Warning Signs of a Debt Problem Include:
- Required monthly payments to creditors totaling 20% or more of your take home income (not including your rent or mortgage).
- Using your savings to pay for daily expenses.
- Getting cash advances from credit cards to pay other creditors and/or daily expenses.
- Not knowing how much you owe.
- Arguing with your family members due to money problems.
- Creditor lawsuits, repossessions or garnishment of wages.
What If You Can’t Pay Your Bills
The first step in trying to resolve your debt problem is to contact your creditors and work out a payment plan. It may be helpful to explain your situation and reiterate your willingness to work with the creditor to catch up on your overdue bills. If you believe you need some advice on how to get a handle on your debt problem, you can contact a credit counseling service.
If You Can’t Work Out a Payment Plan
- Send the collector a notice by certified mail and tell them that you cannot repay the debt and that you do not want to hear from the collector.
- Once the collector receives the notice the collector can call or write you one last time to tell you what will happen because of your non-payment. You should know that federal and Maryland law protects you from any unfair collection practices used you by your creditors.
- Contact a Credit Counseling Agency.
- Only file bankruptcy as a last resort. Bankruptcy is very complicated; you can find more information read this Bankruptcy overview.
Consult a Credit Counseling Service
Credit counseling services can help you control your debt more effectively and teach you how to manage your money and help you create a debt repayment plan. There are both nonprofit and for-profit debt counseling services here in Maryland as well as national organizations that can provide you with advice.
Going to Court
If the creditor decides to sue you, the creditor will file a claim in court. A hearing date will be set. At the hearing, you may tell your side. You can also file your own claim if the collector violated state law or the Federal Fair Debt Collection Practices Act.
If you did not pay a debt just because you could not afford to pay it, the creditor will win a judgment against you. A judgment is a ruling by a court. The creditor wants a judgment because the judgement gives them a right to take action to collect the debt.
Once the creditor has a judgment, they can have a sheriff take your assets (the things you own) and sell them to pay the debt. The creditor can also place a "lien" against your property. When a lien is placed on your home, you no longer have clear ownership title to the home. That means that anyone who wanted to buy your home could not get clear title. The lien will have to be paid before you can sell your home.
Protecting Your Assets
If the sheriff tries to take your assets, there are other laws which give you some help.
In Maryland, certain assets that you own are exempt from execution or attachment by your creditors. The primary exemptions include:
1. Up to $6,000 allowance of cash or property or any kind selected by you (as long as you notify the court within 30 days from the date of attachment of levy by a sheriff).
2. Up to $5000 worth of items necessary for the practice of any trade or profession (for example, tools, instruments, books, clothing/uniforms).
3. Up to $1000 in household furnishings, goods, clothing, appliances, books, pets and other personal items.
Some sources of income are federally exempt, and certain interests in retirement plans are also exempt. Also, if you are married and the debt belongs to only one spouse, any assets the two of you own jointly cannot be levied upon for the debt of one spouse.
If you do not own any assets, and your income is limited to Social Security or pensions, the creditor will not be able to collect its judgment.