What can you lose in a credit card lawsuit?
Debt can grow out of control for a variety of reasons. An extended illness, a visit to the ER, or a loss of a job can saddle you with debt you can’t repay overnight. Add to this student loans, unsecured debts and mortgage for more than a house is currently worth, can leave with you what seem like an unwinnable situation. If you owe someone money, they have a number of options available in an attempt to collect from you. If you do not resolve your debt situation, the creditor may end up filing a credit card lawsuit against you in court.
Depending on the type of lawsuit, money in your bank accounts and personal property can be awarded to the plaintiff to satisfy the judgment. In a breach of contract case, the defendant could be ordered to complete a job as specified, redo the work completely or to pay another qualified party to complete the work. In the case of a tort, the defendant can similarly be ordered to make amends for a wrong done to the other party. This could include cleanup and repair costs as well as punitive damages.
What exemptions exist for collection?
The court can also place a lien against your home which can be paid out when the homes sold. However Texas has a home state protection clause which prevents creditors and judgments against you from forcing you to sell your house to pay the debt.
Caps also exist in personal injury and malpractice cases.
How does wage garnishment work?
Because the state of Texas has a 100% exemption on the garnishment of wages this section is included to provide a complete understanding of what is possible and what could affect you were you living in another state where such an exemption does not exist. Wage garnishment as a way for a creditor to collect on a judgment directly from your paycheck. This is often employed as a last resort after other attempts to retrieve the money from bank accounts and other sources have been exhausted. Wage garnishment can only be done with a court order and is most frequently done by the government to collect on back taxes, or child support.
After a judgment is won the plaintiff files paperwork for wage garnishment with the court. Once filed, the clerk of the court forwards the documentation to the defendant’s employer. The employer is then required to comply and withhold the correct amount of money from the defendant’s paycheck. The court then collects the funds from the employer and forwards the money to the plaintiff until the amount of the debt is fully settled.
Limits on wage garnishment
The garnishing of wages does come with some limitations. Wage garnishment is applied to disposable income which is calculated as the pay you receive after various taxes have been deducted. You probably know this is take home pay. There is a Federal imitation which exempts 75% of your disposable income from garnishment.
Dealing with debt collectors
Well before your situation leads to a courtroom in a credit card lawsuit, you’re going to be contacted by your creditors. If you speak to a collection agent on the phone, chances are high that you do not personally owe that person money. You’re speaking with an agent who has a job assignment to call you. He or she is a real person, and may even have debt problems similar to yours. While you may be frustrated and confused over your situation, yelling and name calling isn’t going to get you the outcome you desire. Treat this business matter as one and seek to work with the agent to achieve some sort of fair resolution.
Negotiation options
Even though you certainly entered into a debt with the best of intentions unforeseen circumstances can happen to anyone. Your creditor may be unhappy that you have not paid your bill and it shouldn’t be difficult to understand why. However it is important to face your circumstances for what they are and to work with your creditor and work something out.
Here are some possible options you may wish to explore when working with a creditor.
Interest rate reduction
Interest rates on consumer loans have skyrocketed and can be the most burden-some aspect for paying off the debt. If you suffer a loss of income due to unemployment, illness or other reason, you may end up in a situation where you would never be able to pay off the loan at the current interest rate.
Speak with your creditor and ask for a reduction to your interest rate. With credit cards, the bank may agree to do this on the condition that your account be closed as well. If your charging privileges have already been suspended due to nonpayment this may be a minor stipulation compared to the benefits received with a lower interest rate.
Temporary suspension of payments
If you’re in a situation where your income has completely stopped, it may make sense to freeze all possible outflows of money until your income resumes. The payment that you make to a debt collector in this situation might be better spent on food, rent, utilities or the tank of gas taking you to your next job interview.
If the creditor agrees to temporarily suspend your required payments, interest is likely to continue accruing during the suspension. Always be sure to ask exactly what will happen during this period and what is expected from you. If your situation is not improved at the end of the suspension period, be sure to contact any creditors you negotiated this with to either extend the suspension or to negotiate a new plan.
Deferment of payments
Loan deferments are often granted in special situations such as when you are enrolled in school, unemployed, completing an internship or suffering economic hardship. Depending on the type of loan, the deferment may be of both principal and interest or it may be for principal only which means you would need to continue making interest payments throughout the deferment. Many lending institutions have applications for deferment programs so ask if this is possible and if so request an application.
Loan consolidation
If you have multiple student loans or credit card accounts it is possible to consolidate the loans into a single loan with a lower interest rate and a lower single payment. As part of a loan consolidation process you may also be able to request deferment to give yourself some time to recover your income or build up a small buffer in case of emergency.
Cancellation of debt
Depending on the type of loan it may be possible to have the debt canceled. Debt cancellation is even possible with certain kinds of student loans which may carry a cancellation clause if you take a job in prescribed areas such as overseas or in low income areas.
Because the debt is incurred with the expectation of being paid back, cancellation of debt may convert the debt into income. For example if that $10,000 debt was canceled you may now owe state and Federal income tax on that $10,000 as though you had received it as income. If your debt is converted into income you may receive an income statement from the creditor which they will also send to the IRS. Even if they fail to do so you may still be obligated to report this income and pay taxes on it or face criminal charges.
Bankruptcy may be your best option
At some point it may become obvious that your only option when dealing with a credit card lawsuit is to seek bankruptcy protection. This is really not something you should discuss with the collection agent. Keep in mind that if all other attempts at negotiations fail, if you have no income or assets, and if your savings are completely depleted, bankruptcy protection may be your only option.
Whether or not you should file for bankruptcy protection is a legal matter. Chances are the collection agent you’re speaking with is not a lawyer. They may not offer any legal advice. It is against the law to do so. If the collection agent happens to be a lawyer, he or she is not your lawyer and is representing the interests of his or her client and not your interests. Do not take legal advice from “the other side.” Seek out your own professional legal advice if you think bankruptcy protection is your only recourse and relief from debt.
Speak to Allmand Law Firm, PLLC
If you are being sued for debt, a bankruptcy attorney at Allmand Law Firm, PLLC can help you stop a lawsuit from a creditor or discuss other options available to you. To learn more how we can help with a credit card lawsuit, contact us today.