Survival Skills for Overwhelmed
Debtors:
Debtors’ Rights Workshop
Presented by
Blue Ridge Legal Services, Inc.
The Legal Aid Society Serving the Shenandoah and Roanoke Valleys
Updated June 2011
How can a creditor try to collect a
defaulted debt (in a nutshell)?
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Bad credit report to credit reporting agency
Turn it over to a debt collection agency
Undertake their own collection efforts
Sell it to a Debt Buyer (“Zombie Debts”)
Repossess any collateral given for a secured debt
Obtain a “judgment” and seek post-judgment remedies
The Federal Fair Debt Collection
Practices Act
• Prohibited practices include:
 Cannot harass or abuse
 Cannot lie or mislead
 Must respect debtor’s privacy
 Cannot be “unfair”
The Federal Fair Debt Collection
Practices Act
Other Important Rights created:
 Debtor can require them to verify a debt if disputed
 Debtor can tell them to stop contacting the debtor
(must be in writing)
The Federal Fair Debt Collection
Practices Act
• BIG LOOPHOLE: The law applies to “Debt Collection
Agencies”, but not to creditors collecting their own
debts.
• It DOES apply to their lawyers, however!
• By Virginia statute, it also applies directly to payday
lenders, insofar as it prohibits harassment or abuse,
false or misleading statements, and unfair practices in
collections. See Va. Code Sec. 6.1-459(22).
The Federal Fair Debt Collection
Practices Act
• TIP: The debtor should make and keep an
accurate log of any collection communications
and try to have a witness listen to any abusive
phone calls.
• Violation of the FDCPA can result in statutory
damages of $1,000 plus attorneys fees.
Repossession
• “Secured” vs. “Unsecured”
• If Debtor is more than 10 days behind, the
creditor can try to repossess any collateral.
• But the creditor cannot cause a breach of the
peace.
• If Debtor refuses to allow the repossession
without a fight, then the creditor must go to
court first.
• “Warrant in Detinue”
More on Repossession
Debtor has limited rights post-repossession:
 Right to “redeem”
 Creditor must notice of what he’s going to do with
the collateral
 Creditor must give post-sale notice and account for
proceeds
 “Surplus”, “deficiency” or a “wash”
 If creditor violates these rights, Debtor has claim for
10% of purchase price + the entire finance charge!
Judgments
• This is a civil case, not a criminal case.
It is not a crime to owe someone money!!!
– But note can serve time for failure to pay child support
– Common client confusion as titled “warrant in debt”
• A judgment is simply an official court record that the
debtor really owes a particular debt and how much.
• Creditor can do this even if debtor is paying a small
amount regularly, and even if debtor is flat broke!
(“The Poor Man’s Law”)
More about Judgments
• “WARRANT IN DEBT” OR “COMPLAINT”
• What Court?
Where can you be sued?
The creditor must file where you live or where
you incurred the debt.
More about Judgments
Do you have to go to court?
• No – not if you agree that you owe the debt.
• But, if you don’t agree that you owe it, or
disagree on the amount you need to show up.
• This is usually your one and only chance to
challenge the debt.
• It is now or never!
Post-Judgment Remedies
Once a creditor gets a judgment, things can get serious!
A judgment allows the creditor to do 4 things it couldn’t
do previously:
• Summons to Answer Debtors interrogatories
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you must show up
don’t take anything of value
Turn-over orders
Lien on any real estate (judgment lien) enforced by
“Creditors Bill”
Sheriff’s levy on personal belongings (“Fi Fa”)
Garnishment of wages, tax refunds and bank accounts
Ways to Protect Poor Debtors
Because of various exemptions guaranteed by
federal or state law, the poor debtor may be
entirely “collection proof”:
• Tenancy by entireties
• Portion of wages
• Child Support
• Certain government checks and payments
• Poor Debtors’ Exemptions
• Homestead Exemption
Tenancy by Entireties
When and husband and wife own property jointly titled
with right of survivorship, it creates what’s known as a
tenancy by the entireties.
One important feature of this type of ownership is that it
creates an unlimited exemption against creditors of
only one of the spouses.
It most commonly appears with real estate but arguably
can be asserted in personal property with titles and
bank accounts.
This is one important reason why lenders want both
spouses to sign the loan papers.
Wage Exemptions
Under Virginia law (Va. Code Sec. 34-29), a creditor can
garnish no more than 25% of the debtor’s disposable
earnings for that week, but they still have to leave the
debtor with a “take-home paycheck of at least 40 time
the current minimum wage per week:
• Currently $290/weekly (based on $7.25/hr. minimum
wage
• Will increase when minimum wage increases.
Additional Wage Exemption for Debtors
with Dependent Children
Effective July 1, 2009, debtors whose household’s
gross monthly income does not exceed $1,750
(that is, $406.98/wk) can claim additional wage
exemptions if they have dependent children:
– $34 per week for one child
– $52 per week for two children
– $66 per week for three or more children
See new Va. Code Sec. 34-4.2.
Certain Government Benefits
Certain government benefits are entirely exempt
from creditors, including:
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Social Security benefits (including SSI)
Veterans Benefits
Black Lung Benefits
Unemployment Compensation Benefits
Workers Compensation Benefits
Public Assistance (e.g. TANF) benefits
Poor Debtors Exemptions
Section 34-26 of the VA Code:
• $1,000 in clothing
• $5,000 in household furnishings
• $10,000 in tools of your trade (including a vehicle)
• a car or truck up to $2,000 ($6,000 as of July 1st)
• a “family firearm” worth up to $3,000 as of July 1st
• burial lot, wedding rings, heirlooms, pets, and medical
equipment
• husband and wife each get this!
• w/ help, file a “Claim for Exemption” form to assert
Homestead Exemption
Section 34-4 et seq. of VA Code:
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$5,000 (+$500 per dependent) in other property
can’t be used against secured purchases
Once in a lifetime
$21.50 to record deed
Debtors age 65 or older will be able to claim $10,000
effective July 1, 2009
• Veterans with 40% service connected disability can
claim an additional $2,000; this increases to $10,000
July 1, 2009 (see new Va. Code Sec. 34-4.1)
Declining Value of Protection of
Homestead Exemption in Virginia
Virginia Homestead Exemption Levels
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
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70
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90
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10
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30
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50
Actual Exemption Amount
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70
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75
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80
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Adjusted for Inflation
Child and Spousal Support Debts- the
normal rules don’t apply!
Virtually none of these exemptions apply to
support obligations, other than:
• Very limited garnishment protection- up to 60%
of the obligor’s disposable income can be taken
for child support (65% if more than 12 weeks in
arrears)
• Poor Debtors Exemptions and Tenancy by
Entireties still apply.
Things a Debtor SHOULDN’T Do
• Quit your job
• Get a consolidation loan, payday loan or car title loan
• Fraudulently “give” or “sell” property to a friend or
relative to hide it from creditors.
• Take out a high interest second mortgage (home equity
loan)
• Fall for a foreclosure rescue scam
• Use a sketchy credit repair or debt settlement company
• Lie about what you own
• Fail to show up for debtors interrogatories
• Volunteer information
• Forego food, rent and other necessities to pay debts
Prioritizing Bills
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7.
8.
What do I pay first if I can’t pay them all?
Rent/mortgage
Utilities needed for shelter
Food and medicine
Child/spousal support obligations* and taxes
Car loan for care needed for employment
Child care costs, if needed for employment
other secured loans
Other unsecured debts, including credit cards
*File Motion to Amend?
What if the Debtor is NOT collection
proof?
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“Write-offs” for hospital bills (charity care)
Try to agree on payments
Non-profit consumer credit counseling services
Wait to see if the horse will talk?
Bankruptcy
Bankruptcy
The Debtor’s right to get back on his/her feet if
overwhelmed by debts.
2 Relevant Types of Bankruptcy:
• Chapter 7 (“straight”)
• Chapter 13 (“wage earner pay back plan”)
Which kind is appropriate?
A few essentials on Chapter 7 Bankruptcies
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Detailed petition and documentation
$299 Filing Fee unless you’re REALLY poor
3-4 months from the time it’s filed
usually 1 “court” date
Must list ALL creditors
Debts not listed aren’t discharged… or are they?
Stops all collection activity
Wipes out most debts
Depending on your assets, you might not lose anything,
unless…
Bankruptcy essentials (continued)
Depending on your assets, you might not lose
anything, unless…
• Buying items on credit (secured)
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- keep paying/reaffirm
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- redeem
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- give it back
• Your assets are too valuable to fully exempt
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For example, a house with lots of equity.
Non-dischargeable Debts
in Chapter 7
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Child support
Alimony
Fines/penalties
Debts not listed
Obtaining $ by false pretenses
Fraud/embezzlement
Willful injury to person or property
All student loans (unless it meets hardship standard)
Injuries from DUI
Income taxes less than 3 years old
Property taxes less than 1 year old
Taxes where return was not filed
Withholding taxes
Consequences of Bankruptcy
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Can’t file again for 8 years
Can own property
May be able to borrow $
Effect on credit? Depends
Government and employers cannot
discriminate against you
• Don’t lose any civil rights
When should you take bankruptcy?
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Debts of $4,000?
Something to lose and you’re about to lose it.
No future debts.
When it will accomplish something, that is,
when you will be able to take advantage of a
fresh start and not squander it!
What BRLS can do for a client with debtrelated legal problems:
• Advise the client as to his/her legal rights and
protections
• Take action against abusive debt collector
• Help dispute a debt in court if the client has a
valid defense or counterclaim
• Help the client assert an exemption (for wages,
bank accounts, tax refunds, etc.) if necessary
• Assist the client in filing for bankruptcy
protection (in the right circumstances, listed
earlier)
Other Types of Cases that BRLS Handles
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Evictions and other landlord-tenant issues
Foreclosures
Predatory Lending
Illegal utility shut-offs
Public Benefits
Wills
Medicaid, Medicare, Nursing Home issues, and other
access to health care issues
• Access to Education
• Domestic Violence (and other family law cases when
resources allow)
• And lots of other things…
Other Resources
• Virginia Legal Aid Community’s Client Information Website
– www.VaLegalAid.org
• National Consumer Law Center
– www.consumerlaw.org/advice/consumer_info
• Registered consumer credit counseling organizations in Virginia
– www.scc.virginia.bfi/reg_inst/credit.pdf
• The Community Tax Law Project
– www.ctlp.org
For electronic copies of this PowerPoint Presentation, contact John
Whitfield at jwhitfield@brls.org.