I consistently have clients coming to my firm for help with filing for bankruptcy because they are facing crushing debt, and they do not believe they have any other options.
However, low-income seniors do have alternatives to the expensive and long process of bankruptcy. In this column, I will describe debt collection issues many seniors face and some options available to fight against debt collectors.
What can I do if I want to pay the debt, but I cannot pay everything right now?
At all points during the collection process, you may attempt to enter into a reasonable agreement where you can pay off the debt in a manner you can afford. The debt collectors are not obligated to accept any agreement, but if you can demonstrate that you have the funds or will have the funds, they may be more likely to settle.
It is important that if you do negotiate a payment plan, make sure you can afford the plan. If you cannot reasonably comply with the agreement, you will find yourself in the same position. Also, avoid offering collateral, such as your car, because if you do not comply, you risk losing the property.
A credit counseling agency can possibly negotiate with the debt collectors to lower the debt amount and payments over time. To find a local credit counseling agency, you can contact the National Foundation for Credit Counseling at nfcc.org or 800-388-2227.
How do I stop those harassing calls?
One of the most distressing aspects of debt collection is the receipt of the rude, inconvenient and constant telephone calls.
First, receiving a collection call does not make you a bad person. Life gets in the way of our plans, which includes not paying debt.
But if you do receive a collection call, federal and state law regulates when collectors can call and what they can say. According to the California Department of Consumer Affairs, a debt collector can only call you between the hours of 8 a.m. and 9 p.m. Calls at one or two in the morning are not legal. Further, the debt collector cannot threaten you with jail time or use profane language.
Also, you can stop debt collectors from calling you completely by sending a written letter asking them to stop contacting you unless it is to tell you they will no longer collect or that they will file a lawsuit against you.
What are my defenses in a debt collection lawsuit?
Having a lawsuit filed against you can be a frightening proposition, but you may have several effective defenses on your side.
A collection agency cannot collect a debt that is too old. California Code of Civil Procedure Section 337 states a lawsuit must be filed within four years of a breach of contract. You may also have other defenses. For example, if the debt is based on a contract that does not exist, if you did not receive the product, or if you are a victim of fraud or identity theft.
There are many more defenses, and there are exceptions to each of these defenses, so please contact an attorney in order to learn if these defenses apply to you. But just because a lawsuit was filed against you does not mean that you will automatically have to pay the debt immediately or in full.
What does it mean to be judgment proof?
Even if you may not have a defense, you may not be obligated to pay the debt. Federal and state law protect certain types of assets and income in order to allow people to pay for their basic needs and keep personal items. As a result, even if a debt collector obtains a judgment against you, they may not be able to collect. If you only have enough income and assets to pay for your basic needs, the debt collector can be prevented from collecting from you. This concept is called being judgment proof.
Although you may be judgment proof, you will still have a judgment on your record and your credit history will suffer. However, for people who already have poor credit histories or only have a small, fixed income, being judgment proof can save you time and money.
Typically, if you have a judgment against you, the creditor will attempt to collect through a bank levy or garnishment of your wages. However, if you work, under federal law the collectors can only take up to 25 percent of your wages. If you are living on public benefits like social security or veterans benefits, collection cannot occur unless you receive a very high amount. Further, most private pensions and federal pensions are protected. In order to claim your property as exempt, you must file a claim of exemption form (Judicial Council form EJ-155). You can review Judicial Council form EJ-155 at www.courts.ca.gov/selfhelp for a more expansive list of exempt benefits.
In addition, federal and state law protect the value of your home. If you claim a homestead exemption, you may prevent any type of sale due to a lien on your home if the equity on your house is below a set amount. If you are over 65, disabled, or 55 years old or older with an annual gross income of $25,000 (if single, $35,000 if a couple), up to $175,000 of the equity in your house is protected. So if you own a house that is worth $250,000, and owe $100,000 in the house, the $150,000 in equity is protected.
Also, if you own a car, up to $2,300 of the equity of your car is protected. Household items are also protected. Even your more valuable items, such as jewelry and antiques, are protected up to $6,075.
Although these options are not perfect, they provide you with some protection against abusive debt practices.
For more information, please view the Department of Consumer Affairs website at dca.ca.gov.
If you believe you have been a victim of unfair debt collection claims, please contact the Attorney General at oag.ca.gov/consumers or 800-952-5225.
This column is only a basic overview of debtors rights. If you have any questions about being judgment proof or other debt collection questions and are over 60 years of age, please call Legal Services of Northern California at 643-0054.
Antonio Valdez is the senior project staff attorney with Legal Services of Northern California.