RESPONDING TO DEBT COLLECTORS
DO NOT LET COLLECTORS PRESSURE YOU

COLLECTORS CANNOT LEGALLY DO MUCH HARM TO YOU

Debt collectors are experts at making threats about the dire consequences of nonpayment. It is important to know what a debt collector can and cannot legally do when you get behind on a particular debt. Most debts, such as virtually all credit card obligations, doctor bills, small amounts owed merchants, and many small loans are "unsecured." This means you have not put up any collateral, such as the family home or car, to secure the loan's repayment.

An unsecured creditor can legally do only the following three things:

1. Stop Doing Business With You. For example, a credit card issuer can cancel your card or a dentist whom you owe money might refuse to let you continue as a patient. Usually, though, there are other merchants or professionals from whom you can obtain the same goods or services on a cash basis or even on credit. The threat of stopping business with you is only serious where a particular creditor has a monopoly in your community, such as the only doctor in a rural area. Utilities also usually have a monopoly, and dealing with utility bills involves special issues.

2. Report the Default to a Credit Reporting Agency. The fact that you are behind on your bills almost certainly will end up on your credit record. You cannot stop this, short of always being current on all of your bills. While this is unfortunate, you only make matters worse by paying a particular bill first just because that collector is threatening to ruin your credit record.

The reason you make matters worse is that the collection agency threatening to run your credit is almost always bluffing. If a creditor repots delinquent debts to a credit bureau, your delinquency is already in your credit record even before the collector starts making threats. If the creditor does not routinely report information to a credit bureau, collectors who threaten you almost never go to the bother of doing so themselves.

Other creditors who may never threaten to ruin your credit record automatically report by computer to a credit bureau your every payment and non-payment on a monthly basis. So if you pay the first creditor instead of the second, the second creditor will report your delinquency automatically. That way, you now have two delinquencies on your credit record instead of one. Threats to ruin your credit record should not be taken too seriously and after you have paid off your debts Credit Reports can be corrected to eliminate, inaccurate, obsolete and misleading information.

3. Begin a Lawsuit to Collect the Debt. This is the threat that may worry you the most. But there are four reasons why the threat of a lawsuit is far less serious than you imagine. First, it is hard to predict whether a particular creditor will actually sue on a past due debt. It is expensive to take you to court. Many creditors will not do so for small debts, say under $1000, although some creditors do not take even large debts to court. How aggressively a collection agency threatens suit is no indication whether the creditor will actually sue, even if the threat appears to come from an attorney.

Second, if the creditor sues you, you have a right to respond, to explain that you have been making payments, through LUDR on your account. You need not let the creditor win by default. You do not have to hire an attorney to respond to the lawsuit. Often when a creditor sees that you will contest the action, it will stop pursuing the lawsuit.

Third, even if the creditor does pursue the lawsuit and eventually wins, the worst that can happen is that a court judgement will be entered against you. You will not automatically be in contempt of court for failure to pay the judgement. The judgement only gives the creditor the legal right to try to seize your property or wages or to seek a court order requiring payment.

Fourth, if you are "judgement proof," you have nothing to fear from even these special collection techniques. You are "judgement proof" if all your assets and income are protected by law from a creditor trying to enforce a court judgement.

To be judgement-proof, your wages or other income must also be exempt from seizure. Federal law limits the amount of wages that a creditor can seize. In all states the first $127.50 a week of take home pay is protected, and only a portion of the amount over $127.50 can be seized. (The $127.50 amount is 30 times the minimum wage of $4.25. For example, if the minimum wage goes up to $5, then $150 a week would be protected from garnishment.)

Moreover, in certain states no wages can be garnished at all; in other states more than the first $127.50 is protected. Finally, Social Security and other government benefits cannot be seized at all.

As can be seen, the threat of a court action on an unsecured debt is not nearly as real or dangerous as the threat of a landlord's eviction action, a bank's foreclosure on a mortgage, a car's repossession, or a utility's termination of gas or electricity service. These latter four actions usually happen quickly with a minimum of legal process and expense to the creditor.

Remember the cardinal rule about debt collectors--unless they work for your landlord, utility, mortgage holder, or other secured creditor, they often have no bite behind their bark

Debt Collectors Cannot Legally Take Other Action
to Collect on Unsecured Debts. A creditor, if it chooses to, can stop doing business with you, report a default to a credit bureau, or sue on the past due debt. A collector's veiled threats to do anything else on an unsecured debt are deceptive and violate federal law. The collector cannot seize your wages or property before the creditor has obtained a court judgement, nor can it send you to jail or send your children to foster care. Collectors cannot publish your name in a newspaper, report a debt to your neighbors, or seek to collect from other family members, unless they cosigned the debt or a court order is entered which makes the family member responsible. Creditors who growl the loudest should not drive you into the teeth of a creditor with real bite.

DEALING WITH GUILT FEELINGS

You are not a deadbeat when circumstances outside your control prevent you from paying your debts. If you have excess debt burdens, you must repay your most important debts first, and postpone payment of other debts.

Believe it or not, the collector knows this even better than you. Creditors know from long experience that most people pay their bills and, when they do not, it is because of job loss, illness, divorce, or other unforeseen events Creditors take this risk of default into account when they set the interest rate -creditors make enough money off you and others in good times so that when you default, the creditor is covered.

Do not be fooled by collector statements to the contrary. Debt collectors are instructed to ignore your reasons for falling behind on your debts, to show no sympathy, and not to listen to reason.

You have no moral obligation to pay one debt at the cost of not paying another debt, particularly where the debt not paid is more central to your family's survival. Creditors know this. They should not be rewarded for trying to pressure you to pay them off at the expense of another creditor. -- As a client of LUDR you should no longer receive calls from creditors, collection agencies and third party collectors. If you do report it to LUDR immediately.