About Us
The Institute of Student Loan Advisors Corporation (TISLA) was founded to ensure that all student loan borrowers have access to free, neutral and clear student loan advice and dispute resolution assistance. We are a 501(c)(3) non-profit who believes that these borrowers have a right to a trusted resource with industry experience to mentor, educate and advocate for them. Student loan borrowers have a right to such a resource without being charged a fee, barraged with advertisements or forced to provide personal information that may later be sold.

Our goal is to help you help yourself. We are not here to manage your student loans for you, but to give you expert advice and help you to manage them successfully. We will offer fair, neutral advice that outlines what you are eligible for that is in line with current regulation and statute.

What We Can Do For You

• Offer expert advice on your student loans
• Help you decide which repayment plan make the most sense for you
• Determine if you are eligible for loan forgiveness or discharge
• Offer guidance in any dispute you may have regarding your student loans
• Guide you through completing required forms and applications
• Help you get out of a default or delinquency status
  
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What We Cannot Do For you

• Offer legal advice
• Offer opinions on a particular company or servicer
• Fill out or submit your forms for you
• Pay your loans
• Change the law or regulations
• Manage your loan accounts for you
  
• 
  

Testimonials
From James D. August 1, 2018

“I am very happy that I found freestudentloanadvice.org. I was very frustrated with trying to solve my student loan issues on my own and Betsy was such a great help with advice and follow up. Thank you so much!”

How We Are Funded

At the core of TISLA’s values is the promise of free, neutral and transparent student loan advice. For that reason, we do not accept advertising funds from any businesses nor fees from consumers. TISLA is funded through grants, donations and our fee for service products we offer to employers, schools and associations with constituencies concerned with student debt. 

Such donations and partnerships will be listed on this page to ensure continued transparency. If you are interested in helping to fund TISLA, a 501(c)(3) non-profit organization, please contact betsy “at” freestudentloanadvice.org or donate through donorbox online.

TISLA 2018 Annual Report

Partnership Opportunities

TISLA offers several affordable and customizable packages to suit your constituencies needs for expert student loan repayment education and assistance.  These offerings are suitable for employers looking to attract and retain valuable employees or schools who wish to provide student loan assistance to their alumni, students and employees.  Our services can also be a way for associations to provide additional value to their members.  Please contact betsy “at” freestudentloanadvice.org for more information on partnering with TISLA.

Our Leadership

TISLA is currently completing its board roster. If you, or someone you know, has a passion for the issue of student debt, can contribute their business, non-profit or other expertise and influence, and would like to consider serving, please contact betsy “at” freestudentloanadvice.org

Our Mission

To make certain that all student loan borrowers have access to free, neutral and accurate resources and mentoring to ensure they can successfully manage their student loan debt.

Our Values

• Accuracy
• Clarity
• Integrity
• Professionalism
• Approachable
• Respect
• Neutrality
• Transparency
• To be of service to others

Bankruptcy Exemption Limits (what you can keep) Amounts Going Up

Bankruptcy Code § 104(b) provides that the exemption amounts and other dollar figures in the Code are automatically adjusted for inflation every three years. The adjustments are based on changes to the Consumer Price Index for All Urban Consumers published by the Department of Labor, rounded to the nearest $25.


New dollar amounts take effect on April 1, 2019, and will apply to all cases filed on or after that date. Consumer debtors who may benefit from the higher dollar amounts, particularly with respect to exemptions, the means test, and chapter 13 debt limitations, may wish to delay a bankruptcy filing until the new amounts take effect on April 1, 2019.


Despite popular belief, many lower-income bankruptcy filers can retain all or almost all of their assets in a chapter 7 bankruptcy. The new higher exemption limits means that it is even more likely that consumers can protect their assets in a chapter 7 filing.

New Exemption Amounts Protect More Consumer Property

Consumers in states that have not opted out of the federal exemptions may claim the bankruptcy exemptions under Bankruptcy Code § 522(d), as discussed in NCLC’s Consumer Bankruptcy Law and Practice § 10.2.1.1.

The federal bankruptcy exemptions may also be claimed if the “safe harbor” in Bankruptcy Code § 522(b)(3)(A) applies due to the consumer’s domicile for exemption purposes, even if the state in which the consumer’s domicile is located is otherwise an opt-out state, as discussed in id. § 10.2.1.2.

Exemption amounts refer not to the value of property, but to the consumer’s equity in the property after deducting outstanding credit secured by that property. The exemption amounts in Bankruptcy Code § 522(d) are doubled when a married couple files a joint case. 11 U.S.C. § 522(m).

For a state-by-state summary of state exemption amounts that apply to bankruptcies in certain states and that also protect property from seizure by judgment creditors, see NCLC’s Consumer Bankruptcy Law and Practice Appendix J. The same state-by-state survey is found in NCLC’s Collection Actions Appendix G.

As of April 1, the digital version of NCLC’s Consumer Bankruptcy Law and Practice will be updated throughout showing the new higher dollar amounts, both in the chapters and the Bankruptcy Code appendix (with footnotes showing the old dollar amounts). The following are the new exemption amounts:


Homestead - § 522(d)(1)                                      $25,150
Motor Vehicle - § 522(d)(2)                                   $ 4,000
Household Goods - § 522(d)(3) Per Item Limit        $ 625
Aggregate Limit Household goods                       $13,400
Jewelry - § 522(d)(4)                                             $ 1,700
Wild Card - § 522(d)(5) Any property                    $ 1,325
Wild Card Unused homestead § 522(d)(1)          $12,575
Tools of the Trade - § 522(d)(6)                            $ 2,525
Unmatured Life Insurance - § 522(d)(8)               $13,400
Personal Injury Claims - § 522(d)(11)(D)              $25,150

Exemption for Retirement Accounts

As discussed in NCLC’s Consumer Bankruptcy Law and Practice § 10.2.3.3, the federal bankruptcy exemption for retirement funds in pension plans and individual retirement accounts is available to all debtors, even those in “opt-out” states who would not otherwise be permitted to claim the federal exemptions. 11 U.S.C. § 522(d)(12) and § 522(b)(3)(C). The maximum dollar amount for this exemption also adjusts every three years. 11 U.S.C. § 522(n). The new maximum aggregate value of funds in retirement accounts that may be exempted will be $1,362,800.

Other Dollar Amount Adjustments in the Code

The inflation adjustment also applies to other dollar amounts in the Code, including:

• • Priority for wages and employee benefits under Bankruptcy Code § 507(a)(4) will now be $13,650, and the priority for consumer deposits under Bankruptcy Code § 507(a)(7) will be $3,025. Distribution to priority creditors is discussed in NCLC’s Consumer Bankruptcy Law and Practice § 3.5.4 and § 18.5.5.


• • Debt limits for eligibility for chapter 13 under Bankruptcy Code § 109(e) will also go up—to $419,275 in unsecured debt and to $1,257,850 in secured debt. The chapter 13 debt limitations are discussed at id. § 4.2.1.3.


• • Threshold for the presumption of nondischargeability under Bankruptcy Code § 523(a)(2)(C) for purchases of luxury goods or services incurred within 90 days prior to filing will be $725 and for cash advances within 70 days prior to filing will be $1,000. A discussion of when these presumptions arise can be found at id. § 15.4.3.2.3.2.


• • Dollar amounts under the means test for determining whether a presumption of abuse exists, based on the debtor’s income after expenses over a 60-month period, will now be: (i) $8,175 ($136.25 per month based on 60 period) or 25% of nonpriority unsecured debt, whichever is greater, or (ii) $13,650 ($227.50 per month). 11 U.S.C. § 707(b)(2)(A)(i). These dollar amounts are discussed at id. § 13.4.6.1.


• • The cap on homestead property acquired within 1215 days before the bankruptcy filing under Bankruptcy Code § 522(p) or based on the commission of certain bad acts by the debtor under Bankruptcy Code § 522 (q) will be $170,350. These limitations on state homestead exemptions are discussed at id. § 10.2.3.4.


• • The minimum aggregate amount of property that a trustee may seek to recover as preference in a case filed by a debtor whose debts are primarily consumer debts will now be $6,825. 11 U.S.C. § 547(c)(9). This limitation on a trustee’s ability to avoid transfers as a preference is discussed at id. § 10.4.2.6.4.2.


• • The amount in an education IRA, a section 529 tuition savings program, and a qualified ABLE account that is excluded from property of the estate, if placed in such an account between 365 and 720 days before the petition was filed, will now be $6,825. 11 U.S.C. §§ 541(b)(5)(C), 541(b)(6)(C), 541(b)(10)(C). This exclusion from the bankruptcy estate is discussed at id. § 2.5.3.
  

A bill pending in the U.S. House of Representatives, H.R. 5082, Practice of Law Technical Clarification Act of 2018 (Mooney-Gonzalez) (amending the previously filed H.R. 4550), would exempt attorneys and law firms engaged in litigation from the Fair Debt Collection Practices Act (FDCPA) and eliminate Consumer Financial Protection Bureau (CFPB) authority over them.

The changes made in HR 5082 make it even more harmful to consumers than H.R. 4550 because it would add an exemption from the FDCPA for “any other activities engaged in as part of the practice of law . . . that relate to the legal action.” This vague language expands the scope of the exemption significantly. While the bill requires attorneys to “attempt” to give the consumer legal notice of the lawsuit, abusive activities would be exempt even if the consumer never had actual notice.

Congress1 and the courts2 have recognized for decades that consumers must be protected from false, deceptive, misleading, and unfair practices by lawyers collecting debts in courts. This bill attempts to turn back the clock, and would allow collection attorneys to engage in egregious practices such as:

•     Proceeding to trial without any witnesses or admissible evidence, hoping that consumers will not show up or asking the court to reschedule if they do.3

•     Routinely filing court documents without confirming the accuracy of that information,4 often resulting in default judgments based on inaccurate information.

•     Filing lawsuits in courts hundreds of miles away from the consumers’ homes,5 making it nearly impossible for most consumers to appear in court to defend themselves.6

*     Filing lawsuits on ancient zombie debt after legal time limit to sue has expired7 and when consumers are less likely to have critical records to prove their payments.

•     Seeking fees or costs that are not legally allowable,8 adding to the amount of judgments against consumers who cannot afford attorneys.

•     Misusing state garnishment proceedings,9 such as by knowingly seizing Social Security or other income or property that is exempt from collection."

State Consumer Protection Laws May Not Cover Attorneys.

Maintaining coverage of attorneys under the FDCPA is important because many states do not have laws that are equivalent to the FDCPA. In these states, exempting attorneys from coverage under the FDCPA would mean that no federal or state laws would protect consumers from abusive litigation practices by consumer attorneys.10"

States Do Not Have the Capacity to Protect Consumers.

Even in states that have the legal authority, resources are insufficient to monitor the tens of thousands of debt collection lawsuits that are filed yearly in each state11 or to bring sufficient enforcement or disciplinary actions in response to abusive litigation activity.

Court and Ethical Rules Are No Substitute for the FDCPA.

To date, neither the courts nor bar associations have been effective in policing litigation abuses by collection attorneys.12

There is no reason to believe that these agencies will suddenly step up now if FDCPA sanctions against collection attorneys for litigation abuses are eliminated.

Collection Attorneys Would File More Lawsuits.

H.R. 5082 would exempt lawyers from the FDCPA for conduct in litigation that would be a violation outside of court. For example, misstating the amount owed in a lawsuit would be exempt from FDCPA liability but misstating the amount owed in a pre-litigation letter or phone call would be a violation. As a result, attorneys would be encouraged to file suit first rather than attempting to reach a resolution with consumers outside of court. This would drive a huge increase in collection lawsuits filed in state courts, further clogging the already overburdened trial courts.

H.R. 5082 Would Prohibit CFPB Supervision and Enforcement.

The CFPB has special insights into abusive collection practices through extensive national data from consumer complaints and information gleaned from industry supervision. H.R. 5082 would tie the CFPB's hands and prevent it from acting on abusive practices by attorneys or law firms when they are engaging in debt collection litigation. Previous CFPB enforcement actions against collection law firms have focused on law firms operating large debt collection “mills” churning through a high volume of lawsuits with minimal attorney oversite.13

H.R. 5082 would protect attorneys who engage in abusive litigation collection practices that hurt American consumers. We urge members of Congress to oppose this bill.

For more information, contact attorneys April Kuehnhoff (akuehnhoff@nclc.org or" "617.542.8010) or Margot Saunders (msaunders@nclc.org or 202.595.7844).

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Deciding Whether to File for Bankruptcy: Consumer Debt Advice from NCLC
by John Rao, National Consumer Law Center


Thirteenth in a series from NCLC to help families in financial difficulty. Click here for a list linking to all the articles in this series.

Federal law provides the right to file bankruptcy for people with debt problems.
[Note: Bankruptcy is as old as our Government -- Bankruptcy is in the Constitution.]

This article explains

-- how bankruptcy can help you and when it may be the wrong solution for you.

-- the difference between chapter 7 and 13 bankruptcies,

-- how you know the best time to file for bankruptcy, and

-- what a bankruptcy will cost.

Importantly, the article corrects common misconceptions about bankruptcy.

While you should consider other options first, do not wait until the last minute to think about bankruptcy.
Important rights may be lost by delay.

What Bankruptcy Can and Cannot Do

Bankruptcy may make it possible for you to:

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• • Eliminate your responsibility for many of your debts and get a fresh start. When a debt is discharged at the close of a successful bankruptcy, you have no further legal obligation to pay that debt.
  
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• • Stop foreclosure on your house or manufactured home and allow you an opportunity to catch up on missed payments.
  
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• • Prevent repossession of your car or other property, or force the creditor to return property even after it has been repossessed.
  
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• • Stop wage garnishment, debt collection harassment, and other similar collection activities to give you some breathing room.
  
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• • Prevent termination of utility service or restore service if it has already been terminated.
  
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• • Lower the monthly payments on some debts, including car loans.
  
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• • Allow you an opportunity to challenge the claims of creditors who seek to collect more than they are legally entitled.
  

Bankruptcy, however, cannot cure every financial problem, nor is it an appropriate step for every individual.

In bankruptcy, it is usually not possible to:

• 
  
• • Eliminate certain rights of “secured” creditors. A “secured” creditor has taken some form of lien on your property as collateral for a debt. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process, but you generally cannot keep the collateral unless you continue to pay the debt.
  
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• • Discharge certain types of special debts, such as child support, alimony, most student loans, court restitution orders, criminal fines, and some taxes.
  
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• • Protect all cosigners on their debts. When a relative or friend has cosigned a loan and you discharge the loan in bankruptcy, the cosigner may still have an obligation to repay all or part of the loan.
  
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• • Discharge debts that are incurred after bankruptcy has been filed.
  

Understanding the Difference Between a Chapter 7 and a Chapter 13 Bankruptcy

Your rights are very different depending on whether you file a chapter 7 or a chapter 13 bankruptcy.

In a chapter 7 bankruptcy (called a “liquidation”), you eliminate most of your debts, but may lose your property other than “exempt” property—that is property the law says creditors cannot reach unless they take that property as collateral. For many families most of their property is exempt. In a chapter 13 case (called a “reorganization”), you keep all your property, and pay a portion or all of your debts in installments over a period of three to five years.


How a Bankruptcy Can Help You

An Immediate Stop of Foreclosures, Evictions, Repossessions, Utility Shut-Offs, Garnishments, and Other Creditor Actions.

Your bankruptcy filing will automatically and immediately, without any further legal proceedings, stop most creditor actions against you and your property, at least temporarily.


Your request for bankruptcy protection creates an “automatic stay,” which stops the continuation of or the start of repossessions, garnishments, attachments, utility shut-offs, foreclosures, evictions, and debt collection harassment. The automatic stay provides you time to sort things out and address your financial problems. A creditor cannot take action against you or your property without bankruptcy court permission. Some creditors seek such permission immediately; others never seek permission.


Permission to continue collection activity is rarely granted to unsecured creditors. Secured creditors can get “relief from the stay” in a chapter 7 case to continue foreclosure or repossession of their collateral. But an automatic stay will almost always continue to be in effect to protect you in a chapter 13 bankruptcy case as long as you are making payments on the secured debt.


If the creditor takes action against you despite the automatic stay, the creditor may have to pay you damages and attorney fees and the creditor’s actions against you can be reversed. For example, a foreclosure sale which is held in violation of the automatic stay can be set aside.


Discharge of Most Debts.

When you successfully complete a bankruptcy, there is a “discharge” (that is, a cancellation) of many of your unsecured debts, such as medical bills and credit card obligations, which eliminates all debt collection and other actions concerning those debts. Certain debts may not be discharged, such as most taxes, liens associated with many secured debts, alimony, child support, and debts you incurred after the bankruptcy case was started. After bankruptcy, you will continue to owe those debts. Student loans can be discharged only if you can prove that repayment will be an undue hardship on you and your family.


Bankruptcy cannot prevent creditors from taking your home or car unless you make sufficient payments on your mortgage or car loan. The bankruptcy though prevents these creditors from seeking additional cash from you after they take the collateral. For example, if you do not pay a car loan, the creditor can seize and sell your car, but the bankruptcy prevents the creditor from seeking additional payment from you if the car’s sale price does not cover the full amount of the debt.


Protection Against Wage Garnishment, Bank Seizures, and Enforcement of Judgment Liens.

After you file bankruptcy, creditors are prohibited from garnishing your wages or other income or your bank account. Bankruptcy even stops government agencies from recovering Social Security or other public benefit overpayments, so long as your receipt of the overpayment was not based on fraud.


Bankruptcy also is an effective tool to deal with some types of court judgments against you. If a court judgment for money does not create a lien against your property, that judgment debt can be discharged in bankruptcy. If the judgment does create a lien on your property, you may ask the bankruptcy court to remove the lien if it affects “exempt property,” and then the creditor can never touch that property.


Protection of Your Household Goods from Seizure.

Most families’ household goods are exempt from seizure—you keep them even in bankruptcy. This is the case even when a creditor has taken household goods as security for a loan, as long as that loan was not used to purchase those goods. If those household goods were taken as security to purchase those goods (such as when you purchase furniture on credit and the store takes the furniture as collateral for the loan), then see the next paragraphs on “secured creditors” where your rights are explained.


Added Flexibility in Dealing with Auto Loans, Mortgages, and Other Secured Creditors.

Bankruptcy can help deal with creditors who take your property as collateral for their loans, such as car loans and mortgage loans. You still have to make payments on these loans if you want to keep the collateral. However, bankruptcy does provide added flexibility in dealing with these debts.


A chapter 7 bankruptcy lets you keep your car by paying the creditor the lesser of what you owe on the loan or the car’s value. If your car is worth $1,000, and the remaining amount on your car loan is $3,000, you can keep the car by paying the creditor only the $1,000. The $1,000 payment usually must be made in a lump sum before the chapter 7 bankruptcy ends (usually after three to five months). Some creditors instead let you pay that amount in installments over a number of months even after the bankruptcy ends, but that is up to the creditor.


A chapter 13 bankruptcy gives you greater flexibility to keep your property. For example, if you are six months delinquent on a mortgage, filing a chapter 13 bankruptcy stops a threatened foreclosure and allows you to gradually catch up on the back-payments, over as many as three to five years. In some cases a chapter 13 filing also allows you to make lower monthly payments by extending the repayment period or lowering the loan’s interest rate. But you have to keep making payments until the loan is paid off.


Utility Terminations.

A bankruptcy filing stops a threatened utility termination and restores terminated service, at least for twenty days. To keep utility service beyond twenty days after the bankruptcy filing, you provide a security deposit (usually equal to approximately twice the average monthly bill) and keep current on new utility charges, but you need not pay the past-due charges incurred before the bankruptcy was filed. Often you can take sixty days to pay the deposit and some utilities may not require a deposit.


Driver Licenses.

If your driver’s license was or will be taken away because you have not paid a court judgment, such as one arising from an automobile accident, bankruptcy normally can discharge the obligation to pay the court judgment, and you then have a right to regain or retain the driver’s license.


The Best Time to File for Bankruptcy

It is often stated that bankruptcy is a “last resort” for financially troubled consumers. This is not really true.

In some cases, legal rights can be lost by delaying a bankruptcy. Be especially careful to get early advice about bankruptcy if you are concerned about saving your home or your car or protecting your bank account or wages from seizure.


For example, bankruptcy may not help you after your home is sold at a foreclosure sale or money in your bank account is seized. Bankruptcy can stop an eviction proceeding, but you have fewer rights in bankruptcy after a court has ordered you to be evicted. Act quickly to consider your bankruptcy rights.


While not ideal, all is not lost if you wait to the last minute before a foreclosure, repossession, or garnishment. Bankruptcies in an emergency can be filed with little preparation by filing only a brief petition, a statement of your Social Security number, and a list containing the names and addresses of your creditors. Additional forms must be completed and filed shortly thereafter.


But you must still complete an approved budget and credit counseling briefing before filing your bankruptcy. The counseling usually takes less than an hour, and can be done over the phone or over the internet.


On the other hand, if you are not facing immediate loss of property, but in the future you will incur new debts that you will not be able to pay, a bankruptcy filing should be delayed until you incur those new debts. New debts incurred after the bankruptcy filing are not discharged in that bankruptcy case—you will still be obligated to repay those new debts. If you file too soon and incur a lot of debt after the filing, you may be back to where you started from or even worse.


If you file a first bankruptcy too soon, you will find it more difficult to file a second bankruptcy to discharge the new debts incurred after you file the first bankruptcy. After you first file a chapter 7 bankruptcy, you have to wait eight years to file another chapter 7 case. There is more flexibility to file a chapter 13 case after first filing a chapter 7 bankruptcy. Thus it is a good idea to wait to file for bankruptcy until your debts have peaked.


If you decide to wait to file bankruptcy, avoid the temptation to go on expensive vacations or credit card shopping sprees that you do not intend to repay. In a chapter 7 bankruptcy, debts incurred in this way can be declared non-dischargeable. On the other hand, pre-bankruptcy expenses for medical care and other essentials are rarely challenged. Similarly, it may make sense before filing bankruptcy to purchase in installments needed medical or automobile insurance.


The Cost of Filing Bankruptcy

Unfortunately, it is expensive to file bankruptcy. Bankruptcy is a legal proceeding with complicated rules and paperwork. You may want to get professional legal help, especially if you hope to use bankruptcy to prevent foreclosure or repossession. Most bankruptcy attorneys provide a free consultation to help you decide whether bankruptcy is the right choice. If the attorney takes the case, the attorney will expect to be paid, unless he or she works for a nonprofit legal services office or is doing the bankruptcy pro-bono.


You also have to pay the court a bankruptcy filing fee—$310 for chapter 13 or $335 for chapter 7. The fee can be paid in four installments over 120 days (or 180 days with court permission). You can also ask the court to waive the filing fee in a chapter 7 case if your household income is less than 150% of the official poverty guidelines (for 2018, $24,690 for a family of two or $37,650 for a family of four). No waiver is allowed in a chapter 13 case.


In a chapter 13 case, you pay your debts over time, and you usually have to pay the trustee handling your payments a 10% commission on each payment. While this can add up, you will be paying far lower interest on your debts in a chapter 13 plan than if you had not filed bankruptcy. Even more significantly in a chapter 13 plan, you may only have to repay a small percentage of what you owe on most of your unsecured debts.


Common Misconceptions About Bankruptcy

When You File Bankruptcy Typically You Will Lose Little or None of Your Property.

People are wrong who believe that a bankruptcy filing results in the loss of most of their property. Everyone who files bankruptcy gets to keep some of their possessions, and most people get to keep all of them.


No matter the type of bankruptcy you file, unless property is collateral for a loan, you get to keep all your property that is protected by “exemption” laws. Exemption laws typically protect clothes, appliances, furniture, jewelry, and often even your car and home.


An exemption law may state that you get to keep property that is worth less than a certain amount. What that property is worth is based not on how much the property cost, but rather on your “equity” in the property: the amount that the property is worth in its present condition minus how much you owe on a loan for that property.


For example, if an exemption law protects a $2,000 motor vehicle, this dollar amount applies to $2,000 of your equity in the car, not to the total value of the car. If your car has a total value of $7,000 today with a $5,000 car loan balance, you have $2,000 in equity in the car. In this scenario, you can fully protect a $7,000 car with the $2,000 exemption. You will still have to repay the $5,000 car loan in the bankruptcy or the auto lender will take the car, but you won’t lose the car to pay your other creditors.


What property and the amount of that property that is exempt varies widely from state to state and the application of exemptions in bankruptcy can be complex, particularly if you have moved within the last two years to a different state or bought a home within the last 40 months. You should discuss what property is exempt with a bankruptcy attorney, but the general rule of thumb is that, for most consumers filing bankruptcy, much of their property is exempt.


What property you keep also depends on the type of bankruptcy you choose—a chapter 7 or a chapter 13. In a chapter 7 case, you keep your exempt possessions, but other property may be sold, with the money distributed to pay your creditors. In a chapter 13 case, you keep all your property by paying their nonexempt value over time from future income under a plan approved by the bankruptcy court. If you have very valuable property, it might be sold in a chapter 7 bankruptcy, but you keep it if you pay its value to your creditors over a number of years in a chapter 13 plan.


The Effect of Bankruptcy on Your Credit Report.

The effect of a bankruptcy on your credit report is of understandable concern. Most often, you should not worry about bankruptcy making it harder for you to obtain credit. If you are delinquent on a number of debts, this already appears on your credit record. A bankruptcy is unlikely to make your credit rating any worse, but instead may make it easier for you to obtain future credit.


New creditors will see that old obligations have been discharged in the bankruptcy and that you have fewer other creditors competing with them for payment. Creditors also recognize that you cannot receive a second chapter 7 bankruptcy discharge for another eight years.


After bankruptcy, your credit file will also list the outstanding balance as zero dollars for each of your debts. The credit file will list the fact that you filed bankruptcy and that certain debts at one time were delinquent, but creditors are most interested in what you owe now on each debt. That your credit report shows that you owe nothing on a debt improves your credit standing.


After your bankruptcy is complete, check your credit report to make sure all the debts you discharged in bankruptcy are listed as now owing zero dollars. File a dispute with the credit bureaus if your discharged debts continue to be listed as having a balance owed.


Bankruptcy also often will enhance the stability of your employment and income. Wage garnishments, continuous collection calls, car repossessions, telephone disconnections, and other consequences of an unaffordable debt burden are eliminated, and this should help you find and hold steady employment. Steady income is key to creditworthiness.


Bankruptcy will make it more difficult for you to obtain a new conventional mortgage to purchase a home. Even then, most lenders will not hold the bankruptcy against you if you re-establish a good credit reputation for two to four years after your bankruptcy.


After bankruptcy, some new lenders may demand collateral as security, ask for a cosigner, or want to know why bankruptcy was filed. Other creditors, such as some local retailers, may not even check your credit report.


Bankruptcies stay on your credit record for ten years from the bankruptcy filing, while your debts are usually only reported for seven years from their delinquency. If delinquencies on your debts are five or six years old, bankruptcy will not help your credit record. The debts will be deleted from your credit report within a year or two, while the bankruptcy will stay on your record for ten years.


If you file bankruptcy, you usually do not need to go to court, unless something out of the ordinary occurs.

You will have to attend one meeting with the bankruptcy trustee (not with a judge). Creditors are invited to that meeting but rarely attend. In the rare case that you do receive a notice to go to court, it is important that you go and also check with your attorney if you have one. Before your case is closed, you must also take a course in personal finances, which will last for approximately two hours.


The Effect of Bankruptcy on Your Reputation in the Community.

Most people find their reputations do not suffer from filing bankruptcy. Bankruptcies are not generally announced publicly, although they are a matter of public record. It is unlikely that your friends and neighbors will know that you filed bankruptcy unless you tell them.


However, especially in a small town, where debts are owed to local people, reputational issues connected with filing bankruptcy may arise. In such a situation, weigh possible embarrassment and damage to reputation against bankruptcy’s potential advantages. If you believe that your reputation in a small town is a concern, you may choose to voluntarily pay selected debts after bankruptcy, but you cannot leave selected creditors out of the bankruptcy process entirely.


Feelings of Moral Obligation.

Most people want to pay their debts and make every effort to do so if payment is possible. If bankruptcy is the right solution to your financial problems, you should balance these feelings of obligation with the importance of protecting your family.


Bankruptcy is a legal right. A provision concerning bankruptcy is even contained in the United States Constitution. Big corporations like Kmart, American Airlines, Chrysler, and Macy’s, and famous people like Toni Braxton, Tammy Wynette, Larry King, Mickey Rooney, Henry Ford, and Walt Disney have all chosen to file bankruptcy.

The book of Deuteronomy states: At the end of every seven years thou shalt make a release. And this is the manner of the release: every creditor shall release that which he has lent unto his neighbor and his brother; because the Lord’s release hath been proclaimed. (Deut. 15:1–2.)
Most importantly, during hard times, bankruptcy may be the only way to provide your family with food, clothing, and shelter. This book explores alternatives to bankruptcy, and these should be considered carefully. But it may be that bankruptcy is your best or only realistic alternative.


Potential Discrimination After Bankruptcy. The federal bankruptcy law offers you protection against being discriminated against because you have filed for bankruptcy. Government agencies, such as housing authorities and licensing departments, cannot deny you benefits because of a previous bankruptcy, including debts discharged in bankruptcy that were owed to those agencies. Government agencies and private entities involved in student loan programs also cannot discriminate against you based upon a bankruptcy filing.


Employers are not permitted to discriminate against you for filing bankruptcy. However, for some sensitive jobs which involve money or security, your bankruptcy may be considered evidence of financial problems which could be detrimental to your work. Bankruptcy law does not prevent discrimination by others, including private creditors, deciding whether to grant you any new loans.


When Bankruptcy May Be the Wrong Solution

There are at least seven situations in which bankruptcy may not be the right option for you:

1. 1) If all your assets and income are exempt, then you are “collection-proof.”
   (See a previous article in this series: Wage Garnishments and Bank Account Seizures for more information about what it means to be “collection-proof.”) In that case, most creditors can do virtually nothing to harm you even if you don’t filing bankruptcy. At which point, there may not be a compelling reason to file for bankruptcy. Waiting until you are no longer collection-proof is generally more prudent than filing right away, unless you are concerned with a home mortgage, car loan, or other secured loan.
   
2. 
   
3. 2) The debts at issue are secured by your property—such as home mortgages or car loans—and you do not have sufficient income to keep up payments while also catching up on past-due amounts. Bankruptcy may not help you when the long-term expense of keeping your home or car exceeds your long-term income.
   
4. 
   
5. 3) You have valuable assets that are not exempt in the bankruptcy process and you do not want to lose these assets. A chapter 13 filing may still help if you can afford the necessary payments.
   
6. 
   
7. 4) Your main reason for filing bankruptcy is to discharge a student loan, alimony or child support obligations, court restitution orders, criminal fines, or some taxes. These obligations are difficult if not impossible to discharge in bankruptcy.
   
8. 
   
9. 5) You have only a few debts and strong defenses for each. Instead of filing for bankruptcy, you can raise these defenses aggressively. Usually the disputes can be settled out of court in an acceptable way. If they are not settled, you can use bankruptcy later.
   
10. 
    
11. 6) Because of a prior bankruptcy, you cannot receive a discharge in a chapter 7 bankruptcy. However, in most cases, a chapter 13 petition can still be filed.
    
12. 
    
13. 7) You can afford to pay all of your current debts without hardship.
    

HOW YOU CAN COMMENT:

The comment page should be available by tomorrow when the proposed rules hit the federal register;
you can find it by searching at  https://www.regulations.gov/  
for RIN 1840-AD26;
Docket ID ED-2018-OPE-0027

There will be a 30 day comment period from the date it is posted in the federal register.

National Consumer Law Center Contacts: Abby Shafroth (ashafroth@nclc.org) or Jan Kruse (jkruse@nclc.org); (617) 542-8010
 
Education Department Proposes New Rules
that Would Make it Much Harder for Students Harmed by For-Profit Schools to Get Loan Relief
 
Boston - Today, the U.S. Department of Education proposed new rules, replacing 2016 rules, that would make it much harder for students who are harmed by illegal school conduct or closures to get relief from their federal student loans or to hold schools accountable for illegal conduct. The Department proposes to severely restrict access both to “borrower defense” loan relief for students cheated by predatory schools that used illegal enrollment tactics and to loan relief for students whose schools closed before they completed their education. 
 
“The federal student loan system is supposed to promote economic mobility and provide a ladder to a better future for low-income Americans,” said National Consumer Law Center attorney Abby Shafroth. “But for too many Americans it has done the opposite—putting targets on low-income, financial aid eligible students and veterans who are recruited by predatory institutions focused on growth and profit rather than on education and career training. It doesn’t have to be this way. The Department can and should apply rules that deter schools from lying to students to get them to enroll and that ensure students who were taken advantage of have real access to relief.”
 
Troublingly, the Department announced that it is considering severely restricting access to relief for student borrowers who are not in default. It is even considering refusing to allow students who are not in default to apply for borrower defense relief based on their school’s illegal conduct.  Either alternative would unfairly punish borrowers who manage to stay out of default—and may even encourage default.  The new rules would also narrow the grounds for federal student loan relief and eliminate the process to provide relief to groups of students who were subject to widespread misconduct or fraud. It would require students to submit more evidence (which borrowers often don’t have access to) and prove more difficult facts (such as what the school knew when providing false information). It would create a lopsided process that gives schools, but not students, the opportunity to respond to all the evidence and appeal adverse decisions. Additionally, the rule would make it harder for students to hold schools directly accountable for their illegal conduct by allowing schools to use forced arbitration clauses and class action bans to deprive students of their constitutional right to bring claims to an impartial judge or jury.
 
Moreover, despite recent widespread school closures that have left students with huge debts and no degree, the Department’s proposal would severely restrict federal student loan relief to students harmed by school closures. Its proposal would render students ineligible for closed school relief so long as their school provides an option to complete their program at a different school (as closing schools are generally already legally required to do), and would axe a 2016 rule that would have automatically discharged loans for eligible borrowers whose schools closed.
 
The Department has refused to implement borrower defense rules finalized in 2016 and plans to apply these new rules instead. Secretary of Education Betsy DeVos characterized the 2016 rules as making it too easy for student loan borrowers to get relief. The Department’s summary of the new rules states that they are designed to address concerns expressed by a for-profit school industry trade group and other industry representatives that the 2016 rules would impose financial liabilities that might imperil the viability of some schools. The proposal reflects an ongoing shift to protecting the multi-billion dollar for-profit education industry at the expense of students, and comes at a time that concerns about conflicts of interest have been raised about the role of former for-profit school executives hired by the Department.
 
Shafroth, a staff attorney for the National Consumer Law Center’s Student Loan Borrower Assistance Project, participated as a representative for legal aid organizations in rulemaking meetings held by the Department of Education in Washington, D.C. that preceded this proposed rule. Shafroth and other representatives for students, veterans, and low-income borrowers made numerous suggestions to the Department to ensure that the rule would provide student borrowers reasonable access to relief, but those suggestions were not included in the proposed rule.
 
 “If these proposed rules are implemented, schools will continue to break the law and harm students with impunity, and student borrowers will continue to pay the price,” said Shafroth. “We urge the Department of Education to promptly implement the 2016 rules and to use this rulemaking to make it easier, not harder for students to get relief.

We also urge students and the people who care about them to send comments to the Department of Education telling it to put students and taxpayers first over predatory schools.” 
 
 
Related NCLC Resources

Issue Brief: The Borrower Defense Rule protects students and taxpayers against fraud and abuse in higher education. (January 2017)
 
Comments of NCLC to the Department of Education Re: Borrower Defense Rule Delay and Intent to Establish Negotiated Rulemaking Committee (July 12, 2017)
 
Comments of NCLC and 16 other legal aid groups to the Department of Education re: Proposed regulations on borrower defenses and use of forced arbitration by schools in the Direct Loan Program, and proposed amendments to closed school and false certification discharge regulations. (August 1, 2016)
 
Blog: Who is the Department of Education Looking Out For? Another Delay of Student Protections Follows a String of Actions Protecting Industry Profits Over Students 

Further Information on school-related cancellation of federal student loan debt.

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

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.

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.

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.