PLS Hotline Consumer and Debtor Rights CLE - PowerPoint Presentation

Slide1

PLS Hotline Consumer and Debtor Rights CLESlide2

What We’ll Cover:

Creditor and Debtor Rights under Law and Contract

Collection on Money Judgments

Options and Resources for Dealing with Debt

Traps to Help Clients Watch Out For

When to refer a case back to PLS staff for further assessmentSlide3

Creditor and Debtor Rights Under Law and Contract

Default

Collateral/Security & Statutory Possessory Liens

Repossession

Limited

Criminal Liability

Unlawful

Debt CollectionSlide4

Default

One of the most frequent issues on Hotline is helping an applicant determine if they are in Default

Default is a contract term

No specific statute to look to in order to determine whether or not a consumer is in default

Generally need to see the contract (or at least have the client refer to the contract) to answer this question

Also need to determine what consequences Default has (or will have, if they are considering it)

Can range from repossession of secured collateral to lawsuits for money owedSlide5

Collateral/Security

Clients who are in default under a contract need to understand what if any collateral is involved in their contract

Also a contract term, but often easier to discern even if the client has not provided the contract itself

Governed by Article 9 of the UCC, adopted in Chapter 25 of NCGS

Also see statutory possessory liens arise

Mechanic’s Liens- NCGS 44A

For repairs and storage of automobile (storage fees often become the most expensive part of these liens)Slide6

Repossession

Often paired with the “am I really in default” questions

Governed by NC Gen Stat 25-9-609

Creditor MUST NOT “breach the peace” during repossession

No notice required prior to repossession

Advisable to remove personal property from the vehicle if repossession seems imminent

Creditor has no right to these items but they can be hard to retrieve

After repossession:

Have right to redeem (but usually requires full pay off, not just reinstatement)

Creditor must provide notice both before the sale and once sale has taken place

Deficiency JudgmentSlide7

Limited Criminal Liability

Very rare for there to be criminal liability associated with consumer debts in NC

Our clients often believe they will end up in jail if they can’t pay

Important to reassure them that this will not happen

Exceptions:

Failure to return Rent to Own furniture or electronics after default is a crime

Debts related to child support

Debts related to criminal restitution or other court orders (

ie

, where failure to pay would be contempt)Slide8

Unlawful Debt Collection Practices

§ 75-51. Threats and

coercion

Ex. Physical violence, false allegations of crimes, threats of arrest, etc.

§ 75-52.

Harassment

Ex. calling constantly or at night, using profane or abusive language

§ 75-53. Unreasonable

publication

Sharing information about the debt with anyone other than debtor and attorney, with limited exceptions

§ 75-54. Deceptive

representation

Must disclose that they are attempting to collect a debt, cannot pretend that debt will be increased in ways it will not for failure to pay, etc.

§ 75-55. Unconscionable

means

Trying to collect from a bankrupt debtor

Communicating with a debtor when the creditor has been informed they have an attorney

See NC Gen Stat 75-50 for more detailSlide9

Collection on Money Judgments

1C Exemption Procedure and Judgment Execution

Supplemental Proceedings

Attachment

Limited Income Garnishment

Bankruptcy

Credit Reporting Agencies

Joint/Several LiabilitySlide10

Exemption Procedures

Debtors must be given the right to file Exemptions

Supplemental Proceedings

AttachmentSlide11

Limited Income Garnishment

General Rule: No garnishment for consumer debts in North Carolina

Exceptions:

Out of state debts from states where garnishment is available

BUT only where the client’s employer or financial institution has branches in that state

Federal Student Loan Debts

These can even garnish social security disability payments (which are ordinarily untouchable

IRS and other tax debts

Child Support orders

If you are speaking with a client whose debt falls into one of these exceptions, there may be hardship exceptions available (except in the case of child support)

These rarely stop the garnishment, but can reduce the amount by which each check is garnishedSlide12

Traps to Watch Out For

Rent-to-Own/Leased Property

Debt Relief ServicesSlide13

Rent to Own/Leased Property

Lots of variety in how these look, often somewhat informal

Sometimes governed by

Ch

47G (Contract for Deed) or

Ch

47H (Contract with Option to Purchase)

Requires writing, certain disclosures and accountings

Only for contracts entered into after 2010

These present huge problems for our

clients

if you discover that a Hotline Client is dealing with a Rent to Own contract, please refer back to a Host AttorneySlide14

Frequent Issues with RTO

Seller fails to disclose an outstanding mortgage on the property, defaults

Property is foreclosed, client has no standing to get a modification

Client pays large

down payment

and makes payments for years, seller refuses to sign over the deed/title

Seller attempts to evict client as a tenant

Usually thrown out of small claims court if there is a written contract

Seller needs to file an action for possession of the property

Disputes over who has duties of upkeep, property taxes, insurance, etc.

Basically comes down to whether parties view this as LL/T or home buying relationship

For clients without status:

Cannot title manufactured homes still listed as personal property in client name without a valid driver’s license

These arrangements are very common in immigrant communities- they are viewed as a path to home ownership without the need for documentation etc. that a mortgage createsSlide15

Debt Relief Scams

These are for-profit companies that purport to negotiate or restructure a client’s debt for an up front fee

This is known as “Debt Adjusting” and is a crime in

North Carolina, see

NC Gen Stat § 14-424

These services are often either ineffective or simply not performed at all

Leaves client further in debt

There are non-profits in our service are that provide services like these legally and effectively

OnTrack

, Foothills Credit Counselling, Etc.Slide16

Options and Resources

“De Facto Bankruptcy”

Payment Agreements

Budget Counseling

Bankruptcy

Exemptions

Consumer ClaimsSlide17

De-Facto Bankruptcy

For debtors who cannot pay but do not need to file

bankruptcy

Generally because debtor either has no assets or has only assets that are protected by state law exemptions

Also known as being “judgment proof

”

Factors in choosing whether to file bankruptcy include age, need for access to credit, likelihood of acquiring additional propertySlide18

Bankruptcy

PLS does not handle Bankruptcy cases in-house, but we can often MAVL clients appropriate for Chapter 7, and can refer out cases for Chapter 13

We generally refer clients who have important assets that could be protected in bankruptcy, but might not be protected under state law exemptions

Clients who own a home protected under the “Tenants By Entireties” protection, but whose spouse may pass leaving them with exposed equity

Clients who are likely to inherit property (usually a home) that would not be exempt

Also: clients who are particularly distressed by debt collection activities, or clients who can make good use of the “clean slate” Slide19

Payment Agreements

Creditors often offer our clients payment agreements or plans to avoid a debt going to court

In general these are not a great option for our clients, unless:

The payments are truly affordable to the client without cutting into client’s basic needs

The plan actually pays down the debt rather than just servicing interest

Client is not otherwise judgment proof and would have important assets at risk

Often a better option for clients considering this option is a negotiated payoff

Provides more certainty, doesn’t leave them strapped into a plan that will not be sustainableSlide20

Budget Counseling

Available through local non-profits like

OnTrack

of WNC and Foothills Credit Counseling

MAVL program also offers a Debtor’s Rights Clinic, in which local Bankruptcy attorneys provide an hour of information on how debt works and options for dealing with itSlide21

Bankruptcy

Generally handled by MAVL attorneys or referred to the private bar

Chapter 7 vs. Chapter 13

Chapter 7 = “liquidation bankruptcy”

Chapter 13 can allow a debtor to keep property they could not in Chapter 7, but requires payments over several years

Often a back up plan for homeowners in foreclosure

Homeowner can file up to the end of the upset bid period and get the benefit of the automatic staySlide22

Exemptions

Often handled on Hotline for non-homeowners

“Judgment proof” status determined by state law exemptions

Protect certain amounts of property, including:

$35,000 in real property

$3,500 in one motor vehicle

$5,000 in household goods, furniture, etc.

Note

that there are also federal exemptions, like Social SecuritySlide23

Consumer Claims

Unlawful Collections Practices generally

Foreclosure

Rescue:

Ex. scammer buys home for much less than value, rents it back to homeowner

N.C.G.S. § 75‑120 and following

Home Loan Modification:

Ex. For a fee, scammer “helps” homeowner negotiate with their bank for a modification

N.C.G.S. § 14‑423 and following

Debt adjusting scams for unsecured credit

N.C.G.S. § 14‑423 and following

Bait & Switch and other “traditional” scams

PayDay

Loans and Title Loans

Not legal in NC, but consumers get them online or by going to SC or

TNSlide24

When to Refer Back to PLS?