Dealing with Creditors
1. What is a creditor?
A creditor is a person, corporation or business to whom you owe money for goods or services that have been supplied. There are two types of creditors: secured and unsecured.
A secured creditor has a lien or security interest in your real estate or an item of personal property. For example, most car loans are secured; the bank or credit company holds the title to your car until the loan is paid off. When you buy a major appliance or piece of furniture on credit, the store may have a purchase money security interest in the item because the store lent you the money needed to make the purchase. Sometimes, in order to get a loan from a bank, credit union or finance company, you are required to provide some property as collateral for the loan. This collateral is usually a second mortgage on your home or the title of your car. If you fail to make your loan payments, a secured creditor is entitled to satisfy the debt by repossessing the item you purchased or promised as collateral if it is personal property, and to file a foreclosure action in court if it is real estate.
In contrast, an unsecured creditor has no right to take any of your property to satisfy a debt without first bringing a lawsuit and obtaining a judgment against you. Only after a judgment has been obtained can the unsecured creditor send a sheriff or constable to levy on your property. For example, most credit card companies are unsecured creditors.
2. What can I do about a mistake on my bill?
The Federal laws (such as the Fair Credit Reporting Act and the Fair Credit Billing Act) and state laws (such as the New Jersey Consumer Credit Transaction Act) contain procedures for resolving disputes with merchants. Within 60 days after the mailing of the bill, you must notify the creditor, in writing, of your name and account number, the suspected error, why you believe the bill is wrong, and the suspected amount of the error or the item you want explained. The creditor must acknowledge receipt of your letter within 30 days and explain the bill or correct the mistake within 90 days. During this period of inquiry, the creditor is prohibited from threatening your credit rating.
You have the right to inspect your credit history at any time. If you find something unfavorable in your history that you do not agree with, you are entitled to submit an explanation, which must be made a part of your credit history. Other federal laws prohibit discrimination on the basis of age, sex, marital status and race when you apply for credit.
3. What can I do about harassment from a debt collector?
The federal Fair Debt Collection Practices Act offers some protection against harassment by debt collectors. Under this law the term debt collector does not include your original creditor, who is exempt from the laws provisions. You may notify a debt collector, in writing, that you refuse to pay the debt or that you wish the debt collector to cease further communication with you. The debt collector must then stop telephoning you and cease all other communications, except to notify you that he or she is taking other action, such as filing a lawsuit. A debt collector cannot contact you directly if he or she knows that you are represented by an attorney. Debt collectors ordinarily cannot call you before 8 a.m. or after 9 p.m. They are prohibited from using threats of violence, obscene or profane language, or other criminal means to collect debts. Further, a debt collector may not cause your telephone to ring repeatedly or continuously with the intent to annoy, abuse or harass any person at the called number.
The federal and state governments impose severe penalties on debt collectors or creditors who violate applicable provisions of the consumer protection statutes. If you believe that a creditor is acting improperly with respect to billing, or that a debt collector is acting improperly with respect to collection practices, then you should document the facts as thoroughly as possible and call legal counsel.
4. What happens when someone obtains a judgment against me?
The sheriff or constable may attempt to levy on your property and sell the items at public sale. State law allows you to designate $1,000 worth of your property as exempt from the sheriff’s levy. Your bank accounts may be frozen and the creditor can apply to the court for an order directing the bank to turn over your money to the creditor. A judgment may impair your real estate until you sell your property; at that time, the judgment plus interest will have to be paid or a title company will not insure that the title to your real estate is good. Under other circumstances your real estate may be sold at a sheriff’s sale to satisfy the judgment. If you are employed, the creditor may obtain a court order requiring that your employer turn over a portion of your paycheck to satisfy the judgment.
5. Can a creditor garnish or seize my Social Security benefits?
No, federal and state law prevents creditors from attaching Social Security benefits and state old-age payments. Many types of government pensions are also exempt. If a creditor, after obtaining a judgment following a lawsuit, sends the sheriff or constable to levy on your bank account containing these funds, you may go before the judge and prove that the money in the account is from Social Security checks or an exempt pension. A creditor can levy on IRA or KEOGH accounts.
6. What should I do if I am sued?
Do not ignore legal papers. Most legal complaints have to be answered within 20 days of receipt in order for you to protect your rights to be heard in court and to assert any defenses you may have. If you admit owing a debt but cannot pay it all at one time, contact the creditor or the lawyer acting in his or her behalf and attempt to arrange payments over time. Most creditors will cooperate because it is usually quicker than going through the court process. Always put such agreements in writing.
7. What is bankruptcy?
Bankruptcy is a legal procedure which allows you to eliminate most of your debts. Several options are available in bankruptcy, and it is very important to review all the facts of your situation and all the choices very carefully. If you believe your financial situation may make bankruptcy advantageous, you should consult an attorney for information and advice.
8. Can you please provide me with some legal advice as to how to deal with my creditors?
You should never ignore any legal papers that you receive. The problems will not simply vanish. If you blow off a summons and a complaint, then ad default judgments will be entered against you. You should try to make a deal with your creditor or his. In many instances you will be able to work out a reasonable payment plan with your creditor outside of the courtroom. Whenever you communicate with your creditor or their attorney, you should always send letters and keep a copy so that you are clear on what was discussed and agreed upon.
