Consider Negotiating A Payment Plan With The Creditor
Of course, its stressful to have debt collectors calling you and threatening to take your assets. If you legitimately owe the debt and are looking for a way to pay it off, now would be a good time to negotiate a payment plan with the creditor.
Perhaps the creditor would be willing to reduce the amount you owe if you can pay a smaller amount quickly. Even if they wont do that, you may be able to chip away at the debt over time and put it behind you, if youre able to get the debt collectors to negotiate.
The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.
Elaine Pofeldt writes the Your Business Credit column for CreditCards.com, answering a question every week about small business and credit. Pofeldt is a journalist who specializes in entrepreneurship and careers, contributing to publications such as CNBC, Forbes, Money, and many others. She is the author of The Million-Dollar, One-Person Business, a look at how solo entrepreneurs are scaling to seven-figure revenue without hiring employees. She is a former senior editor at Fortune Small Business magazine and co-founder of www.200kfreelancer.com, a website for independent professionals.
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Additional Ways To Collect
A credit card company may sue after repeated attempts to collect the money from you, through phone calls and letters, have failed. A credit card company typically wins a court judgment by showing it has the agreement you signed promising you’d pay back the loan, as well as billing and accounting statements that show lack of payment. Following a judgment, it can also potentially garnish wages, get a lien against your house and try to seize personal property to collect on the judgment.
Can My Wages Be Garnished For Credit Card Debts
Yes, your wages can be garnished over an unpaid credit card debt especially if the debt ends up going to collections. Although many people associate wage garnishment with unpaid child support, defaulted student loans or back taxes, courts can also order your wages to be garnished over an outstanding credit card debt. Wages can even be garnished over a joint credit card debt, such as a credit card shared with a partner or spouse.
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What A Collection Agency Cannot Do
A collector cannot:
- use threatening, profane, intimidating or coercive language
- give any false or misleading information including references to the police or a law firm, credit history, court proceedings, lien or garnishment or imply that the collector or agency is part of a law firm or legal department of the collection agency or client
- threaten or state an intention to proceed with any legal action where the agency does not have the legal authority and consent of the creditor to do so
- discuss your debt or the existence of your debt with any person except you , a guarantor of the debt, the creditor or someone you have identified in writing as your representative
- if you want the collector to contact your representative to discuss your debt, you must provide that persons current address and telephone number
Option : Exempt Bank Accounts
Some bank accounts may be exempt from garnishment under applicable state laws. For example, in Florida and some other states, bank accounts owned jointly by married couples as tenants by entireties are exempt from garnishment by a judgment creditor of either spouse. The accounts are not exempt from creditors of both spouses, however.
A debtor does not have to reside in Florida to maintain an exempt entireties account at a Florida bank. Florida law exempts entireties accounts in the state regardless of where the owner resides. Beware that there are several legal technical requirements to open an exempt entireties account at many banks that do not offer an entireties option on the account application. Its best to find a local Florida bank that expressly provides tenants by entireties accounts and where the entireties designation is expressed on the signature card and on monthly statements.
Understand that if a creditor serves a writ of garnishment on a bank where the debtor maintains an exempt tenants by entireties accounts the bank will still freeze the account. The debtor will have to hire an attorney to claim the exemption in a court proceeding and have the court order the garnishment dissolved. A bank may not be held liable for retaining money in a garnished account during the time the debtor is attempting to dissolve a garnishment writ through court proceedings.
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A Collection Tool Of Last Resort
Garnishment is a legal remedy authorized by a court and should be considered a collection tool of last resort, says David Cherner, the former legal and legislative director of state government affairs for ACA International, the Association of Credit and Collection Professionals. In most states, the garnishment process can only be initiated by a court order and only if a judgment for monies owed has been entered.
Our counselors often hear from people who are very ashamed when they realize that their employer is now familiar with the details of their financial situation because of a wage garnishment, says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling .
Employers are typically required to tell workers about the withheld amount. While it is against the law for an employer to fire an employee whose wages are garnished, that protection goes away after a second and third such judgment, according to the Consumer Credit Protection Act.
Understand The Rules That Protect Social Security Income Benefits From Garnishment
Getting behind in your credit card payments is troubling, especially with the knowledge that you can be sued by a credit card company to be repaid. If you do not show up to your court proceedings, the judge may order your wages or even your bank account to be garnished in order to pay back your credit card debt. This can leave you in even greater financial straits, as money you may need for other bills and debts is now being used to pay back that debt.
But can Social Security be garnished for credit card debt? This depends on your unique financial situation. There are a few rules creditors must follow before they garnish money from your bank account, according to the Consumer Financial Protection Bureau. One of these rules specifically protects consumers who receive Social Security benefits.
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Most Garnishment Requires A Court Order
First and foremost if a collector calls you an threatens to take money directly out of your bank account, its probably a lie unless theyve already obtained a court order in which case they wouldnt be calling you to threaten, theyd just take their money.
Only debts like federal student loan and unpaid income taxes can be garnished out of your accounts or wages without a court order. Other debts like those incurred on credit cards or through personal loans cant be settled with garnishment unless the collector sues you and the court rules in their favor.
With a court order, a collector can take the money the court has ruled theyre entitled to receive through garnishment. They can take it out of existing money your bank accounts and/or out of your paychecks .
And keep in mind that you dont authorize the withdrawal the collector takes the court order to your bank or credit union and theyre required by law to turn over the funds out of your accounts.
File And Serve The Application
File the application in the relevant court registry location nearest to where you live:
Under the law in BC, a court can release a garnishing order without telling the creditor it has done so. Still, its usually best to serve the application on the other party.
You can serve the application in various ways, such as leaving a copy with the other party or sending it by snail mail to the other partys address. Check the service rules of Small Claims Court or Supreme Court for more details.
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What Debt Repayment Agencies Do
A debt repayment agency is a business that charges a fee to act for you in negotiating or making arrangements with creditors for you to pay what you owe. This is a voluntary agreement between the debt repayment agency and your creditors.
A creditor does not have to accept your payment proposal. Even if a creditor accepts your payment proposal, it can be cancelled if you do not abide by all the terms of the agreement. The creditor can then resume collection activity on your debt.
The agency must tell you within 30 days of being informed by a creditor that the creditor has decided not to participate in or has withdrawn from a debt repayment program.
For more information about how debt repayment agencies work, see the Bill Collection and Debt Repayment tipsheet.
Why A Debt Collector Can Garnish Your Wages
Major credit card companies sell your delinquent credit card debt to debt collectors. You’ll know this has happened if you see a charge-off notation on your . You’ll still owe the account but you’ll owe it to the debt collector, not the original credit card company.
Debt collectors buy the debt for a fraction of what you owe, then try to get you to make voluntary payments. The debt collector can also sue you in court. If it gets a judgment, it too can attach your wages.
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Specific Funds That Are Protected From Creditor Garnishment
It is important to note that even if a creditor secures a garnishment order and has frozen your joint bank account, some funds are protected and cannot be garnished. For example, any funds deposited into the account that are federal benefits cannot be garnished by a creditor.
As a general rule, if your wife has a separate bank account held solely in their name, then a creditor cannot access that account to garnish funds to pay for your debt. However, if you and your wife have a joint bank account, there is a risk that a creditor could garnish funds in the joint account, even if a judgment is only entered against you. Nevertheless, the ability of a creditor to garnish a joint bank account will be impacted by the state in which you reside and the funds maintained in that account.
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Almost everyone has heard of the IRS freezing accounts and taking assets to satisfy old tax bills. Even though they dont have quite the same extent of power, many state laws do authorize private sector creditors to seize money from a consumers bank account after they have complied with certain procedures. This debt collection technique is called garnishment.
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How Often Can A Creditor Levy A Bank Account
A creditor can repeatedly levy, or garnish, a bank during the life of a judgment. While the creditor cannot harass a judgment debtor, repeated levies or garnishments of bank accounts alone do not constitute harassment, especially if the funds in the bank account are generally not exempt.
Protecting a bank account from creditor levy requires understanding the legal tools a creditor will likely use to freeze a debtors bank account and take the money in the account.
Can A Collection Agency Take My House
If they have been successful in getting a judgment against you, a creditor or collection agency can file the judgment in the local Land Titles office against your home or other real property. This process is also known as registering a lien. If you do not pay the judgment, they can eventually obtain a court order to sell the real property.
Within provincial regulations, certain creditors like banks and finance companies can seize property on which they hold a defaulted mortgage, without a court process. Canada Revenue Agency can also apply a lien against your property for unpaid taxes, without a court process.
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If A Creditor Sues You
A creditor has the option of suing you in the Civil Division of Provincial Court or the Court of Queens Bench.
If you are sued, you will be served with a civil claim. Dont ignore the claim.
If you are served with a civil claim:
- talk to your creditor
- pay the claim
- file a dispute note
If you receive a civil claim in Alberta, you have 20 calendar days from the time you are served to file the dispute note. If the claim is served on you outside Alberta you will have one month to respond.
If you do not file a valid dispute note within the required time or appear in court on the day of the hearing, the court will award the creditor with a judgement against you.
Once a judgement is granted the creditor can take several steps to get the money that you owe:
What Is Bank Account Garnishment
Bank account garnishment means that a debt collector has successfully sued to have money taken out of your bank account. This happens if you havent repaid debts such as a medical bill or unpaid taxes. Your bank isn’t required to notify you of an account garnishment unless the withdrawal overdraws your balance. Depending on where you live, you may have certain rights and protections against having your bank account garnished.
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Wage Garnishment And Your Credit Report
When a creditor sues you and wins, the judgment is entered on your credit report and remains on there for seven years from the date of filing. As time passes, this judgment will impact your numerical credit score less and less but will be visible to future creditors for years. Your ability to open other credit cards, get a mortgage, or buy or lease a car will be seriously affected as a consequence of the judgement.
What Happens If A Debt Collector Sues You
If a debt collector sues you, be sure to respond right away, either on your own or through an attorney. This may involve submitting a written response or showing up in court, according to the Federal Trade Commission.
In addition, review your financial records regarding the debt, and read through the lawsuit. Look for any errors in the suit, such as an incorrect amount related to the debt you owe.
Having trouble figuring out the legal lingo and your next steps? You may want to seek the expertise of a legal aid service or an attorney.
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Dont Bury Your Head In The Sand
When wages are garnished, or attached, money is deducted from the debtors paycheck and sent to the creditor. This form of debt collection is most often seen in delinquent tax situations and back-owed child support, but credit card debt is not immune.
When other assets, such as property, are attached, a lien is associated to the property for the judgment amount or for as much of the judgment amount as can be secured so that when a property is sold, the money obtained from the sale would be distributed first to the creditors.
Unfortunately, many consumers bury their heads in the sand when the notices start coming in, says Rosenthal. They are usually overwhelmed with creditors, and by ignoring the situation, the lawsuit goes through and the consumer is faced with garnishment and minimal alternatives, he says.
According to the NFCCs McClary, The best move is to reach out before getting into a bigger financial mess that cannot be reversed. Being proactive can significantly improve the chances of avoiding judgments and garnishments.
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Why Was My Bank Account Frozen
The only reason a creditor or governing body would freeze your bank account is because you owe them money and havent been responding to their other attempts to recover the debt. With banks, missing credit card payments, mortgage payments, or any other debt could result in your bank account being frozen. The revenue agencies in Canada can freeze your bank accounts if you owe taxes to them. Finally, any other creditor that you are indebted to can file for a judgment against you to freeze your bank accounts.
Heres what to do if youre falling behind on credit card payments.
Often, creditors wont freeze your bank accounts unless theyve tried everything else and are desperate for payment. Before a creditor decides to freeze a bank account, they likely have given you a written notice, called you and given other indicators that you owe them and they want payment. If this is the case, you shouldnt be surprised that the creditor froze your bank account. It is good to try to work with the creditor to reach an agreement, as opposed to ignoring them, to avoid having your account frozen.
Make sure to avoid these 8 mistakes if youre a first time credit card user.
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