Last updated: August 2010

Talk to Your Creditors
Collection Agencies:  What are Your Rights?
Going to Court
Wage Garnishment
Bankruptcy-the Ultimate Weapon

Everyone has bills. We pay them every month. Sometimes we have to scramble to pay a debt or hold off on buying something until a bill is paid. But sometimes things happen. It may be the loss of a job, illness or a good hearted attempt to help a friend or family member that goes wrong. Whatever the reason, you find yourself in deep financial trouble. You can't pay your debts. What happens then? What can your creditors do? Can they constantly harass you? Can you go to jail? Do you have any rights? What should you do?

Let's answer these questions with an example. Say you have a $2,500 debt to a major credit card company, like Visa or MasterCard. The company is your "creditor" because you owe them money. At the time you were charging things on your Visa card, you thought you would be able to pay your bill in full. Then your statement comes in and you find that you can't make even the minimum payment. What do you do now?

Talk to Your Creditors

If you can't pay your bills, the first thing to do is contact your creditors. Let them know what the problem is. The creditor may be willing to work with you and make special arrangements to lower or cancel your payments for a period of time. The worst that can happen is that they will continue demanding payment. If you simply ignore your creditors and don't explain why you can’t make your payments, they will probably think that you just don’t want to pay your bills. 

Can we work something out?

Sometimes creditors are willing to work out payment arrangements through organizations known as Consumer Credit Counseling Services (CCCS). These groups work with and are often funded by large creditors like national department store chains and credit card companies. A CCCS will look at your income and expenses. If they think you have enough income, they will put you on a budget. They will also try to work out payment arrangements with your creditors. If this works, you send the CCCS a check for a certain amount each week or month, then they divide it up among the creditors. The fee charged by the CCCS for this service is paid by the creditors out of the money they receive. The reason creditors agree to pay for these services is that they prefer to work with you and receive some payment on their bills rather than having to chase you, perhaps never collecting anything.

Some CCCS groups will work with you on how to manage money and handle credit in a responsible way. There are many different Consumer Credit Counseling Services organizations out there, however, and some are better than others. The National Foundation for Consumer Credit is a CCCS national accreditation organization. They make sure that all of their members maintain certain standards for the benefit of the people who use them. All of the member agencies of the National Foundation for Consumer Credit are non-profit, community based organizations offering money management, education programs and confidential credit counseling. If you wish to contact one of their agencies, you can call them at 800-388-2227.

No Deal. What Next?

What if your creditor is not interested in making arrangements with you or a CCCS? When you fail to make your payment, your creditor will start to send you past due notices. They may send you threatening letters and call you demanding payment. They can report you as being late to a credit bureau which will hurt your credit rating, but they have no power to force you to pay. They also cannot send you to jail- you can never go to jail for owing money on a bill! They can’t do anything more than bother you. If bothering you doesn’t work, your creditors may send your account to a collection agency.

back to top

Collection Agencies: What are Your Rights?

A collection agency is an organization whose job is to bother people into paying bills. They are usually much more aggressive in trying to collect the debt because they keep a certain amount of whatever money they collect. They will call more often and send many more letters demanding payment or threatening to sue you. Still, they can't force you to pay, they can only try to make your life so miserable that you would rather pay them than hear from them again. However, there are limits to what collection agencies are allowed to do. They are regulated by a Federal law called the Fair Debt Collection Practices Act (FDCPA).

Under the FDCPA, you have certain rights:

• The collection agency must give you a written notice which tells you the amount owed and the name of the creditor within 5 days of contacting you about a debt. Ask them for it.
   
• The notice must also tell you that you can challenge, or "dispute" the debt or request written proof that the debt exists.
   
• Once you’ve asked for written proof of the debt, the collection agency cannot contact you again or take further steps until you receive the written proof.

Under the FDCPA, it is illegal for collection agencies to do the following:

• Use obscene language
   
• Threaten to harm your reputation or your property
   
• Harass you or your family on the telephone
   
• Falsely claim to be a lawyer
   
• Use postcards or envelopes which indicate the company contacting you is a debt collection agency and
   
• Contact persons other than you about your debt

The FDCPA also allows you to:

• File a lawsuit in Federal court to recover damages if a collection agency violates the FDCPA;
   
• Tell the agency in writing, that you cannot and will not pay the debt and that they should stop all communication with you. This means that they are not allowed to call, write or contact you in any other way in the future; 
   
• You may also file a complaint against a collection agency with the following organizations:

Federal Trade Commission                                              
55 West Monroe Street, Suite 1825                                            
Chicago, Illinois, 60603                                                  
312.960.5633                                                                

State of Illinois
Office of the Attorney General Consumer Protection Division
100 West Randolph Street, 13th floor
Chicago, Illinois 60601
312.814.3580

If the collection agency is not successful in getting you to pay, your creditor can either:

• Forget about the bill and write it off as an uncollectable debt or;
• Send your account to an attorney, who will begin the process of suing you.

Back to top

No Contact Letters to Creditors and Collection Agencies

If you want a creditor or a collection agency to no longer contact you about a debt owed, you can send them a "Cease and Desist" letter that asks them to stop contacting you.

You are considered a "collection proof" debtor if you meet the following requirements:

• You have no income, Your take home pay from work is below $371.25 a week, or your income is from a protected source like public benefits, child support or Social Security;
• If you own a home or any real estate, the value of its equity is below $15,000;
• If you have a car, its value is less than $2,400;
• The value of your personal property is not more than $4,000

If you are a collection proof debtor, a creditor may still sue you for the nonpayment of a debt owed. However, the creditor will be limited in their ability to collect on a judgment against you if the creditor sues you in court. By sending a "Cease and Desist" letter, you can tell the creditor or collection agency that your income is limited, you are unable to pay them, and ask that no further contact be made. Sending a "Cease and Desist" letter will result in no further communication from the creditor or collection agency. However, your letter will not prevent a creditor from going forward and filing a lawsuit against you to collect the debt.

To prepare a collection proof letter to a creditor or collection agency, please click on the link below. You will exit this website and go to another  website to complete an interview that will automatically prepare your letters for you. Please answer the interview questions accurately and carefully to make sure that your letters will be correct. You may then print the letters and send them to the creditor or collection agency by certified mail.

Letter to Collection Agency or Creditor from Collection Proof Debtor

If you do not qualify as a collection proof debtor, you can still request your creditors or a collection agency not contact you. Since your income and property are not protected, a creditor may have access to them as means of enforcing a judgment against you if the creditor files a lawsuit to collect the debt owed.

To prepare a letter to a creditor or collection agency, please click on the link below. You will exit this website and go to another website to complete an interview that will automatically prepare your letters for you. Please answer the interview questions accurately and carefully to make sure that your letters will be correct. You may then print the letters and send them to the creditor or collection agency by certified mail.

Letter to Creditor or Collection Agency Asking Them to Stop Contacting You 

Going to Court

If your creditor sends your account to an attorney, a lawsuit will be filed against you. You will be served with court papers called a summons and a complaint. The summons gives you information about what you need to do (such as file an appearance) as well as when and where this must be done.

The complaint tells you what your creditor claims you owe. If you are served with court papers, you should contact an attorney immediately to see if you have a defense. You have the right to appear in court either on your own or with a lawyer to tell you side of the story. If your only defense is that you don’t have enough money to pay your bills, you won’t win. If the money is truly owed and there is no valid defense, there is little that you or an attorney can do and it may not even be worth your while to go to court.

If your creditor is successful and wins the case, they will get a judgment. A judgment is a court order that says you owe your creditor a certain amount of money. More importantly, the judgment allows your creditor for the first time, to force you to pay the debt by allowing them to attempt to take what you own (your assets). Assets include such things as wages, a bank account, and a home you own or are buying. 

Getting a judgment doesn't necessarily mean that the creditor is actually going to collect anything, however. Illinois has strict laws as to what a creditor can take and what he cannot take. In order to determine if they can collect anything from you, the creditor must know what you own. This is accomplished through a legal proceeding called a citation to discover assets.

The Citation Proceeding

The citation proceeding is actually a part of the original lawsuit. This occurs only after a judgment is entered in the case. If you are served with citation papers you must go to court to answer your creditor's questions about what you own. You may be required to bring certain documents with you such as tax returns, check registers and pay stubs. If you consistently fail to show up for the citation proceeding, the court will issue an Attachment Order which directs the sheriff to arrest you and bring you to court. So go to the citation proceeding or call the attorney for the creditor to get a different date if you are unable to do so. 

When you go to court for a citation proceeding, you will meet with the creditor’s attorney who will look at all the documents you have brought and ask you a series of questions designed to find out what income and property you have. 

If it turns out you do not have income or property that your creditor can take, your creditor will not be able to collect anything from you. You are what is called "collection proof", and the judgment is a worthless piece of paper. Remember, you can't go to jail just because you owe money on a bill or because you can't pay a judgment. The United States outlawed "debtor’s prison" about 200 years ago.

Sometimes a creditor's attorney will try to get you to agree to make payments on a judgment even when you don't have to. Be careful! There is little reason to enter into such a deal. If you sign an agreement it becomes an order of the court (an agreed order) and if you later refuse to pay, you can be held in contempt of court.

What Creditors Can’t Get

The laws of Illinois allow you to keep certain assets (property and income) no matter how much you owe. These assets are called "exempt"—they can't be taken by your creditors. If everything you own falls within these exemptions, your creditors can't take anything from you. In other words, you are collection proof. 

Your most important exemptions include:

• Necessary clothing
• Income from Social Security, unemployment compensation, public assistance, veteran's benefits, disability benefits and private pensions
• Alimony and child support payments
• Take home pay up to $371.25 per week after all state and federal taxes have been taken out
• $15,000 worth of equity on the home you live in (including a mobile home or condominium). "Equity" is the amount that something is worth in its current condition (what you could sell it for) minus what you owe on it. So if you own a $50,000 home with a $45,000 mortgage, you have only $5,000 worth of equity. Your creditor can't take it;
• A motor vehicle (car, truck, van, etc.) in which you have $2,400 worth of equity or less. If you own a car worth $10, 000, but you owe $9,000 on it, you have less than $2,400 worth of equity and your creditor can't take it. You can also "stack" on the $4,000 "other personal property" exemption (see last item in this list) to allow you to protect a motor vehicle in which your equity is as high as $6,400;
• Tools of your trade which are not worth more than $1,500 total
• $4,000 worth of any other property. You have the right to choose the property. It could be a bank account, a tax refund, household furniture and furnishings jewelry, anything or any combination of things as long as the total value is not more than $4,000.

What Creditors Can Get

Once your creditor gets a judgment against you, they can try to collect from any assets you own which are not exempt. If you have bank accounts or stocks and bonds worth more than $2,000, they can take these funds up to the amount of the judgment. If you own a home, even if you have less than $15,000 worth of equity, they can put a lien against your real estate. This means that if you try to sell your house you would have to pay off the debt in order to complete the sale. If you have a very large amount of equity in your home, your creditor might even attempt to foreclose its lien against your home. This means that they could force the sale of your house. 

Usually creditors will try to collect on their judgment by garnishing your wages. They can do this only if you take home more than $371.25 per week. If you earn less than this amount, from part time work for example, your wages can't be touched. If you take home more than $371.25 per week, your creditor can only get 15% of the amount above the $371.25. 

A creditor can garnish your wages in two ways:

Wage deduction order
Wage assignment

Wage Deduction Order

A wage deduction is also sometimes called a "wage garnishment". A Wage deduction order is an order of the court. The creditor can get this order only after they sue you and win the case. The creditor then can get the wage deduction order which directs your employer to take part of your wages. The amount of deduction is 15% for your gross wages or the wages you earn over $371.25 per week, whichever amount is less. Remember if you take home less than $371.25 per week, your creditor can’t take any of your pay. The creditor does not have to notify you of the wage deduction order; it goes only to your employer. If your employer fails to deduct your wages, the employer may become responsible for the judgment amount.

A wage deduction order lasts until the judgment and interest is paid off. Only one creditor can deduct wages at a time, either by wages deduction or wage assignment (see below). Even if all your creditors sued you and got judgments against you, you could lose only 15% of your gross wages to one of them. This does not apply to child support payments, which could go as high as 50%. However, if child support payments are being deducted through an order for withholding, no further deductions for a wage assignment or wage deduction order can be taken.

Wage Assignment

A wage assignment is an agreement you usually sign when you buy an expensive item on credit, like a car or furniture or take out a loan. The wage assignment says that you give the creditor permission to take 15% of your wages after taxes if you fail to pay the debt as you promised. In that case, your creditor does not have to go to court or do anything other than send a notice of intent to assign wages to you and your employer to start the collection process. You usually receive this Notice on your job. It says that the creditor intends to send the wage assignment to your employer within a number of days unless you bring all your payments up to date or you fill out an Affidavit of Defense which comes with the notice. Filling out the Affidavit of Defense form, sending it certified mail to the creditor and giving it to your employer will immediately stop the wage assignment. The Affidavit of Defense is a form that you sign that says you have a defense to the wage assignment. What is a "defense" to the wage assignment? For example, if the wage assignment involved the purchase of an automobile, and the automobile broke down shortly after purchase, this may be a defense to the wage assignment. Again, not having enough money to pay the debt is not a defense.

There is another way, however, to stop a wage assignment and you can use it any time. A wage assignment is "revocable at the will of the signer". That means that even though you signed a wage assignment you can decide to end the creditor's right to use it at any time. This is done by sending a letter to the creditor by certified mail with a copy being sent to your employer. The creditor still has the right to sue you to collect the debt.

Click on the link below to go to the interview, which will automatically prepare your letter for you. Please answer the interview questions accurately and carefully to make sure that your letter will be correct. You may then print the letter and send it to the creditor by certified mail as well as a copy to your employer. 

Letter to Revoke a Wage Assignment

back to top

Bankruptcy-the Ultimate Weapon

Let's say that your creditor has gotten a judgment against you and is garnishing your wages through a wage deduction order. With the loss of this income, you just can't make ends meet. You find yourself falling further and further behind on your other bills. What can you do? Eventually you may have no choice but to consider filing bankruptcy. This is a drastic action and should be taken only when absolutely necessary. It can be filed only once in eight years in the case of Chapter 7 and once in six years in the case of Chapter 13. It can stay on your credit history for ten years. The good thing about filing bankruptcy is that doing so immediately stops your creditors from taking any further action against you. This includes wage deductions, law suits, as well as telephone calls and threatening letters. There are two kinds of bankruptcy available to most individuals—Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 is known as straight bankruptcy. It will discharge (wipe out) most, but not all debts. For example, a bankruptcy will never wipe out  back child support or alimony payments, and student loans are very difficult to wipe out. It will not discharge your mortgage debt unless you are willing to give up your house. 

Other debts, however, including medical bills, utility bills, credit cards and loans may all be wiped out. Different rules apply to different types of debts. In exchange for discharging your debts, you would be required to give up all of your non-exempt assets. The same exemptions that were talked about earlier apply in a bankruptcy proceeding. If your assets are greater than your exemptions, the assets may be taken up to the exempt amount.

Chapter 13

A Chapter 13 bankruptcy allows you to propose a plan to the court to pay your creditors all or part of what you owe them, depending on your income. If the plan is approved by the court, you make payments to the Chapter 13 trustee who then distributes the money to your creditors. It is similar to a Consumer Credit Counseling Service, but with the power of the bankruptcy court behind it. 

To get a Chapter 13 plan approved, you must show the court that you have enough regular monthly income to meet your regular monthly expenses (such as food, clothing, utilities and rent), and then have enough money left over to be able to pay on your bills. If you do not have enough income, you will not be able to make a Chapter 13 plan work. A Chapter 13 plan can last from three to five years. If at any time during the plan you are unable to make your payments, your Chapter 13 may be dismissed by the court. You would still owe any debts which were not paid off during the plan.

back to top

Helpful Organizations
The following organizations may be able to help you with lawsuit

Feedback

We welcome your comments and suggestions

User Survey - Please take a moment to fill out our User Survey to help us to provide better service.