newjerseynewsroom.com

BY GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

What do you have to fear most when you're buried in credit card debt? The answer is both simple and grim: garnishment.

But if you're being dunned by debt collectors for credit card debt and haven't yet been sued, you may be able to avoid garnishment -- if you fight back.

Take the fairly typical case of a hypothetical Jane Doe. Her bank sued her for not paying her credit card balance of over $7,000. She knew she owed the amount claimed and she was worn out by financial adversity and personal problems. So she didn't bother to go to court to defend herself.

Big mistake. Soon after when she swiped her debit card at the supermarket checkout counter, it was declined. The credit card company had taken $456 from her paycheck, a quarter of her earnings for two weeks at a local retail store, and her checking account was overdrawn.

Because she didn't go to court, the credit card company got a default judgment against her and commenced the dreaded garnishment procedure. This is the legal process where, under the authority of a court order based on the default judgment, the creditor grabs pieces of your salary or bank account. It can suck the financial life out of you, as month after month it eats away at your income and bank account.

We've just gone through one of the worst economic downturns in our history and are still suffering with an unemployment rate of almost 10 percent. This has pushed many, especially the working poor and unemployed, to use their credit cards to charge far more that they have any realistic hope of repaying. And even for those who are better off, the incessant advertising of easy credit from the credit card companies has lured the less financially sophisticated into over-use of their cards. The credit card companies have compounded the problem by hitting credit card debtors with exorbitant interest and late charges as well as other fees. The result is that delinquencies have soared -- accompanied by soaring personal bankruptcy filings.

But you may not have to resort to personal bankruptcy to dig out from under credit card debt you have no hope of paying off. There are strong reasons not to. Bankruptcy itself can be costly. More important, it has negative effects, such as dimming future job prospects and making credit more difficult to obtain on good terms in the future when your economic position maybe much better.

So what should you do? First, some background.

What most credit card debtors don't know is that their credit card company has probably sold off their credit card debt, for pennies on the dollar, to a company that specializes in collecting bad debts. These companies need only pay pennies on the dollar because the risk of not collecting the bad debt is high. Theses debt collectors engage in dunning the debtors and, if that produces no results, turning packages of the bad debts over to collection attorneys who handle thousands of cases.

The collection attorneys file court actions against the credit card debtors. Most of the debtors never show up in court, allowing the debt collection attorneys to get default judgments that are the prelude to garnishment. But if you challenge the debt collection attorney the tables are likely to get turned. This is because, if you challenge the debt collection attorney in court, the attorney has to prove how much you owe.

It's a real problem for the attorney. First, he has to show that the debt collection company actually has legally acquired your debt from your credit card company. Often they don't have the paperwork to do this. Even if it's shown that the debt collection company is the proper party, the attorney then has to produce documentation to show how much you owe. The attorney rarely would have the paperwork to do this.

Result: the debt collection company loses in court and gets no judgment against you on which it can get a garnishment order. Your debt hasn't disappeared but has been placed in legal limbo where it may remain until the statute of limitations bars any legal action against you.

You don't need a lawyer to go to court and can represent yourself. Immediately after you're served court papers go to the court clerk and get a copy of the court rules and a form to use to answer the complaint or petition filed by the credit collection company. File your answer, challenging both the ownership of the debt and the amount owed.

Faced with resistance, sometimes the collection company won't even follow up on the case. If it does, go to the court hearing and challenge both the ownership of the debt and the amount owed.

While going to court can be a do-it-yourself project, it would be better if you were represented by an attorney. If you can't afford one, try your local legal aid society. They're overworked now, but you may be able to get some knowledgeable help. They may even be able to help you prepare and file papers.

Sometimes before going to court or even after a court proceeding is begun, the debt collection attorney will offer you a settlement of the debt at a discount. Such offers generally shouldn't be accepted unless your attorney reviews the paperwork. And often the offer is only made because the collection attorney knows that the debt can't be proved in court and you would win if the case was pursued. If that's true, why should you settle?

One final point. Even if the debt collection company has a judgment against you, all is not lost. Certain income is exempt from garnishment. Social Security payments and some retirement accounts generally can't be reached and there are a variety of state and federal laws that insulate specified assets and payments from garnishment. To determine if you're protected under these anti-garnishment laws you need to check with a local attorney.

Gerald J. Robinson, Esq., formerly tax counsel to the New York City law firm of Carb, Luria, Cook & Kufeld, is a member of the New York and Maryland bars. He received his B.A. degree from Cornell University, an LL.B. from the University of Maryland and an LL.M. in Taxation from New York University. Prior to entering private practice he served in the Office of Chief Counsel, Internal Revenue Service. He is the author of the treatise, Federal Income Taxation of Real Estate, now in its sixth edition, and wrote the monthly newsletter, Real Estate Tax Ideas, both published by Warren, Gorham & Lamont. He is also a frequent lecturer and contributor to various professional journals.