. Her remaining $3,000 in cash is fully protected by the state’s $3,000 cash exemption.


Courts often—but not always—rule that exemption planning is valid. Exemption planning is different than an improper transfer of property where you try to give away property to a friend or relative or sell it for a less than it is worth to someone who will later return it. Creditors can have these bogus transfers cancelled as “fraudulent transfers” or “fraudulent conveyances.”


Workout Agreements to Protect Wages and Property

If your wages, bank account, personal property, or home is at risk from judgment debt, you can approach the creditor or whomever is collecting the debt about a “workout” agreement, even after a court judgment is entered against you. Offer to pay all or a portion of the amount due, over a period of months or even years. The amount you offer to pay should be directly related to what the collector can seize. Do not offer to pay $3,000 over twelve months when the only items the creditor could seize have a market value of $500.


Always get a workout agreement in writing. The written agreement should excuse you from attending any debtor’s examination that has been scheduled and should contain a promise not to use wage garnishment or seizure of your property as long as you continue to make payments. Also ask for an agreement to waive the remainder of the debt if part is paid. Some creditors accept partial payment if they know they can’t get payment in full. For the creditor, some payment is better than none.


Bankruptcy Is the Most Powerful Way to Protect Wages and Property

The most powerful way to prevent loss of wages or property from a judgment debt is to file for bankruptcy. The bankruptcy will immediately stop any seizure and may allow you to keep your property permanently.