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When Dealing With Debt Collectors, It Pays To Know Your Rights

So you bought something on credit, but then never saw a bill for it. Perhaps you think: no bill = winner/free stuff! At some point, the company is likely to balance their books and find your debt. But just how long can a creditor wait before attempting to collect on that debt?

Am I off the hook?

People wonder if they are off the hook with the debt when they haven’t heard from a creditor. Then they read on the internet they aren’t liable after a period of time if a creditor doesn’t collect. Every state has its own statute of limitation codes, and New Jersey’s guidelines are fairly straightforward in that the four areas of collection covered by the code all have the same statute of limitations on contracts – whether they are oral contracts, written contracts, a promissory note or an open-ended account. Once six years has passed without the creditor attempting to collect the money due, they will not be able to go to court to demand you pay.

Not so fast though…

But buyer beware, the creditor may have secured a default judgment against you. A default judgment is a legal obligation to pay a debt. To get a judgment against you, a creditor or collector has to take you to court. If you don’t respond to a summons, or if you lose the case, the court will issue a judgment in favor of the creditor. Once that happens, the judgment is public record and will affect your credit reports. This can happen fast, and the statute of limitations on a judgment is 20 years – not six. Further, a creditor can renew the judgment.

Dealing with a judgment

In order to enforce a judgment in NJ, the creditor must obtain a writ of execution issued by the court. Once the court issues the writ of execution, the sheriff or a court officer will execute it. This writ of execution allows creditors to access many types of assets owned by debtors, including but not limited to:

  • Money in bank accounts
  • Rental income owed to the debtor
  • Automobiles, equipment, and other types of personal property
  • Stocks and other business interests

The creditor may also request a wage execution from the court. The debtor’s employer will be required to deduct a portion of the debtor’s wages each payday in payment of the judgment. Before the wage execution is issued, the debtor is entitled to notice and a hearing at which he or she can object.

Just how serious can this get?

The court has the option to issue an arrest warrant against a debtor if the debtor fails to comply with the information subpoena or court ordered examination after a writ is executed when the creditor is searching for the debtors assets. If arrested, the debtor will be brought to a judge and released only on compliance with the original information subpoena or court ordered examination requested by the creditor.

Is any of my stuff off limits?

Certain assets of a debtor are considered exempt property and cannot be confiscated to pay a judgment due to public policy legislation. These protected assets include:

  • $1,000.00 of personal property
  • disability payments
  • insurance policies
  • workers’ compensation
  • retirement benefits

Judgment liens that impair the rights of a debtor to valid exemptions are usually not enforceable. Similarly, the amount that a creditor can collect from execution on a debtor’s wages is limited to the lesser of: (a) 10% of gross weekly pay; (b) 25% of disposable weekly earnings; or (c) disposable weekly earnings above $217.50.

Sale of personal property

When personal property is sold to satisfy a judgment, debts to secured creditors must be satisfied from the proceeds first. As a practical matter, this can mean little or nothing is left for an unsecured judgment creditor. For example, if the debtor has a car loan, the car may be worth less than balance on the loan.

Judgment lien

If the judgment was obtained in Special Civil Part (small claims court) and the creditor has had difficulty locating viable personal assets, the creditor can record the judgment in the Office of the Superior Court Clerk in Trenton to create a lien on the debtor’s real estate. This will help to safeguard a creditor’s interests by preventing a debtor from selling property owned in New Jersey with clear title until the recorded judgment is paid in full. A judgment lien is automatically created in New Jersey when the judgment is obtained in Superior Court. Judgment liens will be associated with the debtor’s property for a total of 20 years, regardless of the whether ownership of that property changes.

Conclusion

NJ laws limit the amount of time a creditor can collect on a debt to six years. If a default judgment is entered against you, the time allowed to collect increases to 20 years, or longer if renewed. The writ of execution allows the judgment to be enforced, and creditors gain access to more ways to collect from you. Not all is lost, however, as judgments can be reversed, appealed, amended, or in some cases settled for less.

If you aren’t sure what a creditor can do to collect from you after a judgment, the first thing to do is get legal help. If you are getting calls from a debt collector trying to collect money on a debt that is older than the statute of limitations, they are in violation of the Fair Debt Collection Practices Act. Joel R. Spivack, Esq. is an experienced bankruptcy and debt lawyer who knows about your rights when it comes to any debt-related issues. Contact him today for a free consultation about your case.