Small Claims & Consumer Help

Small Claims - Credit and Debt

Collection Agencies; Judgments; Bankruptcies

Collection Agencies

Collection agencies are in business solely to collect money. While many of these agencies have not studied politeness or manners, these agencies are legally able to harass and pressure you for amounts owed.

You do have certain rights as a debtor.

First, federal laws require that you cannot be called between the hours of 9:00 p.m. and 8:00 a.m.

Second, credit agencies are not permitted to discuss your personal credit situation with others, including friends, neighbors, employees or employers. Obviously, if another person owes the debt along with you, the debt can be discussed by a collection agency.

Third, collectors are not permitted to appear at your work place or contact you there in any way, once they learn that your employer prohibits telephone calls.

Fourth, threats of violence, criminal prosecution [unless you broke a criminal law] or offensive language are not permitted.

Fifth, no person can impersonate a governmental authority.

Sixth, you cannot usually call the police to stop a collection agency.

Seventh, if you notify the agency that it must refrain from contacting you [in writing] then it must do so.

Obviously, the agency, if it is notified to stop contacting you, will likely have no choice but to file a lawsuit against you and serve you with legal papers. Before you write to the agency to stop contacting you, be certain that you are ready to defend a lawsuit and you know the costs involved.

What if you are sued? You will receive a notice of a lawsuit, called a citation or a summons or a similar form. This should also contain a copy of the actual lawsuit, called a petition, complaint or other similar name. Usually a person will come to your house or your work and deliver these documents to you. There are certain restrictions on how this notice must be given to you. Each state has different rules, but usually, First Class mail is not enough. [Beware, First Class mail may be all you receive, but the lawyer may have already made repeated attempts to personally serve the papers to you at an old address. While you think this mail is not enough, you may be wrong.]

Generally, for any lawsuit in Small Claims on which you are being sued, you can defend yourself. Of course, you still must prepare your case and present evidence. But if you clearly owe the debt and have no defense, then it might be advisable to retain a Plan Attorney to analyze your situation to make certain you have no defense. If you do not, then it is advisable to settle before going to court. If you do have a defense a Plan Attorney may be able to be retained to assist in your defense.

Collection agencies are experienced, however, and they know that if they sue you in Small Claims Court, you can defend yourself without having to pay an attorney to help you. So a common practice is often to file a lawsuit in a civil court, even for amounts as small as under $100. While this is not too pleasing to the judges, it is common practice, and this will likely be the result if you do not pay or work out a payment agreement.

If you are served with a lawsuit, what can you do? First, you should review the dollar amount for which you are being sued. Often a typographical error might occur and before it is realized, the suit can be settled and you will be released from further liability. If the amount is correct, and it is under $200 you may wish to settle with the creditor. If it is between $200 and the jurisdictional limit of the Small Claims Court, you might consider defending yourself, although you need a reasonable defense as to why you haven't paid. ["I can't afford it does not usually work"].

If the amount is over $200, but is filed in a court of jurisdiction rather than Small Claims, you have an option. You can represent yourself, or you can retain a lawyer. While everyone wants to retain an attorney, it is often not feasible to hire an attorney to defend you, because this may cost more than the entire debt, often by two or three times. Carefully consider the most you will lose before agreeing to hire an attorney. It makes no sense to have two creditors where there was only one before.

If the amount is over $5,000 you may not wish to represent yourself, and you should discuss your situation with a Plan Attorney.

If you are served with a lawsuit and there is no defect as to service and you are properly named in the lawsuit, you may be inclined to ignore the suit. This again can often be the worse possible situation. If you receive a summons or complaint and you do not respond in the time given by the law to file a response [and in the proper form required for the response] you default. This means a creditor can enter a judgment against you for the entire amount of the lawsuit, plus interest, plus attorneys' fees and other costs and expenses. Before this judgment is awarded, the creditor must usually present basic evidence of the debt and justify all of the calculations and expenses. If you do not show up for court, the courts will have only one side of the case. Thus, even a typographical error changing $1,000 to $5,000 might result in a $5,000 judgment being entered against you when you owe nowhere near that much to the collection agency. You should not ignore a lawsuit.

In many states, but not all states, creditors can garnish your wages. Thus, the next you may hear about this lawsuit you ignored is when your paycheck is missing funds which your employer was legally required to withhold by law.

Points to Remember

  • Collection agencies normally cannot contact you between the hours of 9:00 PM and 8:00 AM.
  • Ignoring a collection agency may result in a lawsuit.
  • Do not ignore a lawsuit.
  • Creditors may be able to garnish your wages in some states.

Judgments and Wage Garnishments

After a judgment is entered against you what happens? First, a sheriff or marshal or other state authority may notify your employer of the judgment and the garnishment. Depending upon the state, the amount garnished will vary, but it is usually a percentage of your paycheck, less certain exemptions offered by state law. Consult the paperwork for the exemptions, but usually there is no exemption for not being able to afford the garnishment.

Certain exemptions differ by state law, but may include a portion of your homestead, certain limited household goods and effects, certain personal property, pensions, insurance proceeds and tools for your work.

With a judgment in hand a creditor may file a document with your bank, with instruction for the bank to levy your account, or place a hold on your account for the funds due. Depending upon the state this bank account can be seized many times, but the bank is only usually authorized to withhold what is in the account on the date of levy. [A word of caution: The rules vary here by state and if your judgment is more than several thousand dollars, you should contact your Plan Attorney and not rely on this information.]

Furthermore, it is common practice for a creditor to obtain a judgment and hold it. Judgments may be valid for many years depending upon the state law, and interest accrues often from the date of the debt or at least from the date of the judgment if requested by your creditor. It is often commonplace to receive a judgment, originally in the amount of $2,000 which after 15 years may be worth in excess of several thousands of dollars due to the accrual of interest.

Satisfaction of a Judgment or Debt

If you satisfy a debt, you must insist on certain precautions. Do not pay until you have received in writing an agreement to release you from all liability in the future for this debt from all parties or conceivable parties, and in the case of satisfying a judgment, be certain the party agrees to file with the court a satisfaction of judgment of the type required in your state or the state in which the judgment was obtained. Do not pay until these steps are satisfied. If you do not trust the other party, you might consider hiring an independent escrow company to collect your funds and to hold their satisfaction and release documents. As soon as a creditor receives his/her money the incentive to do anything for you is lost.

Not taking care of this debt or judgment at this time, may allow your credit to be damaged, or to have judgment on your credit record. If the creditor were to go out of business or move in the future, you could be prevented from cleaning up your credit record without incurring substantial lawyer fees.

Sending a check marked "paid in full" does not always cover you. Different states require different language and some states allow a creditor to simply cross out the designation and negotiate your check anyway, without agreeing to settle for the amount of your check. Be sure to follow the law in your state.

Points to Remember

  • Your employer may be notified of the judgment against you and the garnishment.
  • With a judgment, a creditor may have your bank levy your account.
  • Creditors may obtain a judgment and hold it, resulting in added interest.


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