There's very little an "unsecured" creditor or debt collector can do without first suing you. The law allows you to stop the harassment, defend yourself if sued, and to legitimately shelter portions of your income and assets free and clear from even creditors with a court judgment against you.
Why do creditors and debt collectors hassle you? Especially where the debt is "unsecured" (like credit cards,
medical bills, past due rent, utility bills); that is, where there is no property or collateral (like a house or a car) standing behind the loan or debt. With some notable exceptions (such as certain student loans and tax debts), there is very little an "unsecured" creditor can do without first suing you and winning the case. Without a lawsuit, they might stop doing business with you, or cancel your account, or report the debt to a credit reporting agency. But, in Illinois and many other states, a creditor or debt collector holding an "unsecured" debt can NOT garnish your wages, attach your bank account, place a lien on your home, take your car, or do anything else without first winning a court case.
Even after winning the lawsuit (assuming that the consumer-debtor has no defenses or counterclaims to assert in the case), the law provides you with certain levels of protection in your wages, home, and personal property. These levels of protection, called “exemptions,” are different in each state and some states are more generous than others.
To show how “exemptions” work, let’s take the “homestead” exemption. In Illinois, the consumer-debtor may keep, free and clear of creditors (even creditors with a court judgment), the first $15,000 of equity per title holder in a principle residence. Let’s say that David and Alice, brother and sister, are buying their home. Further assume that the home has a present, fair market value of $200,000; the outstanding balance on their mortgage is $170,000; and the balance on their second mortgage (home improvement loan) is $10,000. The equity in their home is the difference between fair market value and the value of all mortgages and liens; here, $20,000 ($200,000 - $170,000 - $10,000 = $20,000). Alice’s and David’s home is completely protected from creditors because all of the equity ($20,000) is covered by the owners’ “exemptions” ($30,000); $15,000 for Alice and $15,000 for David. As you can see, Illinois’ homestead exemption is, well, comparatively modest. Some states protect the family home at much higher levels of equity (e.g., $100,000), and some states exemption the principle residence altogether, regardless of value.
Individual state exemption laws cover more than the family home. They protect portions of just about every type of income (e.g., wages, pensions, disability) and asset (e.g., cars, clothing, household goods, and bank accounts) imaginable. However, it’s important to note that exemptions don’t happen automatically. They are usually triggered by the consumer-debtor asserting their rights.
Okay, back to our “unsecured” creditor or debt collector. To avoid the time and cost of a lawsuit, and the uncertainty of collecting on the judgment against your non-exempt assets or income, creditors and debt collectors will try to get you to pay without a lawsuit. Too often, this means repeated phone calls to you, your employer, your friends, relatives, and your neighbors. Sometimes they "sweet-talk" or "brow-beat" you into making unaffordable payments or to pay amounts you don't owe (e.g., debts that are not yours, or debts that are legally stale, or debts they don’t even legitimately own).
Don't change your phone number or become a prisoner in your own home. Under the law, there are ways to stop the calls and harassment. Many collection techniques are legally "unfair" or "deceptive," and may entitle the consumer to money damages. For example, it may be unlawful for a debt collector to communicate with third parties without permission; continue to contact you when you've told them, in writing, to stop; make obscene or insulting remarks; make false or misleading statements about the amount or status of the debt or about their identity and authority; threaten jail, arrest, or loss of custody of your children; attempt to collect unauthorized fees or charges; send you collection letters that, falsely, look like court papers. Do these things really happen? You bet they do. By the way, lawyers and law firms who regularly collect debts are considered "debt collectors" for purposes of fair debt collection law.
THE TAKE AWAY MESSAGE: In seeking to avoid the time, money, and uncertainties of a lawsuit, creditors and debt collectors holding “unsecured” debts sometimes become too aggressive or too clever for their (and your) own good. But, under the law, you don’t have to hide under the sofa, lose sleep, or disconnect your phone. The law allows you to cease the harassment and to protect certain basic amounts of your income and assets. Know your rights so that you can exercise them.
