Not only are things "Bigger and Better in Texas", so is protection from debt collectors!

Living in Texas (I grew up in Dallas) has a lot of advantages, but none as important as protection from debt collectors.

If you are facing overwhelming problems with too much debt and you are fortunate enough to be a Texas resident, then you have certain protection from creditors and debt collectors that other states do not offer!

For the sake of this article, I'm talking about UNSECURED DEBTS, such as:

• Credit Cards
• Store Credit Cards
• Personal Loans
• Private Student Loans
• Medical Bills
• "Pay-Day" Loans

When you can't make at least the required minimum payments on your unsecured debt, and miss a payment or two, here's what usually happens:

First, the original creditor (Visa, Master Card, US Bank, etc.) will most likely give you a call and send a letter reminding you that your account has become delinquent.  Sometimes the language is very...let's say, "firm or somewhat threatening".  Something like:

Dear Mr. So-n-so:

Your account with XYZ company has become seriously delinquent.  Missing payments on your account can have a negative effect on your credit report.  We understand that you may be facing a difficult time and want to work with you on this matter. 

Please give one of our customer service representatives a call to discuss your options. It is imperative that you bring your account current as soon as possible, to avoid legal action.

OK, so what do you do? 

If you think you will be able to get your account caught up, then give them a call to see what can be done.  Sometimes the creditor is willing to forgive late fees and other penalties if you can bring your account current.

But what if you know you can't "bring your account current"?

It has been my experience, that most people who need help with their debts are not someone who just "over-spent" foolishly.  They are people just like you and me who got into trouble. It's important to know how this process works so that you (or someone you know) is not taken advantage of by a debt collector.

There are all kinds of reasons why people get in trouble with their credit:

• Loss of employment
• Loss of a spouse or partner
• Prolonged illness
• Disability
• Retired and on a fixed income not quite enough to keep up!
• and many other reasons that are beyond your control!

After the original creditor has made many attempts to contact you by both phone and mail, they may decide to write-off or charge-off your account and transfer or sell to a debt collector.

Now the DEBT COLLECTOR starts sending "nasty" letters and making call after call!

If you have only missed a payment or two, and have the means to get caught up, I think it is a good idea to contact your original creditor to discuss trying to bring your account current. 

But, I do not believe it is your best interest to call a debt collector.

There are those that disagree with me on this, but my experience in dealing with debt collectors over many years has taught me that they only have one job and that is to get as much money in the shortest period of time.

They don't really care about your situation and for the most part are not sympathetic at all.  In fact, I had one of my retire clients who had also lost her husband of over 50 years tell me that a debt collector told her that she should go get a job and quit making excuses for her debts.  Really?  72 years old and a widow!  And not only that, rather than file for bankruptcy protection as she could have, she has chosen to settle as many debts as possible.

Many debt collectors are fine, professionals and you can work with them. But some are, well... you know!  So, my advice is not to try and call to explain your situation, especially if you live in Texas!

What happens if a debt collector takes LEGAL ACTION?

A debt collector has the option to FILE A COMPLAINT in your county's court.  This is a legal option they can use in order to scare or force you to pay your debt.

Once the COMPLAINT is filed, you will receive a SUMMONS.  The summons will state that the PLAINTIFF (that's the credior or debt collector) CLAIMS that you owe this debt.  It will also state that you have 30 days (some state 20 days) from the receipt of this summons to file an ANSWER.

An ANSWER is a legal brief explaining why you legitimately do not owe this debt.  There is usually a cost to file the ANSWER, and most likely you will need an attorney to file it so it is in the proper "legal" form. About 99.9% of the time, you owe the debt, so there is no need to dispute it.  The key is to know how to handle it.

I've written several blogs over the years explaining what to do if you recieve a summons.  If you live outside of Texas, I would encourage you to not only read about your options, but you will need to take action.

But hey, ya'll...if your a Texas resident, I've got good news!

The purpose of filing the claim is to get you to:

1)  Take action to pay your debt out of fear of what may happen if you don't!

2)  The debt collector hopes to be awarded a JUDGMENT, so they can either GARNISH YOUR WAGES, place a LIEN ON YOUR HOME or even LEVY YOUR BANK ACCOUNT.

In the great state of Texas, you have laws that protect you from creditors like few other states. 

Your wages cannot be garnished for unpaid, unsecured accounts, but even in Texas, they can be garnished for child support or alimony, unpaid taxes and defaulted student loans, so be advised!

Your home is also protected from a lien with a wonderful Texas Homestead Protection!

Although there a some restrictions to the homestead law, basically it means that a creditor cannot apply a lien against your property for unpaid, unsecured debts.

So, your wages and home are protected in Texas, what about your bank account?

As in all states, if your only source of income is from Social Security and/or a Retirement Plan or Fund, Disabily Income, etc. and those monies are directly deposited in your bank account, THEY ARE EXEMPT FROM GARNISHMENT OR LEVY.

HOWEVER, although your wages are exempt in Texas, once they are deposited in your bank account, they would be subject to a garnishment or levy (after a judgment is awarded to the creditor)!

I advise any client who has earned income to NOT DEPOSIT to your bank account with a judgment against you!  I know it can be a hassle, but think about what it would be like to start bouncing checks on Monday after your bank account was FROZEN over the weekend!

Bottom line for all of you Texas Residents:

• Your home (including a mobile or manufactured home) is exempt from a LIEN
• Your wages are exempt from garnishment
• But, you need to take caution with your bank account!

Photo credit: 

https://www.flickr.com/photos/tomjmac/3695294596

If you are receiving Social Security Benefits, most are protected from creditors, but not all!

It is a common misunderstanding that a debt collector has the right to garnish your income or bank account for an unpaid bill.

While this is kind of true, it is very important that you realize that a debt collector CANNOT apply for garnishment or a bank levy without first being awarded a judgment by the courts.

Having said that, you must also realize that the IRS and State Agencies CAN garnish or levy for certain debts, such as:

• Child Support
• Spousal Support (alimony)
• Federally guaranteed student loans
• Federal and State Taxes
• Other debts owed to State or Federal Agencies

Rather than get into those debts, let's talk about what can or cannot happen to your Social Security Benefits if a debt collector (again, not from the list above) receives a judgment.

Let's say that you have an unsecured credit card debt, and you just cannot afford to make the minimum payments.  The account becomes 30,60 or 90 days past due and you are receiving phone calls and nasty letters. 

It is at this point that your credit card account may be sent to a collection agency.  Now things really get serious.  More calls and letters, but now you can put a stop to those calls:

It is one thing to put a stop to the calls, but the letters will continue.  Too many people are so frustrated about being in such a terrible financial situation that they do their best to ignore these letters.

If that's what you have done, then it is possible that the debt collector will file a complaint.

A "complaint" is a legal process whereby the person who is owed the debt contacts an attorney (licensed in your state) and the attorney files the proper paper work (complaint) with the court in your county.

Next, you will receive a SUMMONS, and this is a little scary!

The worst thing you can do is to ignore the summons.  DO NOT IGNORE A SUMMONS!

Most of the time, some sort of settlement or agreement can be worked out even after a summons is issued, but if you do nothing, a court date will be scheduled and the debt collector will be awarded a judgment.  This is called a Default Judgment, as the debt collector (plantiff) was awarded the judgment because no one from your side (defendant) was there to argue.

By the way, unless you can prove that you do not owe the debt, there is really no reason to give the legal "ANSWER" that the summons mentioned.  Most courts charge a hefty fee to file an "ANSWER", and it must be "legally" correct, meaning you might have to pay an attorney for their services!

So now you know that except for the debts to the Federal or State governments and the other obligations mentioned above, there is a legal process that must happen before a garnishment or levy can happen.

But, let's say your creditor (debt collector) is awarded the judgment and sends a writ of garnishment/levy to your bank.  NOW WHAT?

Good news!  As of May 1, 2011, when a bank receives a garnishment writ or order, it must review your records or statements to determine if a Social Security check has been direct-deposited into your account in the past 2 months.  This is called the Look-Back Period.

The bank will determine the total amount of "exempt funds"...funds from Social Security Benefits.  SSI (Supplemental Security Income), Veterans benefits, and federal employee retirement checks will receive the same type of protection.

Other retirement income is also exempt from garnishment or levy, but is not given the same automatic "Look-Back Period" afforded direct deposits from Social Security Benefits!

Many banks or credit unions will help protect it's bank customers retirement funds from garnishment or levy, but you just assume they will!

If you are falling behind on your debts and have received a summons, then you should contact your bank immediately and find out what their procedure is if they are presented a writ of garnishment or levy.  Most banks will "FLAG" your account to notify anyone at the bank that those funds are exempt, BUT DO NOT TAKE IT FOR GRANTED! 

Another important point!!!!

Let's say that your Social Security Benefit is directly deposited in your checking account.  You want to move some funds to a savings account to make sure you have a little money set aside for a rainy day.  Seems like a good idea....WRONG!!!

If you transfer funds from the account that had received the Social Security Benefit, they are now NOT PROTECTED from garnishment or levy!

ONE MORE THING TO KEEP IN MIND...

Let's say that you have a part-time or side business to help out.  You get a little money from this extra job and you deposit it in the same checking account that receives your Social Security Benefit.  Prior to May of 2011, these funds were considered "co-mingled fund" and now all of the funds were subject to garnishment or levy!

Now, the bank will exercise the 2 month "Look-Back Period" and will determine how much is from Social Security and how much was from another, unprotected source.  Those funds would be subject to garnishment or levy.

HERE IS WHAT I SUGGEST:

Once you have received a summons, you know that the debt collector is very serious and will do every legal thing they can to collect that debt.

• 1)  Contact your bank to determine what level of protection you have from a possible garnishment or levy.  If they don't give you a good feeling of security, consider moving your account!
• 2)  If you receive "other sources of income", you should consider not having them direct-deposited or deposited at all!  I know, but until this summons/debt is dealt with, I would not risk it!  I've seen a client of ours who was too stubborn to take our advice have a coupld of thousand of dollars "frozen" by his bank and he couldn't make rent or buy groceries!

BOTTOM LINE...

Yes, Social Security Benefits are protected from garnishment or levy, but you CANNOT take it for granted!

If you receive a summons, then you must be pro-active.  The worst thing you could do is to do nothing.

Photo by Heidi Elliot

http://www.flickr.com/photos/7342234@N02/3846575731/

A wage garnishment can be devastating!

Here are 3 tips on how to stop a wage garnishment:

1.  DON'T IGNORE A SUMMONS!

There are several steps that a creditor must take before they can apply for a writ of garnishment.

First, a creditor must hire an attorney that is licensed within your state to file COMPLAINT with your local, county court.

A COMPLAINT is an official/legal statement that you owe a certain amount to someone.

For example, let's say you have a Visa card and due to a severe financial circumstance...

• Loss of employment
• Illness
• Divorce
• Death of a spouse
• Disability

... you find yourself unable to make any payments.

After a few months of calls and letters (HOW TO STOP COLLECTION CALLS), a creditor may choose to file a complaint.

Once the complaint is filed, a SUMMONS is prepared and delivered to you.

The SUMMONS will state that the creditor (called the Plaintiff) will state exactly what you (the Defendant) owe.

It will also state that you have a certain number of days to give an ANSWER.

An answer, is a legal document that you file with the court (yes, there is a significant fee to file an answer) whereby you state why you do not owe the debt.

But, in 99.9% of the time, most people know they owe the debt.

Unfortunately, this summons and legal procedure could have been avoided if you had contacted the collector or a Debt Management Company .

2.  YOU SHOULD TRY TO NEGOTIATE A SETTLMENT OR STIPULATED AGREEMENT BEFORE THEY MOVE FOR A DEFAULT JUDGMENT.

Once a complaint has been filed and a summons delivered, the creditor or collector has had to pay extra money to the court/attorney/summons delivery company, etc.

They may not be in a postilion to offer much of a settlement, but you should always try.

If a settlement cannot be reached, most of the time a STIPULATED AGREEMENT can be arranged.

A stipulated agreement is an agreement that you make to pay back (usually 100%) of the debt plus fees and interest over a certain length of time.

The reason you would do this is to avoid the court awarding the collector (Plaintiff) a DEFAULT JUDGMENT, which will be awarded to the plaintiff by default, since you are not going to contest that you owe the debt.

It is only AFTER the judgment is awarded that the creditor can apply for a writ of garnishment.

My point is that you shouldn't PANIC just because you receive a SUMMONS and/or a JUDGMENT.

We have been able to help hundreds of clients avoid wage garnishment, but the key is to TAKE ACTION!

I know we are talking about WAGE GARNISHMENT, but once a judgment is awarded, a collector can come after your BANK ACCOUNT....UNLESS...

3.  MANY SOURCES OF INCOME ARE EXEMPT FROM WAGE GARNISHMENT:

Here are a few of the types of "income" that are exempt from garnishment in Oregon:

• Social Security
• Supplemental Security Income (SSI)
• Disability benefits
• Welfare or any public assistance
• Spousal or child support
• Pensions (public or private)
• Veterans benefits
• Disability proceeds from a life insurance or disability policy
• Cash surrender value of life insurance
• Many others (click to see complete list)

As of May 1, 2011, anyone applying for Social Security Benefits were required to have their checks direct-deposited to their bank.

As of March 1, 2013, anyone who had been receiving their Social Security Benefit checks by mail had to switch to a Direct Deposit with their bank.

But, there was another very important law passed on May 1, 2011. 

If a bank receives a garnishment order (only after a judgment was awarded the creditor), the bank cannot freeze or release money that came from social security benefits if the government deposited the benefits directly into your account within two months prior to garnishment order.

After receiving the garnishment order, the bank must know perform a two month "look back" check to determine the source of funds in your account. 

The bank must report to you within a few days of their "investigation" and let you know what they plan to do.

WORD OF CAUTION....

• Social Security (or other retirement benefits) are not protected from payment of:
• Child support
• Alimony
• Federal and/or State Taxes
• Federally insured Student Loans

One final warning about protecting your Social Security and/or other Retirement Income from garnishment..

• 1.  Do not co-mingle your Social Security Benefits with other funds.  This could remove the exemption!
• 2.  If you transfer money from the account that received the Social Security Benefit to another account (a savings account for example), that account will not be protected!

If you have questions or could use some advice, please let us know! We've been helping people with severe debt issues for a long time, and we can help you to.