Collection Laws

  
     

Collection Laws & Exemptions by State

The Bottom Line  If any account you have gets sent to collections, you face a new set of risks, but also have new rights to protect you. Don’t get forced into paying a debt you’re not legally obligated to pay or agree to terms that are worse than you could have obtained. When you know the worst case scenario the collection laws in your state allow, you won’t agree to something worse voluntarily. A clear understanding of the collection laws can give you leverage for negotiating a favorable deal with your creditor, even if they have a judgment against you.

 When you owe money to a creditor and don’t make your monthly payment, you can expect to be hit with a late fee. For a credit card, you can also be hit with a steep increase in your interest rate as a penalty.

If you continue to miss payments, your account will end up with an internal collections department, be assigned by your creditor to an outside collection agency working on their behalf, or sold to an independent collection agency.

Credit cards are a common source of collection accounts, but delinquent debt for a cellphone, medical bill, or cable TV can lead to the same collection efforts. Any collection account can damage your credit score and lead to you being sued.

Dealing with Collection Calls                       

Collection calls start; never a pleasant experience. The collection agents can be reasonable or can pressure, cajole, berate, and insult you. There are limits to what a debt collector can say to you, the hours it is OK to call, and how often the collector is permitted to call you.

The Fair Debt Collections Practices Act (FDCPA) is a federal law that governs the conduct of third-party debt collectors. However, it does not apply to your original creditor. Some states have passed laws that extend the FDCPA to the original creditor in their state.

Will You Be Sued?

You can’t get blood from a stone. There are simply times when there is no money to pay a debt in collections. As time passes without payment you face the chance that you will be sued.

Here are some of the primary factors that cause a creditor to sue you:

  1. The nature of the creditor itself. Some creditors just choose to sue as a matter of course.
  2. The size of the debt. The more you owe, the greater the chance. That doesn’t mean you won’t be sued for a small debt, however.
  3. The collection laws in your state. Creditors are less likely to sue you if you live in a state that protects your wages from a wage garnishment.
  4. The information the creditor gathers from reviewing your credit report, such as whether you own a home with equity and if you are paying other creditors.
  5. How close the debt is to reaching the time limit for initiating a lawsuit due to the statute of limitations on debt.

If you are at risk for being sued by a creditor, take the time to review the collection laws in your state. What a creditor can do to you should strongly influence how you deal with the creditor, whether trying to work out a payment plan, negotiate a settlement, or even file bankruptcy.

Learn about State Laws that Protect Your Income and Assets

State laws limit the reach of a creditor that obtains a judgment against you for a consumer debt. Some states have collection laws that are consumer friendly, that offer stronger protections for your income and assets. Other states have weak protections in place, exposing you to potentially severe harm.

Different collection rules apply for any debt you owe to the government or for court ordered payments, such as child support.

Review the chart below so you can understand the worst case scenario can be if you have a judgment ordered against you. The amounts listed are what is protected, what a creditor can’t take. Pay attention to the footnotes, where listed.

If you have an asset that is worth more than the amount listed, consult with a lawyer to understand the likelihood that the creditor will compel the sale of the asset to collect the money you owe.

Collection Laws by State

Here is a quick explanation of each column in the chart below that shows the collection laws for all 50 states. Please use this chart as a guide, not as legal advice. Check with an attorney in your state for an authoritative answer.

FDCPA Applies to Original Creditors- A “Yes” in this column indicates that the state has a law that the restrictions of the FDCPA also apply to the original creditor.

Homestead Exemption- The amount listed is how much equity in your home is not threatened by a judgment. Some states protect all the equity in your home, no matter how valuable your home is. Others offer little or no protection.

Vehicle Exemption- Your equity in one vehicle is protected up to the amount listed. If you’re still making payments, take the current payoff balance and subtract the amount you owe from what it is worth, to see if your vehicle is totally exempt or not.

Bank Account Exemption-The number shown is the amount that is safe from attachment if the bank receives an order to levy your bank account from a judgment-creditor’s collection efforts. If your state shows “None,” then your entire account could be emptied, up to the amount you owe for the judgment. Any account on which you are listed as a co-account holder is at risk of being levied, so have yourself removed from any joint accounts if you are levied.

Wages- The percentage listed is the part of your wages that are protected from wage garnishment. It is the percentage of your income, that your payroll department holds for you, after mandatory deductions are taken out. The rest is sent to your creditor out of each check, until the debt is paid off. Mandatory deductions include federal and state taxes, Social Security, state unemployment and disability taxes. The amount you pay for other obligations, such as voluntary contributions to retirement accounts, deductions for medical, dental, or vision insurance, or contribution to a Medical Savings Account are not exempt and are considered part of your disposable income. As of early 2016, nothing can be taken if your take home pay is $217.50 per week or less.

 Although we believe this information to be accurate as of the date of its posting, we can’t guarantee the accuracy of the information provided. Consult with an attorney in your state for specific information regarding the laws and exemptions that apply to you in your circumstances.

 

Collection Laws & Exemptions

 

FDCPA Applies to
Original Creditors

Homestead Exemption

Vehicle Exemption

Bank Account

Wages

Alabama

 

$5,000 (can double)

None

$3,000

75%

Alaska

 

$70,200

$3,900

$1,820 or $2,860

$456-7161

Arizona

 

$150,000

$5,000

$150

75%

Arkansas

 

Unlimited (<1/4 acre)

$1,200

$800 or $1250

75%

California

Yes

$50,0004

$5,000 (2x)

$0

75%

Colorado

 

$30,000

$5,000

None

75%

Connecticut

 

$75,000 (2x if married)

$1,500

$1,000

75%

Delaware

 

None (if both owe $)

None

$500

85%5

D.C.

Yes

Unlimited

$2,575

$850

75%

Florida

Yes

Unlimited

$1,000

None

100%2

Georgia

 

$10,000 (can double)

$3,500 (2x)

$600

75%

Hawaii

Yes

$30,000

$2,575

None

80%

Idaho

 

$50,000

$5,000

$800

75%

Illinois

 

$15,000 (can double)

$1,200

$2,000

85%6

Indiana

 

$7500 (can double)

None

$4,000

75%

Iowa

Yes

Unlimited

$5,000

$100

75%3

Kansas

 

Unlimited

$20,000

None

75%

Kentucky

 

$5,000

$2,500

$1,000

75%

Louisiana

 

$25,000

None

None

75%

Maine

 

$25,000 (ask)

$5,000

$400

75%

Maryland

Yes

None (if both owe $)

$5,000

$6,000

75%

Massachusetts

Yes

$300,000

$700

$425

75%

Michigan

Yes

$35,300 or $52,925 if elderly or disabled

$3,250

None

75%

Minnesota

 

$200,000

$3,600

None

75%

Mississippi

 

$75,000

$10,000

None

75%

Missouri

 

$8,000

$1,000

$1,250

75%

Montana

 

$60,000

$2,500

None

75%

Nebraska

 

$12,500

$2,500 wildcard

85%

Nevada

 

$125,000

$4,500

None

75%

New Hampshire

Yes

$30,000

$4,000

$8,000

75%

New Jersey

 

None (if both owe $)

$1,000

$1,000

90%7

New Mexico

Yes

$30,000 (may double)

$4,000

$2,000

75%

New York

Yes

Varies by county
See CVP § 5206

$4,000

$2,5008

90%

North Carolina

Yes

$10,000 (may double)

$1,500

$500

100%

North Dakota

 

$80,000

$1,200

$7,500

75%

Ohio

 

$25,000

$3,225

$425 (2x)

75%

Oklahoma

 

Unlimited

$3,000

None

75%

Oregon

Yes

$25,000 ($30K couple)

$1,700 (2x)

$400

75%

Pennsylvania

Yes

None (if both owe $)

None

$300

100%

Rhode Island

 

$150,000

$12,000

None

75%

South Carolina

Yes

$50,000 (can double)

$5,000

$5,000

100%

South Dakota

 

Unlimited

$6,000

6k-Auto

75%

Tennessee

 

$5,000 ($7.5K cpl)

$4,000 wildcard9

75%

Texas

Yes

Unlimited

Unlimited

None

100%

Utah

 

$20,000 (can double)

$2,500 or $3,500

None

75%

Vermont

Yes

$75,000 (can double)

$2,500

$1,100

75%

Virginia

 

$5,000 (+$500/kid 2x)

$2,000

None

75%

Washington

 

$40,000

$2,500

$500

75%

West Virginia

Yes

$25,000 (can double)

$2,400

$800+

75%

Wisconsin

Yes

$40,000

$1,200+

$1,000

75%

Wyoming

 

$10,000 (can double)

$2,400

None

75%

Notes

1. Alaska: $716/wk (head of family) or $456/wk (non-head of family)
2. Florida: 100% (head of family only) or 75% for non-head of household
3. Iowa: 75%, but yearly total limited
4. California: $50k (single), $75k (married), $125K (65 or disabled)
5. Delaware: 85% of disposable
6. Illinois: 85% of gross
7. New Jersey: 90% of gross, unless judgment-debtor earns more that 250% of federal poverty level, then court has discretion to use federal 25% exemption.
8. New York: Account contains directly deposited exempt benefits, including Social Security, SSI, Veterans benefits, disability, pensions, child support, spousal maintenance, workers compensation, unemployment insurance, Public Assistance, Railroad Retirement benefits, and Black Lung benefits. Otherwise, $1,740 on all other accounts. See the New York Law Help Consortium for more information.
9. Tennessee: Up to $4,000 of any personal property, including a financial account, can be exempted. See Tennessee § 26-2-103 for details.

State-by-state collection laws. Source: Bills.com