By far, the
most common questions I receive concern Creditor's Rights (what
Creditors can, and cannot do, and what Debtors can do about it).
It is only by understanding Creditor's Rights that Debtor's Rights
may be understood.
JUDGMENT PROOF
Judgment Proof means that a Creditor cannot successfully sue you and
obtain a Court Order stating that you owe a certain amount to a
certain Creditor. This Order is called a Judgment and entitles
the Creditor to exercise five primary rights:
(1) writ of garnishment (taking 25% of your net pay for 60
days, then renewing the writ indefinitely, to collect up to the
amount of the Judgment at 12% plus costs of collection),
(2) writ of attachment (seizure of bank accounts, property in
your home, or any other property you own),
(3) liens on real property (above the amount of the homestead
exemption in your primary residence only - otherwise the lien is not
limited under the Washington State exemptions),
(4) service of a subpoena to appear at a Judgment Debtor exam,
bring documents, and testify under oath about your financial affairs,
and
(5) reporting the Judgment
to the credit bureaus, which will interfere with obtaining credit on
acceptable terms for a house or vehicle.
Judgment Proof status applies to debts in which the date of last
activity on the account (typically a payment or promise to pay) is
older than the 6-year statute of limitations. If you have
received a discharge in Chapter 7 or Chapter 13 bankruptcy, and the
debt existed prior to filing and was dischargeable, then you have
Judgment Proof status. If you can prove that you paid the debt
in full, you have Judgment Proof status.
It is important to note that the 6-year Statute of Limitations
barring entry of a Judgment, does not affect the right of Credit
Bureaus to report negative credit information for 7-years or a
Chapter 7 Discharge for 10 years.
COLLECTION PROOF
Collection Proof status is more common. Collection Proof means
that a creditor can successfully sue you and obtain a Judgment, but
that Judgment may not be currently collectible because the Debtor's
income is exempt (Social Security, Social Security Disability,
Pensions, Unemployment, and IRA or 401(k) mandatory distributions).
A Judgment is valid for 10 years, and may be renewed for another 10
years, so sometime over the 20-year period a Debtor may receive an
inheritance or other windfall that makes the Judgment
collectible.
In addition to
exempt income, Collection Proof status also requires the value of the
Debtor's assets to be less than the available exemption amounts
(Exemption amounts are the value of property Debtor's get to keep in
Bankruptcy). For example, under the Washington State Exemptions
the homestead exemption is $125,000. If a Debtor has more
equity than that, then a Judgment may be collected against that
Debtor.
Collection Proof Status
also applies to Debtors with below median income for their family
size (not just exempt sources of income which are always below median
amounts), with only exempt assets, who are eligible for Chapter 7 or
Chapter 13 with no payment to unsecured creditors.
Therefore, it is important to note that a prior bankruptcy discharge
may temporarily negate Collection Proof Status. For example, a
Chapter 7 discharge may only be entered after 8 full years have
passed since the filing of a previous Chapter 7 in which a Discharge
was entered; this period is reduced to 4 years if the second case is
a Chapter 13
Bankruptcy.
______________________________________________________________________
Below
is a letter that Debtor's with exempt income can use by simply
attaching a copy of a letter from Social Security with the Debtor's
name on it and mailing to
creditors.
FDCPA_Letter_for_Collection_Proof_Debtor.pdf
371.7
KB
_______________________________________________________________________
VOLUNTARY
PAYMENT
By far the broadest
category of debt status is Voluntary Payment status. Voluntary
Payment status simply means that the Debtor is choosing to pay.
This choice may be perfectly rational and reasonable under the
circumstances or the choice may create needless suffering for
Debtors. The key is to have the awareness necessary to
determine what type of choice you are making.
The diagram below shows that 98% of all Chapter 7 cases filed in
Washington State are no asset cases, meaning that Debtors keep
everything they have and nothing is sold to pay creditors. Less
than 2% of Chapter 7 Debtors surrender any property to the Trustee.
All Judgment Proof and Collection Proof Debtors are also no asset
Chapter 7 eligible (assuming no prior discharge), but they don't have
to file to protect themselves from creditors. Only a very small
number of Chapter 13 filers repay 100% to unsecured creditors.
Most Debtors don't even repay at least 50% to unsecured creditors
because they don't complete their Chapter 13 plans.
Historically,
Chapter 7 is about 70% of all filings and Chapter 13 about 30%.
Some Debtors are not aware of
their rights (or chooses to waive them). They may be willing to
send a check to the Creditor (or someone purporting to be the
creditor) even though the debt is much older than 6 years, even
though the Debtor has only exempt income and assets, or even though
the Debtor is eligible for a Chapter 7 Bankruptcy. Debtors
often continue to pay unsecured creditors in an exercise in futility,
long after their debt-to-income ratio becomes higher than 50% (or
100% or even 200% or more), and any meaningful hope of repayment is
long gone.
A Collection Agency
may call a Debtor and ask for voluntary payment even if the debt is
much older than 6 years. Debtors are not required to talk to
Creditors on the phone, and they should not do so. Debtors
should never send money on the basis of a phone call alone.
Some debt collectors don't even own the debts they are trying to
collect, they have stolen the account information. If a Debtor
pays such a debt collector, it will have no effect on the
balance.
Voluntary Payment status
also includes Debtors who are making a rational choice to settle
debts that they would have to pay in full, or at least pay a
substantial percentage of the full amount, in Chapter 13 if they were
unsuccessful in settling the debt.
The vast majority of debts, including taxes, are paid voluntarily
without any coercion by creditors. Most of time this makes sense for
most people. However, sometimes it doesn't. My hope is
that this information has assisted you in making the decision for
yourself without undue pressure from
Creditors.
_______________________________________________________________________
________________________________________________________________________
Below
is a summary of the Fair Debt Collection Practices Act, and some
common violations:
fairdebt.pdf
73.7
KB
*** Telling Debtors that
a warrant has been issued for their arrest, and they will go to jail
if they don't pay. This is false.
*** Telling Debtors they have to pay the debts of their deceased
family members. This is false.
*** Telling Debtors that they have to send a post-dated check.
This is false.
*** Telling
Debtors that the creditor has the right to call their employer.
They don't if you tell them that your employer prohibits phone calls
from debt
collectors.
____________________________________________________________________
Debtor's can complain about violations of the Fair Debt Collection
Practices Act to the Federal Trade Commission and/or the Consumer
Financial Protection Bureau and the Washington State Attorney General
at the links
below.
https://www.ftccomplaintassistant.gov/#crnt&panel1-1
http://www.consumerfinance.gov/complaint/
https://fortress.wa.gov/atg/formhandler/ago/ComplaintForm.aspx
____________________________________________________________________
The best way to assert your rights as a Debtor, and protect yourself
from abuse is to not speak to creditors by phone other than to ask
them for a fax number so your lawyer (me), can fax a cease and desist
letter. Ask the creditor not to call back. Hang up
regardless of whether you get the fax number or not.
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14205 SE 36th St Ste 100
Bellevue, WA 98006-1553
www.mulvaneylawoffices.com
Phone: 425-649-1190
Fax: 425-223-3197
chris@mulvaneylawoffices.com
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