Debt Relief Laws

Debt relief laws are drafted to give debtors a longer period of time to repay their loan obligations, to remain free from creditor harassment during the process, or to cancel much of their debt for the opportunity to begin a new financial life. Using these laws is just one of many debt relief options available to you.

Provisions of the Fair Debt Collection Practices Act, also known as the FDCPA, give debtors relief from unfair or overzealous collection practices. The United States Bankruptcy Code provides methods for debtors to obtain legal protection from creditors, reorganize their debt, or completely discharge delinquent financial obligations subject to certain stipulations. A statute of limitations on different types of debts in your state may mean that the debt you owe is now legally uncollectible.

The Fair Debt Collection Practices Act

Whether you have amassed an unserviceable debt burden because of out of control spending or because you were a victim of predatory lending practices, debt relief laws such as the Fair Debt collection Practices Act shield you from collection agency harassment, and enforce fair debt collection. Part of the Consumer Credit Protection Act, the FDCPA outlines legal sanctions consumers may take against collection agencies who violate these regulations.

Specific provisions of this act prohibit debt collectors from contacting or discussing your debt with employers, friends, or family of the debtor. Additionally, debt collectors may not falsely claim to be representing a lawyer or a government agency.

Additional provisions of the act include:

• A debt collector may not call the debtor outside of the hours of 8:00 AM to 9:00 PM.
• Debt collectors may not use abusive or threatening language.
• They may not request a post dated check with the intent of waiting for it to be dishonored by the debtor’s bank and then prosecuting the debtor on that basis.
• A debt collector is prohibited from surreptitiously collecting information from the debtor under guise or false pretense.
• A debt collector may not threaten the debtor with arrest for failure to pay the obligation.

For the purpose of this law, a debt collector is anyone who commonly collects debts as a regular course of their business. Excluded from coverage under this act are in-house collection departments of businesses to whom the debtor owes money. For example, a department store issuing its own credit card and using its own employees to collect delinquent debts falls under this exclusion.

Under this act, a consumer is entitled to demand of the collection agency the name of the original creditor, if different from the current debt holder, and the amount of money allegedly owed by the debtor. Additionally, the consumer can request a copy of the debt instrument.

Debt Relief Laws—Title 13 Bankruptcy

The most formidable debt relief is found in the United States Bankruptcy Code. Congress has enacted several types of bankruptcy protection but the most common consumer bankruptcy laws are Title 13 and Title 7. Bankruptcy should be a last course of action taken only after communication and negotiation with your creditors has failed to produce satisfactory results for you. An expensive recourse, even Title 13 reorganization will blight your credit record for many years.

Essentially, filing under Chapter 13 brings the debtor under the purview of a court appointed trustee who administers a debt reorganization plan that prevents creditors from taking legal action to collect their debt. The debtor makes payments to the trustee who then pays the creditors. Under Chapter 13 protection, the court restructures the debt and allows the debtor to take three to five years to repay his creditors without fear of legal reprisals. At the end of the prescribed period of time, the court will declare any remaining unsecured debts discharged.

To be allowed to file under this law, the debtor must have a regular income and have debts that meet certain criteria. Most importantly under this type of bankruptcy, the debtor is allowed to keep all of his property and doesn’t have to have contact with his creditors. Frequently used to stop home foreclosure, the debtor may continue to live in his house by making current payments and render payments on the amount in amount overdue.

Debt Relief Laws—Title 7 Bankruptcy

While most debt relief laws promote protection for the consumer as he slowly regains his financial footing, a Chapter 7 filing liquidates the debtor’s remaining assets to pay creditors and discharge the debts forever. Some assets such as household items, clothes, tools of trade, and a car are exempt from seizure and sale, this list will vary from state to state. In 2005 amendments to the code made it more difficult to file under Chapter 7 and, even if a debtor is entitled to discharge his debts, some debts may not be dissolved. Student loans, some taxes, and spousal and child support payments cannot be discharged in bankruptcy.

Caveats to Filing Bankruptcy

Debt relief laws are intended to assure fairness to all parties and any fraud, misrepresentation of fact, or failure to meet court imposed conditions can trigger severe penalties. When filing bankruptcy, concealing assets may constitute a criminal act and prevent the debtor from being released from his debts. In a Chapter 13 filing, failure to make payments to the trustee will result in the filing being dismissed and the debtor will again be at the mercy of his creditors. A debtor may file under Chapter 13 only once every six years and may file under Chapter 7 once every eight years.

Debt relief laws are not meant to be a means to avoid paying debts. Generally, they are used to help a debtor dig his way out of a financial hole by restructuring his debt or discharging it while preventing harassment from creditors or collection agency personnel.