Unsecured debts differ from secured loans such as mortgages or vehicle loans in that the debt is not backed by any property. Thus, creditors cannot seize your property if you fail to pay a debt. In Arizona, creditors can sue debtors for the amount of an unpaid debt and may be able to garnish the debtor's wages to collect the debt. However, creditors must obey Arizona laws regarding how and when they may collect debts.
Statutes of Limitations
As of June 2011, most unsecured debt in Arizona has a statute of limitations of three years. Creditors have three years from the date of default to pursue legal action against a debtor who fails to pay a credit card or other unsecured debt. Creditors can still contact the debtor to ask him to pay a debt after the statute of limitation expires. In addition, creditors have five years to collect a judgment after going to court to get one against the debt; however, a creditor can ask the court to renew this five-year period an indefinite number of times.
Wage Garnishment
Wage garnishment is legal in Arizona. If a debtor fails to pay a debt as agreed, the creditor can, after going to court and obtaining a judgment against the debtor, ask the court to garnish the debtor's wages. If the court grants this request, the debtor's employer must withhold a certain percentage of the debtor's wages each pay period and forward them to the creditor. Arizona follows federal rules on wage garnishment, which say that creditors may not garnish more than 25 percent of the debtor's disposable income, or income after taxes.
Bankruptcy
If you file for bankruptcy, the bankruptcy court orders a stay on most of your unsecured debt. Creditors cannot collect the debt while the bankruptcy is in process. After your bankruptcy is approved, the court discharges most of your unsecured debt under Chapter 7, while under Chapter 13 you may have to pay a portion of the debt back over the next three to five years. Student loans and tax debts are exempt from bankruptcy proceedings; you cannot discharge these debts by filing for bankruptcy.
Prohibited Activity
While creditors and debt collectors may contact debtors to collect debts, they may not harass or threaten debtors. Debt collectors in Arizona may not call debtors at unreasonable hours or call them an unreasonable number of times in a day. In addition, debt collectors may not threaten debtors with physical harm or with legal action that they are not empowered to take. Debtors in Arizona have the right to demand that debt collectors stop contacting them, with the exception of sending them summons to court action against them.
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