Consumer Debt 

Your Rights And Responsibilities When Applying For Credit Or Loans

When you apply for credit, you'll be asked for information about yourself that covers several different areas. The person to whom you are applying for credit will want to know your past credit record and whether or not you have a large enough income to meet all your expenses. They'll want to know if your income is steady and how long you've been at your job.

They'll want to know whether or not you've shown signs of poor money management in the past. They'll also want to know how long you've been living in the community, how long in your present home, and whether you are renting or buying. And they'll want to know about your assets--your home, your furniture, and your automobile. And they'll want references.

These are the most important things the person to whom you are applying for credit will need to know about you before they will let you borrow money. Usually your age isn't important unless you've just reached the age of eighteen and don't have an employment history. Or if you are a senior citizen who can't offer a steady job as proof of your ability to repay a loan, then you may have some difficulty also. Usually, however, even people in these categories can get credit if they meet all the other requirements. And don't forget that good references do matter.

Before you decide to buy or borrow from anyone, become a comparison shopper--look around for the best deal in goods and for loans. Deal only with recognized companies and agencies, however, and if you are in doubt about a company, ask for information at your Better Business Bureau.

The Bill Consolidation Loan:

Where Rights Become Risks

Consumers who purchase on credit have rights which they often give up without even knowing it. These rights are included in a "Retail Installment Contract," which is an agreement between the buyer and the seller, and which deals with the payment terms.

Suppose you went into a store to buy a refrigerator. The cash price for the appliance is more money than you have, so you ask the seller about credit terms. He tells you that by financing the refrigerator through him, there will be no downpayment, and you can pay a certain amount of money each month for 24 months. At the end of that time, you will have paid the seller the total cost of the refrigerator, plus a charge for financing. This charge is based on an annual percentage rate. Since you have already shopped around, you decide that his price is fair, his credit terms are reasonable, and his reputation good. After reading the "Retail Installment Contract," you may decide to make the purchase on his credit terms.

At this pont, your rights in the contract are between you and the seller, and deal specifically with the purchased appliance. Read it carefully.

But often, after you make your first or second payment to the refrigerator seller, you'll get a notice from a finance company telling you that you should make your future payments to them. The seller has assigned your contract to the finance company, which means that he has sold it to them so that he could get a lump sum of cash at once. The finance company usually pays less for the contract than even the cash price of the refrigerator; but the seller has his money immediately, and the finance company can make money when you pay them the finance charges. This is also a source of new customers for them.

So far, your rights, as under the original Retail Installment Contract, have not been changed. But it is important to understand that your contract has gone from the seller to a finance company, because that step is what could lead to your losing certain rights in the contract.

After you make your next few payments on time, you may start getting letters from the finance company suggesting a "Bill Consolidation" loan. Such a loan would take all of your Retail Installment Contracts, and possibly other bills, and combine them into one bill, with one monthly payment. Sometimes, you are told that the one monthly payment will be lower than the amount you are now paying.

It is the finance company's business to loan money, and so they might approach you for a bill consolidation loan without you ever having even requested information about one. It is important to realize that this new contract is a personal loan contract between you and the lender. The original Retail Installment Contract and the old seller are no longer a part of this, and here is where you give up certain rights concerning your purchase of the refrigerator.

One such right is that under the Retail Installment Contract anyone to whom the seller assigns or sells your contract is still subject to the same defenses you had against the seller. If something goes wrong with the refrigerator, the seller and the assignee both are subject to this defense. But with a personal loan contract, the lender has no responsibility should something go wrong with the appliance. But you, as the buyer, are still personally indebted to the lender who has loaned you money to pay the seller off.

A second right you have under a Retail Installment Contract is that no lien or security interest can be taken by the seller in any property other than that originally pledged in the contract. However, in a loan contract a lien or security interest usually is taken in property other than that which was originally purchased. Often, the family car and all the household furniture become security for the loan, whereas only your refrigerator (or whatever items are being paid off) was security in the Retail Installment Contract.

Finally, under a Retail Installment Contract, there is a limit on the finance charges. But a loan contract, the finance charges the lender can charge may be more than can be charged on Retail Installment Contracts.

Remember that, for the "privilege" of consolidating Retail Installment Contracts, you give up certain important rights, and in addition, it almost always costs you more money.

Collection Agencies

Persons or corporations that do not get paid often turn debts over to a collection agency. Collection agencies are licensed and regulated by the state. There are also federal regulations that a collection agency must obey. These regulations are for the protection of the public and to insure fairness in debt collection practices. For instance, in trying to locate a debtor, the agency cannot state that the debtor owes a debt nor contact a person other than the debtor more than once, nor can the mail sent to that person indicate that the information sought relates to debt collection. An agency cannot call a debtor after 9:00 p.m. or before 8:00 a.m. If the debtor tells the agency, in writing, that he or she refuses to pay a debt or that he or she wishes no further communication, the only communication that the agency is allowed, is to say that further efforts will stop or that certain legal actions or remedies may take place. A collector may not badger or abuse a debtor or use or threaten violence to the person or property or use obscene or profane language. The agency cannot cause a telephone to ring or engage anyone in conversation repeatedly or continuously to annoy, abuse, or harass anyone. No false representations may be made by the agency, nor can they threaten to take any illegal action or any action they do not intend to take. The collection agency must send written notice containing the amount of the debt and the name of the creditor to whom the debt is owed.

Failure to comply with these regulations subject the agency to a law suit for damages and a fine.

Now you know some of the things a collection agency cannot do. But what can they do? The agency can make reasonable inquires to find out where a debtor is living; they can contact a debtor and ask him or her to pay the debt; they can hire an attorney to sue to collect a debt and to exercise all the rights of the original creditor to garnish wages or property after getting a judgment. They can call a judgment debtor to court to reveal information about his or her property, living expenses and income.

What should a debtor do if he or she is contacted by a collection agency? If the debtor owes the bill, arrangements for payment can usually be made. Any agreement to accept monthly payments is an accommodation on the part of the agency, not their legal obligation. However, most agencies, while they have a right to immediate payment of the entire balance, will accept reasonable efforts to pay. Remember, not having the money to pay does not relieve the obligation to pay, and a creditor may get a judgment against a debtor regardless of his or her ability to pay.

If a debtor does not owe the bill he or she should let the agency know it. If the agency insists that the debt is owing, they may have to sue to prove it. If a debtor receives papers from a court, he or she must do something within the time specified by law. Ignoring the papers because a person does not owe the bill can lead to a default judgment and loss of the opportunity to contest the claims of the agency.

Collection agencies are a legitimate, useful part of our commercial society. Without them, the cost of doing business would be much higher, and all consumers would pay for the few who abuse their credit. The vast majority of consumer pay their bills and have no contact with collection agencies. Since agencies charge the people who turn over accounts to them a percentage of the amount collected, most creditors would prefer to settle with their customers before their accounts are assigned to a collection agency. Most creditors also are understanding about legitimate inability to pay and are willing to make arrangements with their customers.

In conclusion, a collection agency must operate within certain guidelines, but has the power to act on behalf of a creditor and may even have a lawyer take a debtor to court. If the debtor does not owe a bill, he or she should protest and quickly respond to any legal action. If he or she does owe the bill, every effort should be made to pay it in order to avoid further obligations of time, money and emotional energy.

                                                                    Protecting Your Home From Creditors

For most of us, a home is our most valuable investment; and the possibility of losing it to a creditor after an unforeseen financial catastrophe is terrifying. But there are several ways you can protect your home.

First, let's look at which creditors can threaten your home:

The first type of creditor to consider is the government: If you don’t pay your city or county property tax , the government can sell your property to raise the money to pay the tax.

The State of Tennessee and the IRS can also seize your home if you don't pay your personal or business taxes. There could also be a tax obligation attached to a house that is inherited from someone who dies.

The government also has the right to seize property that is used for illegal purposes (such as the sale of drugs).

The second group of creditors to consider are those who obtain a judgment against you. If someone sues you and gets a judgment, that person becomes a creditor. The judgment could be for an unpaid debt, for example, or for injuries received in an accident. If you do not pay the judgment, the judgment creditor can request the court to sell your property to satisfy it.

The third group of creditors includes those who have not sued you but who are nevertheless owed money. If you (or your creditors) file a petition to have the bankruptcy court administer your assets, your home is one of the assets that can be sold to pay those debts. Your creditors can also join together to request that a state court (rather than the bankruptcy court) initiate a similar procedure. Seizure of your home in this situation is subject to the protection of an "exemption," which we will discuss further.

The fourth type of creditor is the lender who takes a mortgage against your house as collateral for your loan.

Some of these creditors may be able to seize your home outright. Others can take it only subject to the "exemption."

In deciding how to protect your home, you first need to consider which creditors you want to protect yourself against. Some creditors just cannot be avoided.

For example, you have little recourse to prevent the state from selling your property for unpaid property taxes.

You also probably cannot prevent your mortgage holder from selling your house through foreclosure if you have not made your mortgage payments. There are two ways that a mortgage holder is protected. First, the law gives special treatment to the lender who loans the money you use to buy your house or to make improvements to your house. Second, even if your mortgage was created after you bought your house, your lender probably required you to sign a form that said that you could not take any "exemptions" to avoid foreclosure.

If you are concerned about the possibility of someone suing you in your business, you might want to incorporate your business or create something called a "limited liability company" or a "limited partnership." Very specialized rules govern how these businesses are created, and there are also tax consequences to each of them. You need to consult a lawyer (and perhaps an accountant) before taking this step.

In many cases, you can protect your home from loss to a judgment creditor simply by having insurance on your home and car and business. A good insurance policy will pay judgment creditors when the judgment arises from such things as a car accident or an injury occurring on your property.

Sometimes people try to shield their home from creditors by putting title to the property in someone else's name. If you transfer property for the purpose of hindering a creditor, however, the creditor may be able to void the transfer. To prove fraud, the creditor will look at such things as whether the person who obtained title actually paid for it and whether you were insolvent when the transfer was made.

It is also possible for a creditor to void transfers made shortly before you file for relief in bankruptcy.

If you own property with your spouse, and a creditor has a judgment against only one of you, the creditor cannot seize the property outright. However, the creditor can seize the "survivorship" interest of the one who owes the money. What this really means is that you will have a problem selling or borrowing money on your house if either you or your spouse owes a creditor who has obtained a judgment in court.

You can protect at least a portion of the value of your home against seizure by creditors under Tennessee's "exemption" law. A married couple can claim up to $7,500 in their principal residence and an individual (married or single) may claim up to $5,000 in the principal residence used by that person or that person's spouse or dependents. The exemption does not protect you against debts for taxes or most mortgages, but it would protect you against judgment creditors.

 

What To Do About Wage Garnishment

If you have been sued for money and you lose, the person who sued you is given a judgment. If you do not pay a judgment, you will not go to jail. The most common action used by creditors to collect a judgment is to "execute on a judgment". This means that the creditor tries to have the judgment paid out of the property or wages of the debtor, the person who owes the money. Garnishment is another term used to describe this procedure. Garnishment almost always follows a judgment.

Before wages are taken from the debtor, the creditor will have already filed a lawsuit, the creditor will have already given notice to the debtor, and the debtor will have had an opportunity to answer the lawsuit and, of course, if the debtor does not agree with the creditor, the debtor has an opportunity for a trial.

A judgment is a court decision that there is something owed by the debtor to the creditor. The creditor then must try to collect the judgment. One of the most common ways to collect the judgment is to obtain from the court a Writ of Execution. This document is issued by the court and directs some public officer like the marshal or sheriff to take possession of some asset or property of the debtor. The Writ of Execution can also authorize the officer to tell an employer to take part of an employee's salary from each paycheck until the amount of the judgment has been paid to the creditor. There are limitations on how much of the paycheck may be taken. In Tennessee, no more that 25% of a debtor's take-home pay may be turned over to the creditor. Even this amount is subject to being reduced. In Tennessee, a debtor is entitled to an absolute exemption of 30 times the federal minimum wage plus an additional $2.50 per week for each child under 16 who is a resident of the state. If this is not a sufficient amount of the debtor and his family to live on, the debtor may ask the court to set up a payment plan by filing a "Motion to Pay by Installments". The necessary forms may be obtained from the court clerk.

A writ of execution may also be issued against other payments or monies owed to you by other companies or persons.

Some payments are automatically exempt from garnishment. These include amounts received for Aid to Families with Dependent Children, disability insurance benefits, SSI payments, social security payments, and VA disability payments.

Once a judge has entered a judgment, the best course of action for the debtor to follow is to pay the amount of the judgment to the creditor or to make satisfactory arrangements with the creditor for regular payments.

In Tennessee, a garnishment is good for three months unless the court notifies your employer that the garnishment has been released. The court will only do this if you have made arrangements to pay your creditor. If you make arrangements and fail to keep up your payments, the creditor may start the garnishment again.

There is also the possibility that the debtor may consider filing bankruptcy to relieve himself of certain obligations. For further information on bankruptcy, you may wish to refer to the Bankruptcy information.