Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).
Dear To Her Credit,
I have a judgment against
me for over $5,000. I don't have the money to pay it off, but someone told me
that if I pay something every month, even if it's only $10, they won't be able
to garnish my wages. Is that true?
-- Sara
Dear Sara,
I've heard rumors to that effect.
Someone told me, for example, that if you pay the hospital $5 a month, they
can't take any action against you. Unfortunately, this is only a rumor. There
is no such rule.
Creditors are not required to
accept payment in monthly installments unless there is a contract or an agreed
upon payment plan. Even then, the debtor must make the minimum payment as set
forth in the contract or plan. Paying an arbitrary low amount won't cut it.
Creditors can not only take legal action, but they may also report your past
due debt to the credit bureaus.
Rumors usually start with a
grain of truth. The truth in this rumor is that creditors are more likely to work with you if you stay in contact with them
and make some effort to pay. There's a difference between what creditors may
choose to do and what they are required by law to do, however.
I asked collections and judgment enforcement attorney Joshua P. Friedman if
making a small payment every month would stop collection activity. He says, "The
debtor cannot arbitrarily make minimal payments to a creditor and avoid further
legal and/or collections activities. Those minimal payments will simply be
applied to the outstanding debt, but will not stop any legal and/or collections
activities."
"This is really a question
of contract law," says Friedman. "It depends on what the original
contract with the creditor says. For example, a standard credit card contract
states that so long as you pay at least 2.4 percent of your then outstanding
balance, you have made your minimal payment, will not be in default and the
credit card company will not pursue any penalties."
Other creditors, such as health care providers and landlords, expect payment in
full immediately. When you are admitted to the hospital or visit the doctor, you
sign an agreement to pay any balance owed within 30 days of billing. As a
practical matter, you have a little more time. "As a courtesy, most
medical practitioners will not bill the patient until the medical practitioner
has reached a final resolution with the insurance carrier," says Friedman.
If you get behind in your rent, landlords expect payment when due.
If you don't want your wages garnished, you must act immediately. That means
contacting the creditor and working something out with them, not just sending
them a reduced amount. "If a debtor wants to avoid further legal action,
the debtor should contact the original creditor directly and agree to a payment
plan," says Friedman.
Be sure to ask the creditor to
waive all interest, attorneys fees, costs, and so on as long as you make
payments, according to Friedman. And always have the creditor or debtor confirm
the terms of the agreement in writing.
Making contact with a creditor
is usually the last thing we feel like doing. That's what makes the
pay-a-small-amount story so attractive. It makes people think they can deal
with the issue without having to write a letter or pick up the phone. With a
little more effort, however, you can face the situation and find a workable solution
with your creditor so you can pay this off without having your wages garnished
or your credit damaged.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: November 21, 2008
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