Debt Collection [ADVOCATE: Give caller advice per script. Read Bankruptcy Script if Appropriate. Check case acceptance list and refer to appropriate office for more services.] [ADVOCATE: If caller is requesting advice for only one debt, please read only the relevant portion of this script.} I. Know Your Rights: Many state and federal laws protect consumers from unfair debt collection practices. In order to be protected by these laws, you must have borrowed money or used a credit card for personal, family our household purposes. If a debt was taken out for business purposes, the following rules may not apply. Advocate: If debts are business debts (ie borrowed money for their home based business) refer to VLS and/or LRS. A. It is important to understand the difference between a Creditor and a Collection Agency. A creditor is the person or business that you borrowed money from (ex: credit card company, credit union loan, bank loan). A collection agency is a company or a person who is either hired by the creditor to collect a debt or who has purchased the debt from the creditor. The law is sometimes different depending on if you are dealing with a creditor or a collection agency. B. Creditors and Collection Agencies cannot: Garnish your wages before getting a court judgment against you; Take any of your property, unless the property is collateral for the loan or they have a court judgment stating that they can take the property; (Collateral is property that you agreed to give up if you can t keep up with the payments, for example a car or house.); Send you to jail; or threaten to send you to jail for failing to pay a debt; Threaten to send have your children taken away from you; Harass you (For example, telephone you at unreasonable hours (before 6 a.m. and after 10 p.m.));. Tell third parties about your debts or tell others that they are trying to contact you about a debt; Threaten you with legal action unless they really intend to take the action and have a legal right to take the action; Lie to you about how much you owe or attempt to collect fees that are not legal (for example, collection agencies can not collect collection costs from a debtor in Hawai i); D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 1 of 7 Samples\DebtColl-27a.wpd
C. Collection Agencies Must: Give you their company name, and the name and address of original creditor, if you ask; Tell you in every letter or telephone call that they are contacting you about a debt and that all information they get will be used to collect the debt; Mail you a letter within 5 business days of your first telephone contact stating the total amount of debt, the name and address of the collection agency, the name of the original creditor, and a notice explaining that you have 30 days to mail them a letter disputing the debt and/or to requesting verification of the debt; Cease all contacts you at home or at work after you have notified them in writing that you do not want any further contact; Be licensed or registered to do business in the state of Hawai i. If your debts have been referred to a collection agency, you can check if they are licensed in Hawai`i by calling 587-3222. If the agency is not licensed call LASH back, we may be able to help you. If a creditor or collection agency violates any of these rules, you may have a right to sue them. This could reduce or eliminate your debt. Advocate: If caller reports violations of any of the above, please check case acceptance criteria for Debt Collection Violations and refer docket if appropriate. II. What Can Creditors/Collection Agencies do if you do not pay your debts? If you are unable or unwilling to pay your debts, a creditor or collection agency can: 1. Report you to a collection agency; 2. Take, or repossess, any goods that are collateral for the loan (car, or some household goods). Once a creditor takes the goods they will sell them. If they get less money from selling the goods than you owe them, you will owe them the difference. 3. Call and write you letters in an attempt to get you to pay the debt; 4. Sue you in court; 5. Refuse to do business with you; and/or 6. Take your wages or bank accounts if they already have a court judgment against you or have right to setoff. III. The Court Process: (Advocate: review this section only if client has been sued or thinks they are about to be sued.) A. Service. Someone over 18 hands you a Complaint which says who is suing you, why they are suing you, approximately how much money they think you owe them. You will also receive a Summons which tells you when your court dates is or gives a deadline to file a written answer. In most cases you will just get a court date. B. Answer: The answer is you chance to tell the court if you agree or disagree with what is in the complaint. In most cases you will answer by appearing in court at the date/time indicated in your Summons. You now have three options. You can D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 2 of 7 Samples\DebtColl-27a.wpd
(1) admit, (2) deny, or (3) default. 1. Admit: If you admit that you owe the amount on the complaint, the judge will immediately issue a Judgment against you. 2. Deny: If you deny that you owe the debt or disagree with the amount of the debt, the court will set a hearing date. Pay very close attention because the judge will tell you when you must be back in court and when you must share your evidence with the other side. 3. Default: Default mean that you do not show up in court on time or file the papers as instructed on your Summons. If you default, the Judge will issue a Default Judgment against you. In addition, you will not receive any more court papers for your case. C. Counter-Claim: If you believe that the creditor violated any of the laws governing collection of debts (described in part I), you may able to file your own complaint, called a counter claim, against the creditor/collection agency. A counter claim could result in you getting money from the creditor a reduction of the amount you owe the creditor. IV. Post-Judgment Collections: Once a creditor gets a judgment against you, they can use additional means to collect. A. Require you to attend an Examination of Judgment Debtor. This is a way for the creditor to find out what property you own, if any, where your bank accounts are, and where you work. You will receive court papers telling you when and where you must attend court. If you do not go to court for the examination, the judge will usually issue a bench warrant. This means that you could be held in jail for a short amount of time and required to pay some money (usually $50). If you missed your examination, you may call the attorney for the creditor to arrange a time to conduct the examination. B. Garnish a portion of your wages, unless you are judgment proof (see J.P. below). C. Place a Lien on any real or personal property worth over $1000. However, many creditors will not get a lien unless the property is worth more than the cost of hiring a lawyer and going back to court again. Advocate: if wages being garnished, please see case acceptance criteria and refer if appropriate. V. Judgment Proof Judgment proof means you have special income or so little income and assets that the law protects them from your creditors even if you do not file for bankruptcy. If you are judgment proof, your creditors cannot take your property or your income. D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 3 of 7 Samples\DebtColl-27a.wpd
To be Judgment Proof, you must have only PROTECTED INCOME and NO SPECIAL ASSETS A. PROTECTED INCOME Protected Income is income that is from a protected source, or wages that are below a federal minimum living allowance. Ordinary creditors cannot garnish or take protected income. The following income is protected: Employment where you earn less than $154.50 a week (after withholding taxes) Welfare (AFDC, GA) Supplemental Security Income (SSI) Social Security / Social Security Disability (but not exempt for child support arrears, student loans, taxes and debts to federal government agencies) Temporary Disability Insurance (TDI) Unemployment Compensation Worker s Compensation Pension for Government Employees Most Private Pensions Veteran s Benefits (but not exempt for payment of child support arrears, student loans, taxes and debts to federal government agencies) Child Support B. SPECIAL ASSETS. Assets that a creditor may be able to take. Bank Accounts holding any money from sources other than the protected income listed above. Creditors must have court order. A checking, savings or other account at a bank that you also owe money to. Most banks have the right to take money out of a savings, checking account to pay a debt you owe to that bank. This kind of setoff does not require the bank to have a court order. a home or an interest in land or property. Collateral, or property you agreed to hand over if you stopped paying on a loan (like a car or a house). creditors do not need a court order to take collateral. Any one item worth more than $1000 if you were to sell it in the newspaper (for ex. a car).. Creditor needs court order to take personal property, so a creditor often won t go after it unless it is worth more than the cost of an attorney and court filing fees Individual Retirement Account or a Non-Government Pension that you made contributions to within the last 3 years. Creditors need a court order. Advocate: If Caller is NOT Judgment Proof, ask if interested in bankruptcy information and read bankruptcy script if applicable. D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 4 of 7 Samples\DebtColl-27a.wpd
VI. Protect Yourself: A. Prioritize Your Spending: Keep you money for critical needs: Food Shelter Utilities Children B. Small payments on your debts may hurt you: They don t reduce the debt, only go to interest They encourage bill collectors to harass you more They allow the creditor to come after you for 6 more years (statute of limitations is 6 years from last activity which is the last payment, purchase or signing of promissory note). C. Make Sure any Protected Income is Safe Do not put protected income into an account at a bank that you owe money to (ex. a credit card or a personal loan). The bank may be able to take the protected income out of your account in order to pay on your debt to the bank. This is called a set off. If there is income from any unprotected source commingled with protected funds in an account, take out the unprotected funds. If necessary, open a second account with the unprotected funds, or deal in cash. D. Write your creditor a letter telling them to stop contacting you 1. One letter for creditors to cease contact at home. They do not have to cease contact at home upon receipt, but they may. 2. One letter for creditors to cease contact at work. They do have to cease contact at work upon receipt. 3. One letter for 3rd party debt collectors. They are required by law to cease contact at work and/or at home upon receipt of written letter. Send letter to each creditor and debt collector. Keep copies. It is important to send via certified mail, return receipt requested, otherwise collection agencies will ignore it. Advocate: MAIL sample cease contact letters. E. Save all notices and their envelopes. F. Tape record collection calls calls if they have a tape recorder. G. You do not have to talk to your creditors H. Get a copy of your credit report. NOTE: If caller wants, send them How To Get a Copy Of Your Credit Report I. Don t let them into your home (You only have to let a creditor repossessing something into your home if s/he has a court document served by a sheriff) D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 5 of 7 Samples\DebtColl-27a.wpd
J. Don t sign any new agreement with creditors. K. Consider Filing Bankruptcy (read script if appropriate) VII. Special Debts (Support, Alimony, Student Loans and Taxes) Advocate: If caller has none of these special debts, skip this section. The law does not treat all debts the same. Some types of debt are more serious. These debts include child support, alimony, most taxes, and guaranteed student loans. Social security benefits, but not SSI, may be garnished in order to pay back child support, taxes, guaranteed student loans and some debts to federal government agencies. A. Child Support and Alimony Payments. Child support and alimony are payments ordered by courts. The law says these debts are important and that they cannot be discharged in bankruptcy. Also, the law allows a larger amount of wages to be garnished to collect these support payments than it does to collect ordinary types of debt. B. Taxes : Advocate: If caller has federal tax debt, tell them about LITC project and complete docket if caller wants additional assistance. The methods that the federal, state and local governments can take to collect debts owed to them are more harsh than those of any other creditor. For example, the government can take property such as a car or a house and sell it to pay your tax debt, even if you haven t finished paying for the property. The government can even place a claim (lien) against money or property you get in the future. The government can garnish your wages without a court order. The must only leave a bare minimum of possessions and income. Some types of income like social security benefits (but not ssi) and veterans benefits, which are protected from regular debts can be garnished to pay a federal tax debt. C. Federally Insured (Most) Student Loans. The government can intercept the borrower s income tax refunds and apply them to the defaulted student loan. If the borrower is employed, the government can garnish wages without suing the borrower. The government can garnish social security and veterans benefits. There are many kinds of guaranteed student loans, and their terms vary widely. Legal Aid Society of Hawai i has additional information on options available to debtors who cannot make required payments. Advocate: Mail brochure if caller is interested in add l information. VIII. Divorce. (Read only if caller is divorced or separated. Divorce decrees usually assign marital debts to one or the other spouse. This agreement is not D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 6 of 7 Samples\DebtColl-27a.wpd
binding on creditors. If both spouses sign the credit application, lease, etc., or if the debt was for a necessity such as housing or medical bills, the debt is a joint debt. The creditor has the right to collect from either party, no matter who the divorce decree says must pay. Similarly, the credit report of both parties will show the payments or lack of payments on joint debts. If one spouse fails to pay debts as ordered in the divorce decree, the other spouse may request a court order to enforce the decree. However, that action is taken only against the ex-spouse. It does not stop the creditors from collecting payment from either party. [Advocate: if caller has joint debt with spouse or former spouse, send out sample letter of nonresponsibility.] For each debt collection issues identified, check case acceptance criteria and refer docket if appropriate. MAIL APPLICABLE BROCHURE(S) Debt Collection* Special Problems of Debtors* How to Check Your Credit Cease Contact Letters Student Loans Direct Consolidation Wage Garnishment Student Loans Court Brochures: How to Represent Yourself (in court and administrative hearings)* Small Claims Court (Department Brochure) Regular Claims Court (Department Brochure) Taxes: LITC project information D:\Gabe's Docs in D\AA-Gabe's Stuff\KISS\Hotline Page Info\Script 7 of 7 Samples\DebtColl-27a.wpd