Harassing Creditors

In most cases, the best way to stop harassing creditors calls or letters is to file bankruptcy. Immediately upon filing, the Automatic Stay(link to new section on automatic stay) goes into effect.

The following information is applicable to the state of Texas. Your state could be a bit different (ex. your state may allow wage garnishment – as discussed below), but the following will still give you an idea of what the process can be like. You should consult with your local bankruptcy attorney regarding your situation.

In Texas, there is no wage garnishment. That means that a creditor can not deduct any money from your paycheck. In fact, the mere threat of doing so is itself an illegal debt collection practice, and may create a potential lawsuit in favor of the debtor against the creditor.

You cannot be imprisoned simply for unpaid debts. Debtors Prisons went out of style with Dickensian orphans. It’s an important distinction to know that you can be jailed for contempt stemming from collection lawsuits, but following valid court orders and promptly responding to discovery easily prevents this.

Because wage garnishment or imprisonment are not options, creditors in Texas are left with only a few options:

Phone Calls

You’re probably aware this is their favorite tactic, and it is very effective. It is surprising how negatively this tactic influences people. The best way to deal with this, if you are a debtor, is simply to disconnect your phone line, and use only your cell phone (and change your cell phone number as necessary). If creditors call you at work, or on your cell phone while you are at work, you may inform them that it is your work phone number and they may not call you at that number anymore. If this happens again, send them a letter via certified mail, with return receipt requested, clearly stating your work phone number and hours, asking them not to call you there, during that time. If they continue to call you at your work number, that is a debt collection violation, and you may be able to file a lawsuit against the debt collector.
Generally speaking, it is not productive to talk to debt collectors. They are adept at upsetting people. The insults and abusive language that my clients have heard from debt collectors is truly mind-boggling. If you want to get upset, just read the chapter on debt collectors in The Two Income Trap by Elizabeth Warren, or the similar chapter in Financial Peace by Dave Ramsey or watch the documentary film Maxed Out. The best approach with debt collectors is never to speak to them.

Send you letters
Debt collectors can send letters advising you of how much you owe and advising you to pay. This is generally not terribly upsetting to people and is not used very much by creditors because:

  • it is not very effective because it is not very upsetting to the debtors,
  • all the communications are in writing and thus any illegal debt collection practice is easy to sue on and
  • the cost of stamps add up

Calling family members or neighbors
Believe it or not, this tactic is arguably legal, so long as they do not disclose what they are calling about. Usually, they will say, “Do you know you neighbor Joe Smith? I have a message for him. Will you ask him to call me?” or “Would you be willing to provide a reference for your daughter Jill Smith? Would you have her call us at this number?” This technique is rarely used. I am not sure why it is not more heavily used. It is effective in upsetting people. My guess is that creditors are afraid of lawsuits for common law unreasonable debt collection, even though its technically not specifically prohibited under the Federal Debt Collection Practices Act or the Texas Debt Collection Practices Act.

Offset against your checking account (if your bank is also a creditor)
It may seem surprising but the issue of whether banks can offset went all the way to the US Supreme Court, and it is now very clear that banks may legally offset from your checking account (i.e. take your money) to repay themselves debts that you owe them. So, don’t keep your money at a bank where you have a credit card or any other kind of debt.

Lawsuit

This technique is rarely undertaken because it is quite expensive. The filing fees, attorneys fees, process serving fees, and other expense can add up very quickly. And creditors know that in Texas, where there is no wage garnishment, they are unlikely to collect anyway. Many debtors become very freighted when they are sued for a debt. Generally speaking, this fear is unwarranted. All the creditor is asking the court to do is sign a piece of paper saying that the debtor owes money to the creditor. There is nothing new about the debtor owing the creditor money. There are plenty of monthly statements, demand letters, and other pieces of paper that say the debtor owes money. However, there is one thing special about a piece of paper signed by a judge. Papers signed by a judge called an “Order or Judgment,” can be used by the creditor to get the local Constable to seize any of debtors non-exempt property. So, if the debtor has a boat or an extra car or an extra piece of real estate other than his homestead, or anything that is non exempt, the creditor may be able to get the constable to seize it, auction it, and give the proceeds to the creditor.

The most common type of non-exempt property seized by creditors is financial accounts (i.e. checking accounts, savings accounts, brokerage accounts, or any other account at a financial institution). Thus, once a Judgment or Order has been signed against a debtor, most debtors choose to live on a cash basis (i.e. not to have a checking account, savings account, brokerage accounts, or account at a financial institution) for fear that they will wake up one day to find their money has been taken from their account.

Other Important Things to Know About Lawsuits on Debt

  • Once a Judgment or Order has been signed it is good for ten years, and the creditor may renew it for additional ten year periods.
  • The creditor can obtain an Abstract from the Clerk of the Court that signed the Order or Judgment (an Abstract is just a one or two page summary of the basic terms of the Order or Judgment) and file that Abstract in the county public records to create a lien against any extra (i.e. non-homestead) real estate that the debtor owns in that county.
  • Even after a Judgment or Order has been signed, it can still be discharged in bankruptcy. (But, once an Abstract is filed, if a lien attaches to any non-exempt property, that lien may survive bankruptcy.)
  • In Texas, the statute of limitations on lawsuits regarding debt is four years. That means a creditor only has four years to sue you from the time that you stop making your payments. If a creditor sues you after four years have already elapsed, you can file a response in the lawsuit alleging that the statute of limitations has run because four years have elapsed and you can get the case dismissed. Note that creditors are always free to call you and ask you to pay even after four years. And if you agree to do so, they can keep pursuing you and can keep the money.
  • Debtors who have been sued for debts often ask whether they should file an Answer or Response of any sort in the lawsuit. If you have a legitimate dispute about the debt, or the amount of the debt, or the calculation of the debt, then it is fine to file an Answer in Response. However, generally speaking, this only delays the inevitable. In most cases the debt is valid, and the creditor will eventually be able to get a judge to sign an Order or Judgment saying so.
  • You must respond to any formal discovery (such as Interrogatories, Requests for Discovery, Requests for Admissions, Requests For Disclosures, etc.) sent to you by the creditor after you have been sued, and this obligation continues even after you have had an Order or Judgment entered against you. You can be held in contempt by the Judge and even arrested for failing to answer discovery requests. But you can never be jailed in the United States just for failing to pay a credit card or other debt.

Illegal Debt Collections Practices

The Fair Debt Collection Practices Act (FDCPA) prohibits the following:

  • Debtor Harassment and Abuse, which includes:
  1. Threats of violence or other criminal acts to intending to harm you, your reputation, or your property.
  2. Obscene language, including racial slurs.
  3. Telling anyone other than your spouse or credit bureaus that you owe a debt. This includes your family, friends, neighbors, employers, etc. Creditors may still attempt to contact you through these people, but they cannot specify why the need to talk to you. See the entry above for more information.
  4. Repeated phone calls with the intent to harass, annoy, or abuse you.
  5. Failing to identify themselves during phone calls.
  6. Depositing a post-dated check without letting you know in writing prior. In general, avoid giving creditors post-dated checks.
  7. Obtaining a post-dated check in order to threaten criminal proceedings if it bounces.
  8. Depositing a post-dated check prior to it’s date.
  9. Racking up communications (phone, et al.) charges for anyone because of a failure to indicate the nature of the communication. An example of this would be collect telephone calls.
  • Deception or misrepresentation, which includes: 
  1. Stating, or implying any affiliation with the Federal or State government. This includes implying government endorsement or bonding.
  2. Misrepresenting the amount of debt.
  3. Adding unauthorized charges to your debt. Pay close attention to interest, attorneys’ fees, collection charges, and anything else not included in the original debt.
  4. Falsely representing themselves as attorneys. This includes correspondence drafted to appear as to come from an attorney. Please note, actual attorneys may still represent themselves as attorneys.
  5. Threatening arrest, imprisonment, seizure, garnishment, attachment, or sale of any property or wages unless they are entitled to such action and intend to follow through.
  6. Threatening any legal action that cannot or is not intended to be taken. Threats to report your debt to the IRS may be included in this.
  7. Spreading false information about your debts, including whether a debt is disputed or the default date. Each entry can only remain on your credit report for 7 years, so altering the default date can keep negative information in circulation longer. They should use the same date as your original creditor.
  8. Using or distributing documents which falsely appear to be issued, authorized, or approved by the Federal or State government, including courts, officials, or agencies thereof.
  9. The false representation or implication that documents are legal process.
  10. Using a fake name.
  11. Telling you that legal documents do not require any action. For instance, telling you that you don’t need to show up to a hearing and using your absence to secure a default judgement.
  12. Incorrectly representing themselves as representatives or employees of a credit bureau.
  13. Sending you a post card, or any communication that outwardly indicates it’s from a debt collector. They are allowed to use their address as a return address, and can write things like “important document enclosed“, as long as nothing indicates the communication is from a debt collector.