In debt collection where you live can make a big difference

The Wall Street Journal (7/18/2011) has an excellent article on the rules of debt collection in different states.  The differences are so great that debt collection firms pay much more for uncollected debts in some states. “Unpaid consumer debt sells for about seven cents on the dollar in Indiana, compared with two cents in Texas” thanks to laws favorable to debt collectors in Indiana.  Other states with favorable laws that drive up prices include Illinois, Minnesota, Ohio and Virginia, says the Journal article.

The key difference between one location and another is what the law allows the debt collector to attach (assets) or garnish (income). In California, for example, married couples can shield up to $1 million in housing and $60,000 in personal property, and it is illegal for creditors to take money from the bank accounts of delinquent borrowers.  Other states protect things like unemployment income and social security from being garnished.

But these aren’t the only factors.  Some states allow debt collectors to “judge shop” and judges favorable to business get most of the business.  Some judges allow unsupervised pre-trial conferences, which give a huge advantage to the debt collection lawyers.

If you get to the point where a debt collector is taking you to court, this is my advice:.

  1. If you can afford a lawyer, or even a consultation with a lawyer, see one.
  2. Do not skip your court date.  You will automatically lose, and the next thing you see may be a deduction from your pay check.
  3. Try to make a deal for some reduced amount of money either before you go to court or in pre-trial conference.  Remember that the debt collector may have bought your debt for pennies on the dollar.
  4. If none of that works, go before the judge and tell the truth.  If you think you do not owe the money, say so (briefly).  If you agree you owe it but cannot afford the payment being asked for, say that.  The judge is likely to give you a better deal than the debt collector offers.  I know of one case where a credit card company brought 25 people into court on one day to try to get them to pay more per month than they were paying.  The judge refused to make them do it.
  5. If you are overwhelmed by debt, talk to a bankruptcy lawyer.  They can sometimes eliminate most of your debts and give you a fresh start.


You can read the entire article on how location can affect Debt Collection at the Wall Street Journal (subscription required).

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