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Message #601 Can't pay your debts? (Pt. 1)

What If You Can't Pay Your Debts Part I (mp3 file)

This SmartLaw message will discuss the following questions:

What if you are billed for something you didn't buy?

Can other people find out about your debts?

Can you be forced to pay someone else's debts?

Can your creditors pester you?

Can your property be taken to pay a debt?

What happens if you are sued?

What happens if you lose the lawsuit?

Can you protect your property if you are sued?

First, what if you are billed for something you didn't buy?

Try to settle the problem as soon as possible. If you get a bill for something that you didn't agree to buy, write to the creditor -- the person or company that says you owe a debt. Do the same thing if you don't believe you received everything you are being asked to pay for. Be sure to keep copies of all your letters.

If you can't work things out on your own, try to find a consumer protection agency that handles the kind of problem you have. Look in the white pages of your telephone directory under "consumer complaint and protection coordinators" or call the state department of consumer affairs for advice. You can hear recorded messages on some consumer questions by calling the department's toll-free consumer information line at 1-800-344-9940.

You also may want to see a lawyer because most debts are based on a contract. A contract is a legally binding agreement that can be either written or spoken.

In any case, be sure to do something, because it could turn out that you do owe a debt, and you could end up with serious money and legal problems.

Next, can other people find out about your debts?

Yes. If you don't pay your bills, you can end up with a bad credit rating, which is a report on your financial situation.

Credit ratings are issued by credit reporting agencies. These companies get information about your debts from your creditors, and they make their reports available to other creditors, employers and landlords.

A credit report includes such information as whether you pay your bills on time, have had a foreclosure, owe money as the result of a lawsuit, or were convicted of a crime. Each piece of information stays in the report for a certain number of years. For example, a bankruptcy usually will be listed for 10 years.

What if a store refuses to give you a charge account because you have a bad credit rating? The store must give you the name and address of the credit reporting agency that made the report, and the agency must let you see the report.

If you tell the agency that some of the information in the report is wrong, it must look into the matter. If the agency decides that its report is correct, you can explain your side of the story in writing. Then, anyone who checks your credit rating will see your explanation. If you ask, the agency also must send your explanation to anyone who received your credit rating for employment purposes in the last two years, and to anyone else who received your rating within the last six months.

Next, can you be forced to pay someone else's debts? Sometimes you can.

For example, if your spouse obtains a necessity of life -- such as food, clothing or medical care-- and cannot pay for it, you can be made to pay. This may be true for a former spouse, too, if you were married when your spouse got into debt.

In most cases, people under the age of 18 can get out of agreements to buy something. However, you are responsible for the debt if you co-sign a contract or loan agreement for someone under 18 or for anyone else. This means you promise to make the payments, if the other person fails to live up to the agreement. What if you co-sign an agreement for someone who ends up filing for bankruptcy? The other person may not have to pay the debt, but you will.

You also may have to pay certain debts, such as medical bills, for your minor child.

Next, can your creditors pester you?

Creditors or bill collection agencies -- companies that try to collect past due bills -- cannot legally call you over and over again on the telephone. It is also against the law to threaten you with harm, or contact you at work after you tell them not to. In addition, the law says that if you write and ask them not to contact you at all, they must stop. Then, they can get in touch with you only to let you know that they are suing you. So, be sure to keep copies of all letters you write.

Creditors and collection agencies are not supposed to contact your employer, except to make sure that you are employed. And, they cannot send you anything that is meant to look like a legal document when it is not.

If you are bothered in any of these ways, you should get in touch with a consumer protection or law enforcement agency. Or you can ask a lawyer for help.

Next, can your property be taken to pay a debt?

Usually, a creditor must go to court and win a lawsuit against you before taking your property. However, let's say you make a written promise to either pay your debt or give the creditor something you own. The item you promise to give is called the security, and the money you owe is called a secured debt. If you fail to pay a secured debt, the creditor usually can take the security.

Let's say you borrow money to buy a car, and the car is the security. If you fall behind on payments, the lender can repossess, or take back, the car without going to court. However, the car must be on public property when it is repossessed.

Even if the car is repossessed, you still might end up owing the lender money. For example, suppose you owe $8,000 on the car when it is repossessed, and the lender gets only $7,000 by selling the car at an auction. Then, you can be sued for the $1,000 that the lender is out -- plus any money spent to repossess the car and sell it.

Companies that repair or store items also can take property from you, without going to court. For example, if a shop cleans your rug and you do not pick it up and pay for the cleaning, the shop can keep the rug and sell it after a period of time.

Next, what happens if you are sued?

If you have a secured debt, the creditor can sue you for either the security, or the amount of money it is worth, or both. If you do not have a secured debt, you will be sued for the money you owe.

Do not ignore any court summons that you receive. This is a paper that says you are being sued. If you do not respond to the summons within a certain time, you automatically lose the case -- and your property can be taken.

As soon as you receive a summons, you should:

-consult a lawyer.

-get in touch with the lawyer hired by the person suing you and try to negotiate, or work out, a way to settle the dispute.

You can try to negotiate a settlement even after the suit is filed, but you should do so only if you have first responded in writing to the summons.

Next, what happens if you lose the lawsuit?

Suppose the lawsuit demanded that you return a secured item. Then, the creditor can get an order from the judge allowing a sheriff or marshal to take the item from you and give it to the creditor. Once this happens, your debt usually is cancelled.

Maybe the suit demands money, and you did not pay the amount that the judge ordered you to pay. In this case, something you own can be attached, or taken. The property -- such as a car or bank account -- would be about the same value as the amount of your debt. A car, for example, will be sold, and the creditor would get the money it brings in. You may be able to keep certain items, however.

A judge also can order your employer to withhold up to 25 percent of your take-home pay to pay a debt. This is called a garnishment of wages.

Next, can you protect your property if you are sued?

If you lose the case, you also may lose some of your property. However, the law lets you claim that some property is exempt, which means that it cannot be taken from you.

When you receive a notice that your property is being attached, you have 10 days to deliver a "Claim of Exemption" form to the sheriff or marshal. This form describes the property, and explains why it legally cannot be attached. Most sheriff, marshal and court clerk offices have these forms.

The creditor can either accept your claim or challenge it at a court hearing. At this hearing, you must prove that the property is exempt. If you do not go to the hearing, you automatically lose the exemption.

You cannot file a claim of exemption if your debt is for unpaid federal income taxes, or for a necessity of life such as food, shelter or medical treatment. These debts must be paid.

However, among other things, you and your spouse together can claim exemptions for:

-up to $75,000 equity or interest in the home you live in (up to $100,000 if you are 65 or older or disabled or 55 or older and on a low income).

-a $1,200 equity in one or more cars.

-up to $2,500 in tools and other items that you need for your work (or up to $5,000 for items used by both spouses who do the same work) .

-75 percent of your salary for the last 30 days or wages that have not yet been paid.

-up to $2,500 worth of jewelry, heirlooms and works of art.

-life insurance policies on which you can borrow up to $4,000.

-up to $1,000 in an inmate's trust account.

-$500 in a bank account in which your social security payments have been directly deposited ($750 if payments are directly deposited for both spouses).

In addition, you and your spouse each can claim exemptions for:

-household furnishings and clothing that your family needs.

-a cemetery plot.

-all or part of retirement, disability and health insurance, workers' compensation, welfare, unemployment, union and other benefits that are needed to support your family.

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