Consumer Law

Types of Debt and Debt Collection Practices

Secured debts are tied to an asset that becomes collateral for the debt. A house, for example, is the collateral for a mortgage. A car is collateral for a car loan. If you don't pay the debt, the lender takes and sells the house or the car to recoup its loan. Unsecured debts are not linked to collateral. The lender can take other actions to get you to pay. They can hire a debt collector to persuade you to pay the debt. They can sue you and ask the court to garnish your wages, take an asset, or put a lien on another of your assets until you've paid your debt. Unsecured debts include credit card debt, student loans, medical bills, and court-ordered child support.

Debt Collectors Must Follow Certain Rules

Under federal law, debt collectors generally cannot call you before 8 a.m. or after 9 p.m. They can't call you at work if you tell them not to. They're also limited with respect to who else they can contact. They can call your family members, friends, or neighbors, but only once and only to ask for your contact information.

Debt Collectors May Sue You

If debt collectors fail to reach you by phone or receive a response by mail, the next step is usually to file a lawsuit. They have to serve you with notice that they're doing so, usually by sending you a copy of the filed complaint. If you don't go to court and try to defend yourself, such as by saying that the amount they say you owe is incorrect, the collector will win the lawsuit by default. The court will issue a judgment against you for the money owed.

Collectors Can Use a Judgment Against You

After a debt collector receives a judgment against you, it may be used in a number of ways to collect the money you owe. The collector may send an order for garnishment to your employer, and your employer would then have to withhold a percentage of your pay each pay period and send it to the collector. Both state and federal law limit the amount of the percentage. The collector may also use a judgment to have a sheriff come to your home and collect your personal property for sale to satisfy your debt, or place a lien (ownership right) against your home or bank account.

Lenders Can Reclaim Collateral

Debt collectors typically work with unsecured debts, such as credit cards or medical bills. Your loans with secured creditors attach to property they can take back if you default on payment. These lenders don't have to go through the court to get permission. Foreclosures on real estate are a bit different. They usually involve a multistep process, sometimes under court supervision. However, the bottom line is the same. If you don't pay, you lose the property.

A Consumer Law Attorney Can Help

The law surrounding the collection of secured and unsecured debts is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer law attorney.

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