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Falling behind on financial obligations is stressful for anyone, and aggressive collection methods can increase the pressure. Fortunately, federal law protects people in debt from certain abuses by collectors. The Debt Relief & Management Center at Justia discusses these rights and describes strategies that consumers can use to manage their financial burdens.
This month marks the 45th anniversary of the Fair Debt Collection Practices Act, which was signed into law by President Jimmy Carter. The FDCPA targets abusive or deceptive conduct by debt collectors. It covers debts such as mortgages, medical debt, and credit card debt, although it applies only to debts owed by individuals rather than debts of businesses. The law does not affect the original creditor but only third-party collectors. The Federal Trade Commission and the Consumer Financial Protection Bureau may bring enforcement actions when collectors violate the FDCPA.
Some of the protections provided by this law involve communications with consumers. For example, a debt collector cannot threaten a debtor with violence, use profanity in communicating with them, or call them at unreasonable hours. A collector also may not misrepresent the amount or legal status of a debt, or engage in other false, deceptive, or misleading representations. A collector must provide a consumer with a written notice that provides certain information about a debt, such as the amount and the identity of the original creditor. The notice also must allow a consumer to dispute the validity of the debt. Certain other provisions of the FDCPA govern communications between a collector and third parties.
As the Justia discussion of the FDCPA explains, a debtor may have several options for recourse if a collector violates the law. They may be able to file a complaint with a government agency or bring a lawsuit against the collector. In other cases, a consumer might use an FDCPA violation to improve their position in negotiations over the debt.
Creditor Collection Methods
The Debt Relief & Management Center at Justia covers several issues involving the collection of debts, extending well beyond the FDCPA. One common form of collection is wage garnishment, which involves withholding a certain amount from the paycheck of the debtor and using this amount to pay the debt. Most ordinary creditors must get a court order to garnish the wages of a debtor. Even after a creditor gets this order, a debtor may be able to object to the garnishment, which usually involves a hearing before a judge. Federal law imposes certain limits on the amount of wages that may be garnished to pay a debt, and some states may impose lower ceilings. Distinctive procedures and rules apply to garnishment for debts such as taxes, student loans, and spousal and child support.
Creditor collection methods also include property liens and levies. A lien involves putting a legal encumbrance on property, such as a home or car. The debtor must clear the lien by resolving the debt before they can sell or refinance their home, or before they can sell their car. A levy involves taking an asset and selling it to satisfy the debt. Less often, a debtor might face a bank setoff or a tax refund seizure. While a setoff involves a bank taking funds from the deposit account of a customer who failed to pay back a loan from the bank, a tax refund seizure involves the IRS seizing money in a refund to satisfy missed child support payments.
Sometimes a consumer can reach a negotiated solution with a collector when they will be unable to pay the full amount of a debt in the near future. The Justia discussion of negotiations with collectors describes lump sum settlements and installment payment plans. While a lump sum settlement involves using a partial payment to satisfy a debt, an installment payment plan spreads out payments of a debt over time. A consumer who reaches one of these agreements with a collector should ensure that the debt is reported as satisfied in full to credit bureaus.
Debt Management Strategies
A consumer often can avoid the worst potential outcomes of owing debts by developing a smart strategy to get back on track. However, the stress that they face can make it difficult to think clearly. The Debt Relief & Management Center describes how to prioritize debts when a consumer owes several different types of debts at the same time. Debts that are attached to assets generally should take priority because the consumer could lose the asset if they fail to pay the debt. These include mortgages and car loans. Missed child support payments and tax debts also may demand prompt action, even though they are not attached to assets. On the other hand, credit card debts may be a lower priority.
If a consumer wants help with developing a strategy to repay their debts, they can ask a credit counseling agency to review their situation and suggest solutions. A credit counselor might help a consumer negotiate and settle a debt, or they might assist with consolidating debts or seeking a loan modification for a mortgage or another secured debt. The Justia discussion of this topic addresses factors to consider when choosing a credit counseling agency. For example, retaining the services of a credit counselor should not thrust a consumer deeper into debt.
Final Thoughts
Careful money management can help a consumer stay out of financial trouble, but sometimes debts are unavoidable. A consumer who incurs significant debt should know that the law protects them from many abuses by collectors. They also may have opportunities to limit the damage caused by the debt and restore their financial health. By providing free information to consumers, the Justia Debt Relief & Management Center aims to serve as a useful starting point. A debtor still may want to consult a consumer lawyer for advice tailored to their specific situation. However, learning about the basics can reduce anxiety and empower a person being pursued by relentless creditors and collectors.
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