You just received a simple-looking postcard in the mail from the County Court announcing that a “default judgment” was awarded to a creditor in a lawsuit filed against you. Now what is going to happen? The first thing you need to realize, once you get over the shock of having a judgment against you, is that there are steps that you can, and should, take to protect yourself. In the short term, you need to know what the collection agency will do to try to collect, and what actions you can take to defend yourself. You also need to come up with a plan to address your overall financial situation.
Short-Term Protection
In Nebraska, the three most common ways for a creditor to collect its judgment are:
(1) wage garnishment;
(2) bank garnishment;
and (3) sheriff execution.
Wage Garnishment
The most common method is to garnish your wages. The collection agency will soon discover, if it doesn’t already know, where you work. Unless you are able to quickly make an enforceable payment agreement with the creditor (more on that below), the creditor will likely request a wage garnishment summons in the very near future. A wage garnishment is a legal attachment of your wages that can essentially continue until the judgment debt is paid in full, unless a bankruptcy is filed – which stops the garnishment immediately. Creditors collecting medical or credit card debt in Nebraska are allowed to garnish 25% of a person’s earnings, after taxes, if that person is not the head of a household. If the judgment debtor does qualify as the “head of household,” the rate is 15% of the after-tax wages. “Head of household” is defined as the main economic provider for a dependent (such as an unemployed spouse or child).If the collection agency is trying to garnish you at the rate of 25% and you are the head of household, then you should object on the form that comes in the mail with your copy of the garnishment summons. Of the three choices, you should “check the box” that reads your “status as not the head of the household is incorrect,” and file that paper with the clerk of the county court requesting a hearing on the wage garnishment. At the hearing, you will have to testify to establish that you are the main economic provider for a family dependent.
Bank Garnishment
The second way to collect on a judgment is a bank garnishment. Using this method, a creditor freezes every penny in a bank account and eventually requests an order from the court delivering that money to the collection agency. Few experiences in life match this gut-wrenching news from your banker. Typically, this forces people, who were already struggling financially, into survival mode. The utility bills still need to be paid, and you need to buy groceries. What can be done to protect yourself and your family? Read on, and I will explain how you still may be able to keep your money away from the collection agency.
If a creditor has recently sent a garnishment to your bank, your first option is to try to stop the garnishment from proceeding. To do this, first determine whether the money in your account is exempt because of its source. Is the money from Social Security, Social Security Disability, Veterans Benefits or Disability, Unemployment or from an injury settlement? If all of the money in the account is from just one of those sources, then you have an exemption for that money, and it can be protected if you move quickly.
When you were served with the garnishment summons, you should have been given a form with three “check the box” choices in order to file an objection to the garnishment with the court. This objection must be filed within three (3) days of your receipt of the garnishment summons. You need to check the box that says the “funds are exempt from garnishment” and file that paper with the clerk of the county court, requesting a hearing on the garnishment. When you go to court, you will need bank statements to offer as evidence proving all the monies in the account are from exempt sources. I have another free report available for you about how to be certain of this. Please let us know if you would like to receive that report, as well.
The other possible exemption is lack of actual ownership. Perhaps this is your child’s wages from his or her job and you were simply listed as an owner of the account because your child is a minor. If bank statements and pay stubs show that money in the account was not deposited in the account by the judgment debtor (you - the person owing the judgment) then it is exempt from garnishment. A legal proceeding like this is tricky – even for a lawyer. You should strongly consider legal representation.
Another possible defense is that the money frozen by the collection agency, with its bank garnishment, may be exempt based upon the value of all of your property. This is a complex objection to make, as you need to request a hearing and claim your exemptions for all of your property, including the money in the bank. I recommend you obtain an attorney’s advice and help before trying to prove that all of your property is legally exempt.
If the money in the bank account has already been delivered to the collection agency/creditor, you are probably too late to save it. However, you can still take steps to protect your money in the future. Once you file a bankruptcy, the creditor cannot continue to garnish your accounts. When a bankruptcy is filed, you may even be able to obtain a refund of some of the money garnished from you!
In the meantime, before your bank account is garnished, you should change your finances to a “cash basis”. This means that you do not have your paycheck electronically deposited into a bank account but receive a paper check, cash the check, and pay your bills with cash and/or money orders.
If that is not an option, because your employer requires electronic wage deposits, you should sign up for a prepaid debit card from Wal-Mart, H&R Block, or perhaps NetSpend. This debit card must be a “prepaid” debit card. It cannot be tied to a traditional checking or savings account. While you may pay a monthly fee for this convenience, at least the collection agency likely will not be able to attach and garnish that prepaid debit card.
Sheriff Execution
The third method collection agencies use to collect a debt is to send the county sheriff to your home with an “execution” order. When this occurs, the sheriff will often serve you with the order and give you some time to make a significant payment. If you are unable to make a payment to the creditor’s satisfaction, the creditor may tell the sheriff to “execute” (seize and sell) on a vehicle or other property to pay the judgment. If the sheriff serves you with an execution order, you only have 20 days to object by claiming that all of your property is exempt, based upon its value. This is a complex objection to make, as you need to request a hearing within the required timeframe and you must be able to exempt all of your property. I recommend you obtain an attorney’s advice and help in such a situation.
Long-Term Protection
Now that you know what the collection agency is likely to do, as well as possible ways to protect yourself in the short term, it is time to discuss longer term solutions to your financial issues. Depending on your particular situation, one of the following options may be appropriate:
1. Debt Consolidation
The ads on television and radio are tempting – “Hire XYZ Debt Consolidation and convert all of your expensive credit card payments to one low, affordable monthly payment.” The debt consolidation company promises to negotiate with your creditors, and force them to take a much lower payment. These ads sound wonderful, almost too good to be true. Unfortunately, they are just that.
We have heard countless debt consolidation horror stories over the years. Many of these clients have told us things like, “I paid the debt consolidation company several thousand dollars, and they never settled one debt for me (or they only settled one credit card out of several).” More distressing, they usually go on to say -- “even though I always made my monthly payment to the debt consolidation company, the collection agency sued me anyway”. Then, the debt consolidation company couldn’t represent them in the lawsuit, the collection agency obtained a judgment, and then started garnishing their wages. Now they can’t afford to pay for their rent, groceries, or utilities.
The sad thing about these real life nightmares is that they are perfectly legal. The debtor approved the debt consolidation company’s actions by signing a complicated contract (typed in fine print). The contract gives the debt consolidator permission to pay itself large upfront fees before paying creditors anything, and so they do just that. Now that the creditor has a judgment against you, a garnishment cannot be prevented by employing a debt consolidation company.
We strongly advise against retaining the services of a “non-profit” debt consolidation company. Their goal is not to help you, but to get rich off of your hard-earned paycheck. So don’t fall victim to their slick advertisements. You are much better off steering clear of this “trap”, and considering one of the other options listed.
2. Debt Settlement
This can be an appropriate way to resolve your judgment, in the right set of circumstances. Two debt settlement alternatives may be available to you: (1) A “payment plan” or, (2) A “lump sum settlement”.
As to the “payment plan” approach, the collection agency may be willing to set up a payment program to satisfy the judgment instead of garnishing you. To investigate this option you should call, and speak to, the collection agency attorney. Don’t expect to enter into a binding agreement with just anyone who answers the phone. You need to talk to someone with the authority to commit the collector to a payment agreement. You should expect that the collector will require payment in full, within a period of six months or less. Don’t expect a large credit collection agency to agree to a few dollars a month over a period of many years.
If you reach an agreeable payment plan, with a person authorized to do so, be sure to get it in writing. Your goal should be to reach a specific agreement wherein the collection agency agrees not to garnish your wages, and/or your bank accounts, if you make the agreed upon payments on time. Collection agencies will likely want you to agree to a specific payment plan, stating that if you miss a payment, or are simply late (by even one day), they can proceed to garnish you. Keep in mind, that settling your lawsuit, by a payment plan, only takes care of that one lawsuit – it will not resolve your other debts.
Another potential way to resolve your judgment by debt settlement is by a “lump sum settlement”. This requires a large amount of cash, to be paid to the collection agency, in exchange for full satisfaction of the judgment. You will be required to pay, shortly after reaching such an agreement, a percentage of the full amount owed. A person can reasonably expect that outstanding credit card debt can be settled in the 40% - 60% range, and perhaps at a lower amount than that. Our law office has recently been settling outstanding credit card debt in the 30 cents on the dollar range, and sometimes even less. Medical debt may settle in the 50% - 70% range. However, some collection agencies refuse to lump sum settle medical debt.
If you have sufficient funds available for a “lump sum settlement”, consider hiring an attorney – to get the best possible deal from the creditor. Typically, an experienced debtor’s attorney would agree to do this by the hour. The best results are reached when all of the debt is on credit cards, before a judgment is entered. After a judgment is in place, settlements tend to be more expensive.
The key in successfully using this option is to end up with a written agreement signed by you and the collection agency or supervisor. This agreement should plainly set forth the terms of the settlement agreement, in language you understand.
3. Bankruptcy
This is your final option. It is the best fit for people who are in dire financial need. If your unsecured debts do not exceed $10,000, or the majority of your annual income, you are probably better off using one of the other options.
Bankruptcy is a civil case filed in Federal Bankruptcy Court designed to help you eliminate all of your debts in a Chapter 7 Bankruptcy, or eliminate most of your debts in a Chapter 13 Bankruptcy while making some payment towards your debts.
Every person that files a bankruptcy, either a Chapter 7 or a Chapter 13, is immediately protected by a very powerful law called the “Automatic Stay”. The Automatic Stay requires that all actions against you or your property must immediately stop upon the filing of your bankruptcy. This means that the lawsuit against you, and any garnishments or attempts to take your property, will be stopped once your bankruptcy is filed.
The majority of debtors in Nebraska qualify for a Chapter 7 Bankruptcy, as opposed to the more expensive and more complicated Chapter 13. In some cases the person may be required to file a Chapter 13 due to high income or a previous bankruptcy. A large majority of Nebraskans that file bankruptcy are better served by a Chapter 7, in which they do not pay any money back to their creditors, unless they so choose.
Most bankruptcy filers are able to keep all of their property, including household possessions, homes and cars, after filing. Also, most filers are frequently offered credit by auto lenders and credit card companies after their bankruptcy is completed. Since a bankruptcy filer must wait eight years to file another Chapter 7 or four years to file a Chapter 13, some credit lenders consider them an acceptable risk.
Any person wanting to file bankruptcy should obtain the services of an experienced bankruptcy attorney. One should not attempt to represent themselves or use a “petition preparer” when filing bankruptcy. Bankruptcy law contains many traps for the inexperienced. It is sad, but true, that many people who try to represent themselves, often unnecessarily lose valuable property and goods.
How Our Experienced Bankruptcy Attorneys Can Help
The Steffens Law Office is a debt relief agency which helps people settle debts or file bankruptcy under the bankruptcy code. We are dedicated to helping you get a fresh start by resolving the collection case filed against you. This begins by choosing the option listed above which suits you best. We can help you with that decision. Our office does not promote or persuade you to pick any particular one of these options. Your “best” option is always the one that is legal, fits your circumstances, and resolves your financial problem in a way that is acceptable to you.
If you would like to talk with one of our experienced lawyers (our combined experience exceeds 30 years), simply give us a call at (308) 872-8327 or fill out our online form today. We would welcome the opportunity to help you.