Many debtors that are delinquent repay the collection agencies based solely on the threat of repossession if the debtor cannot or will not pay the debt. This is a shame. According to the
Federal Debt Collection Practices Act (FDCPA), debt collectors cannot make false claims. If they do so, they may be sued for up to $1,000 by the debtor. Therefore, if a debt collector threatens that they will take away your assets if you donít pay, that is illegal.
Keep in mind that credit card and other types of debt are unsecured. This means that the creditor has no collateral for the loan. They cannot come to your home unannounced and take away everything you own. Even if they were to sue you and win, they still cannot claim any assets. The collection agency will be awarded a judgment, the courts may freeze your bank accounts and/or order that your wages be garnished, but no assets can be seized.
Debt collectors only have claims to the unpaid debt. Thatís the only thing they have against you. The threat of repossession is just that-a threat. The primary reason they threaten you is because they know that most Americans donít know the laws pertaining to debt collection. They know that most people will get scared and pay-up.
The only scenario for a debtor to lose a portion, or most of their assets is through a Chapter 7 bankruptcy. This chapter allows most or all unsecured debt to be forgiven. Also, the judge will analyze the debtorís assets, income, liabilities and a few more variables and conclude whether or not a portion of the debtorís assets will be sold. The court will appoint a trustee to sell the assets, and use the funds to pay-off the debtors creditors.
If you are experiencing financial hardship and you are having difficulties paying your debts, I strongly recommend that you familiarize yourself with the FDCPA. Itís amazing some of the stories the debt collectors make up in order to collect a debt.
I once had a client that was hysterical. She called me and informed me that the debt collector spoke to her 8 year old daughter and threatened that if her mother didnít pay her debt in the next 10 minutes, the police would take her and her mother to jail. He told her that her mother will lose the house and told the poor little girl that she would be sleeping on the street!
If you own a home, or other real estate, and you default, the government is first in line to claim equity (if there is any) pertaining to defaulted debt. The lender for the first mortgage stands second in line. Next, lenders of second mortgages and HELOCS can minimize their losses if there is any equity left. Last in line are personal loans and creditors of unsecured debt.
Try not to worry so much by creditor threats. Unpaid debts almost always get settled out of court. The collection agencies usually donít want to end up in court. The costs of suing someone are too high. If you cannot repay the debt now, simply inform them. If they continue to bother you, change your number or get caller ID. You have rights. Good luck!