Can Wages Be Garnished in North Carolina for Civil Lawsuits?

When consumers do not pay back their debts, creditors may sue them in a civil lawsuit. In some states, after winning the lawsuit, the creditor may ask the court to garnish the debtor's wages, or hold back part of the debtor's pay each pay period to pay off the debt. In North Carolina, it is usually illegal to garnish debtors' wages.

Consumer Debt Prohibition

As of 2011, it is illegal in North Carolina to garnish a debtor's wages for any debts that were incurred while the debtor lived in North Carolina. This prohibition applies to both secured and unsecured debts. Whether you owe money to a credit card company or to your mortgage broker, if you accepted the loan in North Carolina, the creditor cannot garnish your wages for repayment, even if he wins a civil lawsuit against you.

Exceptions

If you owe money to the IRS or to the North Carolina Department of Revenue for unpaid taxes, your wages may be garnished in North Carolina. North Carolina law also allows a debtor's wages to be garnished if she owes back child support or student loans. In addition, the courts will enforce garnishment orders made in other states. Thus, if you work for a national company, your creditor can sue for garnishment in a different state where your employer's business is also located, then ask North Carolina to enforce the garnishment against you.

Fair Debt Collection

It is illegal for debt collectors to threaten debtors with wage garnishment or other legal consequences, unless the creditor intends to carry out the threat. Since most wage garnishment is illegal in North Carolina, debt collectors may not threaten to garnish the debtor's wages if the debtor does not make payment arrangements. Making empty threats is considered coercion; debt collectors who engage in this practice may face fines of up to $1,000 per violation.

Avoiding Garnishment

The best way to avoid civil lawsuits is to contact your creditor if you are having trouble paying back your loan, especially if your debt falls under one of the categories that is exempt from the prohibition on garnishment in North Carolina. Creditors are often willing to make alternate payment arrangements, rather than going to the expense of attempting to collect the debt from a debtor who defaults.

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How to Fight a Consumer Credit Lawsuit

Fighting a credit card lawsuit is one thing; winning in court is another. Illinois Legal Aid reports that you're sure to lose a credit card lawsuit if the attorney for the credit card company convinces the judge that you owe the money, and you don't offer a suitable defense. The agency reports that joblessness, illness and excessive debt can't be used as a defense. You can fight the lawsuit by making the attorney for the credit card company prove the case, but if you lose, you could be subjected to garnishment of your bank account and wages.

Instructions

1

Read the notification of a lawsuit --- called a summons --- that was delivered to you after the credit card company filed suit. The summons contains important information, including a deadline for providing a written response to the lawsuit, which is called a complaint. The complaint is attached to the summons.

2

Respond to numbered allegations in the complaint with a written response called an "answer." The Minnesota Judicial Branch reports that you can provide any information that you wish in your response. You have the right to simply deny every allegation in the lawsuit, which is the equivalent of pleading "not guilty" in a criminal case. Denying each numbered allegation in the lawsuit forces the attorney for the credit card company to prove the case by providing documentation such as charge card slips you signed or the original credit card application you signed.

3

File your written response with the clerk of court listed on the summons. Send a copy to the attorney for the credit card company. By denying each of the allegations, you're making it clear that you're fighting the lawsuit. File your response by the deadline listed on the summons to avoid an automatic victory --- called a default judgment --- for the attorney filing the suit.

4

Prepare your defense in the event the case reaches trial. Possible acceptable defenses include identity theft: You could argue that you never opened the account and provide copies of statements you made to the police when you began receiving billing statements for an account you never opened. Or you could argue that the card company is at fault because it failed to properly update your account after you made a payment for the full amount. Show canceled checks to support your argument for that defense.

5

Contact the attorney for the credit card company before the trial date if you know the debt is yours and you don't have a legal defense. Negotiate a settlement for all or a portion of the debt in exchange for the lawsuit being dropped.

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Will Creditors Deal With Credit Counselors If They Have Turned You Over to a Collection Agency?

Though state laws vary, most credit counselors help the consumer develop a manageable payback plan and implement it. The credit counselor also works with creditors to set up the newly structured payment plan on the client's behalf. Many consumers wait until their account has been sent to collection before turning to credit counselors; however, the collection agencies can work with the counselor to get the debt resolved.

Credit Counselor Defined

Credit counselors are agencies that work with in-debt consumers to implement a manageable repayment plan on the consumer's debts. In some states, credit counselors must be registered, while in other states they are not; therefore, it is important to research any credit counselor you consider hiring to be sure that agency is valid and aboveboard. Credit counselors are prohibited by law to encourage you to seek new credit in a new identity, promise to clear your credit in a short amount of time or extend any other information or ideas that are illegal or unethical.

Workings

Creditor counselors provide clients with education about avoiding bad debt. They also help clients develop a manageable repayment plan in which creditors are paid back but at a slower rate than dictated in the original terms. Credit counselors are also part of the federal bankruptcy law; however, in that instance the client is only required to take a 90-minute online, in-person or telephone course on financial management. With regular credit counseling, the client works with the agency to discover all debt, plot living expenses and determine a reasonable amount of money for a monthly payment toward creditors. The credit counselor typically contacts the creditors, lets them know the client is represented by the credit counseling agency and asks the creditor to deal with them from that moment on. The client signs a privacy waiver so the creditor knows the debtor authorized the agency to represent the client.

Collection Agencies

Creditors and collection agencies are under no legal obligation to work with a credit counselor, but a large majority of them do. In many cases, the debtor has turned to the credit counselor as a last resort, and the creditor knows if it refuses to work with the debtor's counselor on a repayment plan, the debtor may decide to file bankruptcy. A chapter 7 bankruptcy allows the debtor to walk away from most debts, so it is in the creditor's best interest to work with the credit counselor the debtor has chosen.

Credit Damage

Unfortunately, once the creditor turns the account over to a collection agency, the agency typically owns the account. After the account is turned over to a collection agency, there is generally a negative entry placed on the debtor's credit report. Hiring a credit counselor prompts a note in the debtor's credit file that the debts are being paid off through a credit counselor.

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How Does Bankruptcy Affect a Spouse in California?

If one spouse files for California bankruptcy, the other spouse is not automatically brought into the bankruptcy. How a bankruptcy affects a spouse depends on whether the spouse files separately or jointly. Deciding which is the right thing to do depends on the financial circumstances of both spouses. It's important to understand the issues involved to protect the best interests of both individuals' finances.

Filing Separately or Jointly

In their book "Chapter 13 Bankruptcy," attorneys Stephen Elias and Robin Leonard suggest that most spouses will want to file bankruptcy jointly if the finances of both spouses are completely mixed and the debts are shared. A separate filing works best if a spouse has previously filed bankruptcy, or most of the debt is in one spouse's name, or if the spouse without debts has highly valued assets or inheritance.

Liability

Under California law and that of most states in the nation, marriage does not make both spouses responsible or liable for all debts. If only one spouse files on a debt that is shared by both, the other spouse will not be protected and will still need to meet the responsibility of the debt.

Cosigned Debt

If your spouse has co-signed or guaranteed your debt, collectors can pursue him if you file for bankruptcy but your spouse does not.

Supplementary Credit Card

Having a supplementary credit card is very common in many credit-lending relationships. One spouse opens a supplemental credit card account, but the other is authorized to use it. If your spouse has used the credit card, he is responsible for the entire debt on the card.

Affect on Spouse's Credit Rating

If there are no joint debts, your California bankruptcy has no effect on your spouse's credit rating, strictly speaking. Your bankruptcy, however, can affect your ability to be a co-signer on a loan in the future, which would indirectly have an effect on your spouse's credit.

Exemptions Allowed

Whether you file bankruptcy jointly or separately, you and your spouse are entitled by the state of California to a number of exemptions. This includes up to $75,000 in equity in your home, and up to $150,000 if you or your spouse are disabled or on a low income. You and your spouse can also exempt up to $2,300 equity in one or more cars. Seventy-five percent of your salary in the last 30 days that have not yet been paid is also exempted. You're also entitled to exempt up to $6,075 in jewelry, heirlooms and works of art.

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How Long Will My FICO Score Be Low After a Divorce?

The Fair Isaac Corporation uses the information your creditors provide to the credit bureaus to calculate your FICO credit score. If, like most couples, you and your spouse share joint debts, getting a divorce can lower your FICO score. The damage your credit will suffer as a result of divorce will vary depending on how you and your spouse divide your jointly held debts.

Facts

Your payment history has more impact on your FICO score than any other aspect of your credit history. Debts that both you and your spouse are responsible for will appear within both of your credit files. Most consumers who suffer from poor credit after a divorce do so because they assume that the divorce decree divides legal responsibility for their debts. This isn't the case. If you and your spouse owe a joint debt and the judge assigns the debt to your spouse, any missed payments on the account will impact your credit rating.

Time Frame

The Fair Credit Reporting Act notes that missed payments, charge-offs, collection accounts, foreclosures, repossessions and most judgments remain a part of your credit history for seven years from the account's first 180-day delinquency. Thus, mistakes you and your spouse make with debt during the course of a divorce will haunt both of your credit reports for many years to come.

Prevention/Solution

The Federal Trade Commission recommends paying close attention to payments during the divorce and dividing all of your assets before the divorce is final. Regardless of how trustworthy you feel your spouse is about paying off debt, any accounts that have your name on them pose a threat to your credit rating if they aren't in your control. After a divorce, you can return to court and attempt to force your spouse to sell or pay off assets that have your name on them if she will not make regular payments to creditors.

Considerations

The act of closing accounts, although necessary during a divorce, has a negative impact on your FICO score. Ten percent of your FICO score depends on the age of your credit history. If the accounts you close during divorce proceedings represent your oldest accounts, this shortens the length of your credit history, and your FICO score suffers as a result. The damage done, however, is far less than that of missed payments, defaulted accounts or creditor lawsuits.

Effects

Regardless of the damage your credit score suffers, paying your bills on time and carrying a low debt load will help your FICO score recover. The amount of time it takes for your FICO score to recover depends upon the degree of damage it suffered and the amount of positive information present within your credit history.

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Can a Mortgage Bank Take Your Tax Refund in a Foreclosure?

Losing your home isn't the only negative consequence of foreclosure. If the bank that holds your mortgage loan cannot recover the outstanding balance you owe on your home loan by selling the property, it can choose to either forgive or pursue the unpaid deficiency. Should it pursue you for your post-foreclosure debt, you could lose certain assets -- including your tax refund.

Deficiency Collection

Collection procedures for mortgage deficiencies are the same as collection methods for other types of delinquent debt. If a mortgage deficiency occurs, your lender will notify you of the deficiency, and, should it pursue the debt, you will begin receiving telephone calls and letters requesting payment. If you make arrangements with your lender to pay the deficiency in full or over time via a payment plan, your lender has no incentive to seize payment from you without your permission

Garnishment

If your financial troubles make it impossible for you to pay your mortgage and keep your home, it's unlikely you will have enough disposable income to pay off a large mortgage deficiency. If you fail to make payments, however, your former lender can sue you. Once the lender obtains a civil judgment through the court, it can use its judgment to garnish your income.

While a tax refund constitutes a form of income, only the federal government has the right to withhold all or a portion of your tax refund for unpaid debt. Thus, even if you are subject to a wage garnishment order from your former lender, your tax return will arrive untouched.

Bank Levy

Your lender cannot garnish your tax return before you receive it, but it can seize the money though a bank levy. A creditor with a judgment against you that also knows where you bank can request that the court issue a writ of execution allowing it to seize money in your bank accounts without your permission and apply it to the outstanding deficiency.

Some forms of income, such as child support, unemployment and Social Security payments, are exempt from seizure through a bank levy. Although your former mortgage lender cannot garnish your tax refund before you receive it, it can legally seize your full refund from your bank account via a bank levy.

Protecting Your Refund

Given the opportunity, your former mortgage lender will seize your tax refund. You can protect your tax refund by requesting that the IRS send the refund check to your home rather than requesting that the government direct deposit your refund into your bank account. If you never deposit your tax refund, your creditor cannot seize it. Even if the lender has yet to freeze your bank account, that does not mean that it will not do so in the near future.

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How to Place a Lien on an Insurance Policy

If someone owes you money, one way to collect is to place a lien on the person's real or personal property. Personal property includes everything from cars to insurance policies that have value. Typically, only life insurance policies have actual cash value. If the person who owes you money has a whole life or universal life insurance policy, you may be able to place a lien on that property so that you receive the proceeds when the policy is cashed in.

Instructions

1

Get a judgment against the debtor in court. In order to get a judgment for monies owed, you'll need to sue and win in civil court. If the dollar value is low enough, you should be able to sue in small claims court. The dollar limits vary by state and range, from $1,500 in Kentucky to $25,000 in Tennessee.

2

File a judgment lien with your local civil court. A judgment lien is a notice that states you are entitled to place a lien on a debtor's personal property. The exact notice will differ from state to state; ask the clerk at your local civil court for the correct form. For example, in California, a Notice of Judgment Lien is used to create a lien.

3

Locate the life insurance policy. To collect on the lien, you'll need to know the name and address of the life insurance company.

4

File a Writ of Execution with the sheriff in the jurisdiction in which the life insurance policy is held. For example, if you live in Duval County, Florida, and want to place a lien on a life insurance policy held by a company in Saratoga County, New York, you must send the Writ of Execution to the sheriff in Saratoga County. The sheriff will place the lien for you.

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