Small Business Owner’s Legal Guide to Debts and Bankruptcy. Know what can and cannot be done to you by your creditors.

June 23, 2010 by oscadmin
Filed under: Entrepreneurship, Legal 

Because they are under pressure from two sides, small business owners must worry about the action of both business and personal creditors. People collecting for creditors will often threaten or seem to threaten all types of dire actions—some of which they cannot legally do. It is good to have an idea of what can, and more importantly, cannot be done to you by your creditors.

Steps the Creditor Cannot Take
Owing money you cannot pay is stressful partly because you feel guilty and maybe like a failure. The other source of stress is from bill collectors and their tactics. When you start receiving phone calls from collections people, they are often quite aggressive, if not abusive. We have been told many times that creditors threaten to have the debtor arrested and put in jail, or to have his or her salary or tax refund garnished. Creditors often tell people that it is fraud to not pay back the money they borrowed.




Jail
One cannot be arrested and put in jail for a civil debt owed to a credit card company or a bank. Normally, the only time you can be sent to jail is when you break a law or fail to obey an order of the court in a family matter. Owing money to a person is not a crime and is not something for which you can be jailed. The United States has done away with debtors’ prison. Nowhere in the United States can a creditor seize your paycheck or property without a lawsuit and the opportunity for you to have a trial.

Seizing Property
Creditors will sometimes say things such as, “We are going to take all of your property,” or if they are particularly sadistic, “We are going to take your kids’ furniture and pets.” People have visions of their things being taken from their homes and piled up in their front yards for everyone to see. This is almost certain to never happen, so try not to let this threat bother you. A creditor cannot just call a police officer and start hauling furniture out of your house. Even if a creditor wanted your furniture, he or she would have to get a court order before invading your home or office. This means that your creditor would have to go to the expense of a lawsuit.




Tax Refunds
A private company cannot have the government seize your tax refund. If you owe taxes or money on a government-guaranteed student loan, then you can have your tax refund seized by the government, but a private company does not have this authority. If someone who is not part of a government entity or collecting for a government entity threatens to seize your tax refund, take this threat with a very large grain of salt.




Wage Garnishment
It is quite common for creditors to threaten to have your wages garnished (money removed from your paycheck to send directly to the creditors). This is a powerful collection tool if you are earning a wage, but of limited use against a self-employed individual. Additionally, not every state allows wage garnishment.




Harassment
Given the limited range of what credit collectors can do without filing a lawsuit, they often start by pestering or harassing you to distraction. We have had reports of people getting calls from the same creditor several times a day. Calls start at seven o’clock in the morning and go to eleven o’clock at night. Collectors often call debtors at work after being asked not to, and many times the receptionist or other employees are told about the person’s financial problems. Family members are often called and told about the person’s debt problems. We have even had cases where collection people talked to
neighbors and told them the person was not paying his or her bills.
Books on debt management often advise readers who are having extensive financial problems to contact their creditors, explain the situation to them, and try to work out a reduced payment schedule. In our experience, this almost never works.
It may be possible to work out something with one creditor, but if there are several creditors, there are almost always some who will not work with you and insist on full payment. Some will insult you as you pour your heart out to them. Unless all creditors agree to a reduced payment, it is unlikely that setting up a system of reduced payments will work to solve your financial problems.
The other problem with this advice is that you often talk to a different person every time you call the creditor or the collection agency. You can make an agreement with one person at the agency, and then a few days later get an abusive collection call from someone else at the same company. When you try to explain to the new person that you have worked out a reduced payment plan with someone else at the company, he or she often will deny any knowledge of it and demand full payment at once. Often he or she will say, “I have never heard of that person,” or, “There is no such arrangement noted in the computer.” It is emotionally exhausting trying to explain the same thing over and over again every few days while being verbally abused.
We have heard this sequence of events told to us so often that we are convinced the collectors are using one or two techniques. One is good cop/bad cop, where one collector will be nice and understanding and the next will be hateful and try to break you down. The other is the wolf pack method. When wolves hunt a deer, one does not run up and kill the deer.
Rather, they will take turns running up to the animal and biting a bit of flesh away. No one bite kills the deer. The deer bleeds to death or just gives up in exhaustion.

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Comments

12 Comments on Small Business Owner’s Legal Guide to Debts and Bankruptcy. Know what can and cannot be done to you by your creditors.

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