The most powerful tool in a creditor's box of tricks is the legal system. Using a variety of legal maneuvers including obtain court judgments, creditors can take your cash and assets to pay debts you owe them. Here are two things you can do to stop a creditor from taking your income or property.
There are state and federal laws that protect certain types of assets from being appropriated by creditors. If the creditor is trying to garnish or take possession of income or property that's protected, you can stop them by filing a claim of exemption. This is a court procedure that essentially undoes whatever legal maneuver the creditor used to gain access to your exempt cash or belongings.
For instance, Social Security income cannot be garnished by anyone except the IRS and other government entities. Normal creditors cannot attach a garnishment to your Social Security checks nor can they grab money from your bank account if the cash is from your benefits.
Other types of exempt assets include:
- Public assistance benefits
- Workers compensation benefits
- Life insurance proceeds
- Unemployment benefits
- Veteran's benefits
- Certain retirement benefits
Additionally, each state has wildcard exemptions that can be applied a needed. For example, Maryland lets people apply an up to $6,000 exemption to cash or property of any type.
Creditors must notify you about any impending legal action to garnish your wages or take your property. You must file the claim of exemption with the court as soon as you get it. The court will schedule a hearing and, if you successfully prove your case, will stop the creditor from taking the property and order the company to return any protected assets it already captured.
Show Undue Hardship
If the money or property is not protected from creditors by law, you may still be able to stop a creditor from taking it by proving to the court's satisfaction that you will suffer undue hardship if the asset was taken from you. For instance, if you're barely making ends meet, you could show you need the money to continue paying rent on your residence or face being evicted from your place. If the court accepts your hardship claim, it will deny the creditor access to your assets.
To use this defense, you would go through the same claim for exemption process, but the evidence you bring to court must support your contention that the creditor's actions will put an undue burden on you.
For more information about these legal options or for ideas about other debt resolution solutions, contact a lawyer.