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What Property Cannot Be Seized to Pay Debt?

April 10th, 2009

debt-property-seizures.jpgIn one of our previous articles, we covered the concept of secured vs. unsecured debt, which mentioned that secured debt arrangements involve some type of property that is used as collateral. However, even if your debt is of the unsecured variety, creditors may still try to sue you in order to collect their metaphorical pound of flesh. This next article deals with what legal rights you may have if you find yourself in such a difficult situation.

It turns out that some states have laws that allow you to exempt certain property or income from being seized by creditors to settle a debt. The main takeaway point here is to use some common sense and do not sign away any of your rights to exemptions just because creditors are trying to apply pressure on you. If you are unsure about what rights you have in this particular area of finance, you can always consult an attorney or do some legal research to find out exactly where you stand.

When you default in paying your unsecured debt the collection agencies usually threaten to sue you. They also threaten to take over your property and may attach the income that you receive to clear the debt. In such circumstances do not be worried — every state has laws that exempt certain property or income from being attached to clear the debt. For example people who live only on Social Security or have limited income can always defend themselves by proving that Social Security is the only source of income for them and hence it cannot be attached to repay the debt. Once it is verified that Social Security is your only source of income, the judge may altogether dismiss the debt and you are saved from being declared bankrupt.

It is very important for you to keep creditors away from the property that you have or the income that you earn. First find out what property and income is exempt in the state where you live. On being sued tell the judge that you want any exempt property or income to be declared legally exempt. DO NOT under any circumstance sign anything that waives your property exemption rights. It is very important that you tell the judge exactly what property or income you want to be exempt from being attached. Do not be under the impression that the judge will ask you beforehand; he or she may never do this until the case is over, and in this confusion you may lose the right over your property.

When an settlement between you and the lender is reached, they may ask you to sign an agreement. Do not sign the agreement if you are not sure that you will be able to pay the money back on time. Also make sure that the agreement does not include any clause which will waive your right over the property or the income which is exempt from attachment by the creditor(s) in your particular state of residence. If you can pay only $100 per week, agree to that amount but not substantially more than this if you know that you will not be able to do so. After you have signed such an agreement, it is very important that you do not default on the amount promised by you. The golden rule here is “if you cannot afford then don’t agree”.

The amount of income and property which is exempt from attachment by creditors will vary from state to state. In some states the creditors can only attach income if it exceeds a certain amount. If your income does exceed that amount, only then can the creditor(s) claim the portion left over which is in excess of what is legally exempted by the state. For example, if the exempt income is capped at $100 per week in your state, then if you earn below 100 dollars the creditor cannot claim anything from you. However, if you earn 102 dollars the creditor can claim $2 from you. Some states may declare government benefits such as Social Security, child support, retirement benefits, worker’s compensation, and life insurance policies to be exempted from attachment. Some states may even exempt cash from being attached.

It is always advisable to consult an attorney when a case for recovery of debt is filed against you. Do not give up your right to exemptions under any circumstance!

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