The Disasters That Happen When You Can’t Pay Your Debts
Having debt hanging over your head can be exhausting and stressful. Bills continue to pile up, and you get hounded multiple times a day by debt collectors, not to mention how foreboding it feels wondering what the result will be. Despite this, being in debt isn’t as terrible as you might think. Certain laws protect you from having your things taken away. Because they don’t protect all of your property, it’s important to know what you might lose in the process.
Your landlord can evict you for not paying your rent, but the process doesn’t happen overnight. They have to give you notice that you are to leave, and in some cases, you can pay your rent within the given time frame and stay. They can give you as little as three days, but some do give you a week to find a new place. If you still do nothing, they will have to file a lawsuit at the local court. You will have a certain number of days to answer, and on the day of court, the judge may rule in your favor or against you depending on your reasoning for not moving. If they do tell you to leave, there’s a set day that will be enforced, and it’s usually within a couple of weeks, so again, there is a little time to move. Keep in mind that if you are evicted, you may have difficulty finding a new place to live unless they don’t require a credit report.
Sometimes, you’ll have offered something as collateral when you initially receive a loan. The easiest example is if you bought an article of furniture on a payment plan. The furniture would be the collateral. This means that when you don’t make your payment on time, the bank or lender can repossess the furniture. They must have a court order allowing them to be in your home to retrieve the item or get permission from someone in the house at the time. If they have neither, they can’t take your property.
In this case, it’s very important to read the contract you signed for the loan. Once you miss a payment or if you breach any of the contract (such as selling the furniture) you are by default, but many states give you the right to recover from missing payments. You’ll receive a notice in the mail on how much to pay to retrieve the furniture. It may be your missing payments plus interest, or it may be the whole amount for the furniture.
If it’s a car, then the company can come and repossess your car at any time as long as it’s not in a garage or storage facility. If it is, they only need to contact the owner to open them. It is illegal to hide your car from repossession, and it will look badly in court. Repossessing agents know what they are doing and know where to look to find your car. There are better ways to get it back, including making the late payment.
Getting Your Property Back
Sometimes you can get your property back, including your car, if you make up the missed payments, and you’ll be able to reinstate the original contract you had agreed on. Some lenders will ask that you pay the fees for storing the car safely or to hiring the repossession company, which can be a hefty bill. However, it will still allow you to take your care back in the end. You’re not always allowed to reinstate a contract this way, especially if you lied in the documentation, or tried to hide the car. The lender will see that the same thing is likely to happen again and won’t want to take the chance.
Personal Belongings in Repossessed Cars
If you left your belongings in your vehicle, not expecting that it would be taken from you, you have the right to get your personal effects. The repossessing agency will give you their address and contact information so that you can go by and retrieve your things. If it is attached to the vehicle (such as putting new rims or lights on your car), you cannot take it back, but anything within the car that is yours you can take. Fees incur daily for storage, so it’s best to get this done as quickly as possible.
Selling Your Repossessed Item
The lender has the option to sell your collateral (such as your car) if they have repossessed it and you are not able to make the late payments. In this case, they will apply whatever they sold it for to your balance, and you will owe whatever is left. This is called a deficiency balance. The lender must send you a written notice of when and where the auction to sell your car will be taking place, where it will most likely go to a car salesperson for a very low price. It’s in your best interest to sell the car yourself if you can, as you are more likely to get a decent price for it instead of a cheap bid.
You are not always liable for the deficiency amount, depending on the amount you paid for the item, to begin with, and your state laws. Look up your state laws to see if you fit the parameters.
Creditors and Your Property
Creditors will likely do one of two things to ensure that you don’t sell or hide your property when they are waiting for a judgment from the court.
- Lis Pendens – This makes it known that your title is not free and clear, so you won’t be able to sell it until the court makes a final judgment. It can only be put on a title if the property is the point of the lawsuit. If it’s not the main subject, they cannot use a lis pendens.
- Pre-Judgement Attachment – This also ensures that you won’t be able to sell or hide the property. In the case that the lender or creditor did not ask for collateral when giving a loan, this makes your property the new collateral. If they win, the defaulted money will come from the property. Upon receiving the pre-judgement attachment, you will have the chance to go to court and argue whether the property is exempt from it or not.
A creditor can go to a third party for money owed if the third party owes you money for some reason, or if they’re holding your money for you. They can sue the third party for your debt, but you will be notified beforehand, and you will have the chance to argue the debt.
- Property Liens – A property lien is relatively simple. The creditor can attach a lien to your house or other assets, which will show up on the title or deed saying that you owe money. You cannot sell the property unless the title is free and clear of the lien, so you’ll have to pay what you owe first.
- Bank Setoffs – If your bank account has fees, the bank is allowed to take money from your account to pay them off (think of overdraft fees). Credit card payments are not authorized to be taken out unless you gave permission to take out funds from your account automatically.
Lapse of Services
- Insurance – your insurance company may stop coverage once you miss a payment. Many offer a period of 30 days to get back on track and pay your premium, but this can complicate things if you lease a car. Lenders usually require car insurance as a condition of the contract, and you can be found in default and face repossession if your insurance lapses.
- Utility Services – Your services often will be shut off after a certain period of non-payment. The majority of states require that you at least be notified first in writing, but there are some things that will stop the service from being interrupted. This includes having a child under the age of 2 in the household, a disabled person, or the elderly.
There are some things that can be taken away as a result of debt, but much of it takes time and is not permanent if you can get back on your feet and make a payment. Some laws protect you from services being shut off for a period, and even some of your property is protected until there is a court order.