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Consumer and Debtor Rights CLE -

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PLS Hotline Consumer and Debtor Rights CLE
What We’ll Cover:
Creditor and Debtor Rights under Law and ContractCollection on Money JudgmentsOptions and Resources for Dealing with DebtTraps to Help Clients Watch Out ForWhen to refer a case back to PLS staff for further assessment
Creditor and Debtor Rights Under Law and Contract
DefaultCollateral/Security & Statutory Possessory LiensRepossessionLimitedCriminal LiabilityUnlawfulDebt Collection
One of the most frequent issues on Hotline is helping an applicant determine if they are in DefaultDefault is a contract termNo specific statute to look to in order to determine whether or not a consumer is in defaultGenerally need to see the contract (or at least have the client refer to the contract) to answer this questionAlso 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 owed
Clients who are in default under a contract need to understand what if any collateral is involved in their contractAlso a contract term, but often easier to discern even if the client has not provided the contract itselfGoverned by Article 9 of the UCC, adopted in Chapter 25 of NCGSAlso see statutory possessory liens ariseMechanic’s Liens- NCGS 44AFor repairs and storage of automobile (storage fees often become the most expensive part of these liens)
Often paired with the “am I really in default” questionsGoverned by NC Gen Stat 25-9-609Creditor MUST NOT “breach the peace” during repossessionNo notice required prior to repossessionAdvisable to remove personal property from the vehicle if repossession seems imminentCreditor has no right to these items but they can be hard to retrieveAfter 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 placeDeficiency Judgment
Limited Criminal Liability
Very rare for there to be criminal liability associated with consumer debts in NCOur clients often believe they will end up in jail if they can’t payImportant to reassure them that this will not happenExceptions:Failure to return Rent to Own furniture or electronics after default is a crimeDebts related to child supportDebts related to criminal restitution or other court orders (ie, where failure to pay would be contempt)
Unlawful Debt Collection Practices
§ 75-51. Threats andcoercionEx. Physical violence, false allegations of crimes, threats of arrest, etc.§ 75-52.HarassmentEx. calling constantly or at night, using profane or abusive language§ 75-53. UnreasonablepublicationSharing information about the debt with anyone other than debtor and attorney, with limited exceptions§ 75-54. DeceptiverepresentationMust 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. UnconscionablemeansTrying to collect from a bankrupt debtorCommunicating with a debtor when the creditor has been informed they have an attorneySee NC Gen Stat 75-50 for more detail
Collection on Money Judgments
1C Exemption Procedure and Judgment ExecutionSupplemental ProceedingsAttachmentLimited Income GarnishmentBankruptcyCredit Reporting AgenciesJoint/Several Liability
Exemption Procedures
Debtors must be given the right to file ExemptionsSupplemental ProceedingsAttachment
Limited Income Garnishment
General Rule: No garnishment for consumer debts in North CarolinaExceptions:Out of state debts from states where garnishment is availableBUT only where the client’s employer or financial institution has branches in that stateFederal Student Loan DebtsThese can even garnish social security disability payments (which are ordinarily untouchableIRS and other tax debtsChild Support ordersIf 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 garnished
Traps to Watch Out For
Rent-to-Own/Leased PropertyDebt Relief Services
Rent to Own/Leased Property
Lots of variety in how these look, often somewhat informalSometimes governed byCh47G (Contract for Deed) orCh47H (Contract with Option to Purchase)Requires writing, certain disclosures and accountingsOnly for contracts entered into after 2010These present huge problems for ourclientsif you discover that a Hotline Client is dealing with a Rent to Own contract, please refer back to a Host Attorney
Frequent Issues with RTO
Seller fails to disclose an outstanding mortgage on the property, defaultsProperty is foreclosed, client has no standing to get a modificationClient pays largedown paymentand makes payments for years, seller refuses to sign over the deed/titleSeller attempts to evict client as a tenantUsually thrown out of small claims court if there is a written contractSeller needs to file an action for possession of the propertyDisputes over who has duties of upkeep, property taxes, insurance, etc.Basically comes down to whether parties view this as LL/T or home buying relationshipFor clients without status:Cannot title manufactured homes still listed as personal property in client name without a valid driver’s licenseThese 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 creates
Debt Relief Scams
These are for-profit companies that purport to negotiate or restructure a client’s debt for an up front feeThis is known as “Debt Adjusting” and is a crime inNorth Carolina, seeNC Gen Stat § 14-424These services are often either ineffective or simply not performed at allLeaves client further in debtThere are non-profits in our service are that provide services like these legally and effectivelyOnTrack, Foothills Credit Counselling, Etc.
Options and Resources
“De Facto Bankruptcy”Payment AgreementsBudget CounselingBankruptcyExemptionsConsumer Claims
De-Facto Bankruptcy
For debtors who cannot pay but do not need to filebankruptcyGenerally because debtor either has no assets or has only assets that are protected by state law exemptionsAlso known as being “judgment proof”Factors in choosing whether to file bankruptcy include age, need for access to credit, likelihood of acquiring additional property
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 13We generally refer clients who have important assets that could be protected in bankruptcy, but might not be protected under state law exemptionsClients who own a home protected under the “Tenants By Entireties” protection, but whose spouse may pass leaving them with exposed equityClients who are likely to inherit property (usually a home) that would not be exemptAlso: clients who are particularly distressed by debt collection activities, or clients who can make good use of the “clean slate”
Payment Agreements
Creditors often offer our clients payment agreements or plans to avoid a debt going to courtIn 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 needsThe plan actually pays down the debt rather than just servicing interestClient is not otherwise judgment proof and would have important assets at riskOften a better option for clients considering this option is a negotiated payoffProvides more certainty, doesn’t leave them strapped into a plan that will not be sustainable
Budget Counseling
Available through local non-profits likeOnTrackof WNC and Foothills Credit CounselingMAVL 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 it
Generally handled by MAVL attorneys or referred to the private barChapter 7 vs. Chapter 13Chapter 7 = “liquidation bankruptcy”Chapter 13 can allow a debtor to keep property they could not in Chapter 7, but requires payments over several yearsOften a back up plan for homeowners in foreclosureHomeowner can file up to the end of the upset bid period and get the benefit of the automatic stay
Often handled on Hotline for non-homeowners“Judgment proof” status determined by state law exemptionsProtect certain amounts of property, including:$35,000 in real property$3,500 in one motor vehicle$5,000 in household goods, furniture, etc.Notethat there are also federal exemptions, like Social Security
Consumer Claims
Unlawful Collections Practices generallyForeclosureRescue:Ex. scammer buys home for much less than value, rents it back to homeownerN.C.G.S. § 75‑120 and followingHome Loan Modification:Ex. For a fee, scammer “helps” homeowner negotiate with their bank for a modificationN.C.G.S. § 14‑423 and followingDebt adjusting scams for unsecured creditN.C.G.S. § 14‑423 and followingBait & Switch and other “traditional” scamsPayDayLoans and Title LoansNot legal in NC, but consumers get them online or by going to SC orTN
When to Refer Back to PLS?





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Consumer and Debtor Rights CLE -