DEALING WITH DEBT

[Pages:55]DEALING WITH DEBT

Your Rights and Responsibilities in Minnesota

Fifth Edition Revised 2018

The laws talked about in this booklet change often, so be sure to check for changes. This booklet only gives general rules which may or may not apply to your situation. For legal advice, contact a lawyer or call your local Legal Services office.

If you are low-income you can get a free copy of this booklet from your local Legal Services office. You can also find it online at to view or print out. Others can purchase the booklet for $7.48 (which includes applicable sales tax, postage, and handling). Booklets are available for purchase from

Legal Services State Support Midtown Commons, Suite 101B 2324 University Ave. W. St. Paul, MN 55114

Discounts are available on bulk orders by calling the Legal Services State Support office at 651228-9105, ext. 6911.

For free information about this and other civil legal topics, visit .

You can also find fact sheets on different legal subjects online at the website listed above or from the Education for Justice Program of the Minnesota Legal Services Coalition. Please call (651) 842-6915 for a list.

? 2018 Minnesota Legal Services Coalition. This document may be reproduced and used for non-commercial personal and educational purposes only. All other rights reserved. This notice must remain on all copies. Reproduction, distribution, and use for commercial purposes is strictly prohibited.

Table of Contents

What This Booklet Is About ..................................................................................................... 1

Section 1:

Managing Your Debts ..................................................................................... 2 If You Can't Pay All of Your Bills ....................................................................... 2

Section 2:

Credit Cards ..................................................................................................... 3 Other Things to Consider ................................................................................. 3 Should You Cancel Your Credit Card? .............................................................. 3 Keeping Credit Card Debt Low ......................................................................... 3 Getting Credit Reports ..................................................................................... 4

Section 3:

Your Debt Collection Rights ............................................................................ 4 Written Notice ................................................................................................ 5 Disputing a Debt .............................................................................................. 5 Payment Plans ................................................................................................. 5 Paying on Multiple Debts ................................................................................ 5 Post-Dated Checks .......................................................................................... 5 Stopping the Calls and Letters ........................................................................ 6 What is Abuse and Harassment? ..................................................................... 6 Enforcing Your Rights ...................................................................................... 7

Section 4:

The Threat of a Lawsuit .................................................................................. 8 Protections from Garnishment ....................................................................... 9 Are You Collection Proof? ............................................................................... 9 How Will You Know You Are Being Sued? ....................................................... 9 How to Respond to a Lawsuit ....................................................................... 10 Responding in Conciliation Court .................................................................. 11 Getting Ready for Court ................................................................................. 12 If You Lose in Conciliation Court ................................................................... 13 Responding in District Court .......................................................................... 13

Section 5:

Wage Garnishment and Your Rights ............................................................ 14 Can Your Benefits Be Garnished? .................................................................. 15 Can They Take Money from Your Bank Account?.......................................... 15 How to Claim a Bank Account Exemption...................................................... 16 Can They Take Money Out of Your Paycheck? .............................................. 17 If You Don't Have Exemptions, How Much Can They Take?.......................... 17 How to Claim A Paycheck Exemption ............................................................ 17 What Happens After You Claim an Exemption? ............................................ 18 What if the Creditor Objects? ........................................................................ 18

Section 6:

Student Loans ................................................................................................ 18 Keep Your Student Loan Out of Default ........................................................ 19 Income Based Repayment Plans .................................................................... 19 Public Service Loan Forgiveness Program...................................................... 20 Deferral .......................................................................................................... 20 Forbearance ................................................................................................... 20 When Your Loan Is in Default ........................................................................ 21 Getting Your Student Loan Out of Default..................................................... 21 What if a Collection Company Calls? ............................................................. 22 Making Your Student Loan Go Away ............................................................. 22 Need More Information? ............................................................................... 23 Problems with Your Lender?.......................................................................... 24

Section 7:

Refinancing ................................................................................................... 24 Don't Turn Unsecured Debt into Secured Debt............................................. 24 Ask Questions before You Sign Any Document ............................................. 25 Beware of Refinancing Scams ........................................................................ 25 Beware of Lenders That Aggressively Advertise ............................................ 26 Beware of Loan Modification Scams.............................................................. 26 Don't Refinance with the Company That Holds Your Original Debt .............. 26 Get Advice Before You Sign............................................................................ 26

Section 8:

Bankruptcy..................................................................................................... 27 Chapter 7........................................................................................................ 27 Chapter 13...................................................................................................... 27 Good Things about Bankruptcy ..................................................................... 28 Bad Things about Bankruptcy ........................................................................ 28 Discrimination because of Bankruptcy .......................................................... 28 Filing for Bankruptcy ...................................................................................... 29

Section 9: Debt Management, Debt Settlement, and Avoiding Scams ............................... 29 How to Avoid Scams ...................................................................................... 29 Bankruptcy May Not Be the Solution ............................................................ 31 Credit Counseling May Help........................................................................... 31

Sample Debt Collection Cease and Desist Letter ................................................................. 33 Sample Garnishment Exemption Notice .............................................................................. 34 Sample Debtor's Exemption Claim Notice ............................................................................ 36 Monthly Budget Chart............................................................................................................ 37 Credit Report Fact Sheet ........................................................................................................ 39 Credit Report Request Forms................................................................................................. 44 Legal Services Offices ............................................................................................................. 46

What This Booklet Is About

Most families face debt at some time or another. Losing a job, losing public assistance benefits, sudden medical bills, or divorce can push a family into debt. There are many ways creditors can try to collect debts. Two of the most common ways are when they use a collection agency, and when they file a lawsuit. These methods are discussed in this booklet. Debt collectors often use pressure tactics that can make a stressful situation worse ? and sometimes violate the law. This booklet was written to help families struggling with debt by explaining consumer rights and providing resources. This booklet is a brief guide and is not meant to answer all legal or financial questions. If you are facing foreclosure, eviction, or repossession of property you should seek legal advice and financial counseling.

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SECTION 1 - Managing Your Debts

Sometimes families find that their debts are more than their income. Not paying some debts can cause greater problems than not paying others. For example, if you don't pay your rent, you can be evicted. When there just isn't enough money for all your expenses, there are resources available to help manage debts and work with creditors.

But be careful who you ask for help. Many businesses advertise that they want to help you get out of debt, but are really just trying to take your money without following through on any of the services or results they promise.

On the other hand, there are several agencies in Minnesota that have been helping people manage their debts for years. For example, you can get help managing debts from a Consumer Credit Counseling Service like Family Means at 651-789-4014 or 1-800-780-2890 or Lutheran Social Service of Minnesota at 888-577-2227.

Just be sure to find out if the counseling agency is a member of a major association, like the National Foundation for Credit Counseling (). Being a member means they meet certain quality and ethical standards and that the credit counselors get proper training.

If you are being sued or believe you have a good reason not to pay, contact your Legal Services office for help. A list of Legal Services offices can be found in the back of this booklet.

If You Can't Pay All of Your Bills (Other than Credit Cards)

Don't listen to debt collectors when you are trying to figure out which bills to pay. Don't let them scare you into making a bad decision. The law protects many types of income and assets from creditors. Talk to a lawyer to see if you are at risk.

Don't mortgage your home to pay your debts. Minnesota law protects up to $420,000 of your home's value from most creditors. But, you will lose your home if you can't pay a mortgage.

Call a Credit Counseling agency to help you get things back on track.

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SECTION 2 - Credit Cards

Using a credit card is borrowing money at a very high interest rate. Ignore temporary "teaser" rates, especially if you can't pay off your credit card charges in full each month. A "teaser" rate is a very low interest rate offered for a short period of time (but no shorter than 6 months) that automatically goes up. If you build up a balance when the interest rate is low, you will be paying it back at the much higher permanent rate.

Other Things to Consider

Besides the interest rate, check to see if the card offers a "grace period." A "grace period" means no interest charges if you pay your account in full before the due date. Some cards charge you interest from the date you use your card to make a purchase. Also, find out if the company charges an annual fee for the card.

Annual fees can run from $25 to $100 or more. Make sure you also look at other charges like:

? transaction fees--these are often charged when you use the card to get a cash advance

? late charges ? over-the-limit charges

Read the terms carefully because some cards raise your interest rate if you make a late payment.

Should You Cancel Your Credit Card?

If you have a credit card with a high interest rate, transaction fees, an annual fee or no grace period, you should think about cancelling the card! You can cancel a credit card at any time, but you still have to pay any money you owe on the account.

Keeping Credit Card Debt Low

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Try to pay off the total balance each month.

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If you can't pay it off, try to pay more than the minimum payment if you can. Sometimes

the minimum payment does not even cover the amount of interest you are being charged each

month. If you only pay the minimum, you will never pay off the debt and you will end up paying

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interest on the unpaid interest charges. Pay one card off at a time. Pay as much as you can. The more you pay, the sooner you will pay off the card. Then go on to another.

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Carefully check your statement each month to look for mistakes and charges that are not

yours. If your credit card is lost or stolen, the most you have to pay is $50, under the Truth in

Lending Act.

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Check to make sure your credit card company has not added a service you don't want

(like loss protection or credit insurance).

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Make your payments on time. If your payment is late you will be charged a late fee.

Many cards raise the interest rate if the payment is not on time.

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Avoid special services and programs the credit card companies offers. These are things

like credit card fraud or loss protection and life insurance. Most of these services are a bad deal.

They are usually expensive and not necessary.

Getting Credit Reports

Once every 12 months you can get a copy of your credit report for free from each credit reporting bureau (Transunion, Experian and Equifax.) There are some situations when you can get a free copy more than once a year. See page 39 in the back of this booklet for more information about credit reports.

SECTION 3 - Your Debt Collection Rights under the Fair Debt Collection Practices Act (FDCPA)

There is no law that protects you from having to pay debts you owe, but the Fair Debt Collection Practices Act (FDCPA) is a federal law that can protect you from abusive debt collection practices. Minnesota has a state law that includes all of the protections of the FDCPA and other protections too. All debt collectors doing business in Minnesota must follow it.

If you owe money to a business they may try to collect it themselves or they may hire a collection agency. If a lawyer regularly collects debts the law treats the lawyer like a collection agency too. However they do it, they can't harass or abuse you. You have even more rights if a collection agency has been hired.

Creditors who are directly collecting their own debts, such as department stores or credit card companies, are not covered under the FDCPA.

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