Debtor Rights vs. Creditor Rights
Very simply put, debtors owe money, while creditors are owed money. Of course, the relationship between debtors and creditors is far more complicated than a single, simplified sentence can convey. Numerous regulations have been enacted to protect entities on both sides of the debt fence, and when a payment comes past due, effective and ethical conflict resolution often amounts to a careful balancing act between the rights of the creditor, and the rights of the debtor. What are those rights, and how do they coexist? In this blog entry, our New Jersey bankruptcy lawyers examine debtor rights vs. creditor rights, and how filing for financial relief affects these rights.
To debtors, creditors can seem aggressive, persistent, and even greedy. To creditors, debtors can seem unreliable and lazy. Neither of these stereotypes are true, and neither debtors nor creditors should be attacked simply because of their legal and financial responsibilities. While it’s only natural for battles over money to cause tension and stress, it is critical to keep your calm and approach the conflict at hand with a basic understanding of the rights you must respect and adhere to.
Debtor’s Rights in New Jersey
When a debtor files for bankruptcy, he or she is immediately afforded the powerful protections of an injunction referred to as the automatic stay. As soon as the debtor files an initial petition for bankruptcy, his or her creditors become obligated to respect the stay’s boundaries and limitations. In addition to the automatic stay, debtors are further protected under the Fair Debt Collection Practices Act (FDCPA). What protections against creditors do the FDCPA and the automatic stay grant?
Debtor Rights Under the FDCPA
The FDCPA was approved in 1977. It was created to protect debtors from potentially abusive debt collection tactics, and continues to help debtors in New Jersey and throughout the country today. The provisions of the FDCPA are fairly comprehensive, and limit the manner in which creditors may contact, communicate with, and address debtors.
Under the FDCPA, creditors are prohibited from:
- Calling during certain hours. Phone calls are only acceptable between 8:00 A.M. and 9:00 P.M.
- Calling at work. Creditors may not call debtors at their workplaces if an employer deems the communications unacceptable.
- Calling too much. Causing a debtor’s phone to ring over and over again in hopes of causing intimidation or irritation is prohibited.
- Swears and insults. Creditors cannot resort to using profanity and/or abusive language.
- Lying about identity. Posing as an attorney, member of law enforcement, or other figure in order to “scare” a payment out of a debtor is prohibited.
- Making threats. Threatening to have the sue the debtor, or to have them arrested, is prohibited by the FDCPA.
- Talking to third parties. Creditors are allowed to speak with the debtor, the debtor’s spouse, and the debtor’s attorney. No one else may be informed of the debt.
- Causing embarrassment. Creditors cannot shame a debtor into paying by making the collection attempt public. For example, using a collection agency’s address on an envelope would be prohibited (unless the company name is not obviously a collection agency).
These are just a few of the debtor protections granted by the FDCPA, which can be viewed in its entirety here.
Debtor Rights Under the Automatic Stay
The provisions of the FDCPA are always in effect. But when a debtor files for bankruptcy, he or she gains additional, bankruptcy-specific protections under the automatic stay. In accordance with the stay, wage garnishment must end, and collection actions cannot be initiated. For example, if the automatic stay is already in effect, a creditor cannot then initiate foreclosure proceedings on a debtor’s home. Similarly, if a utility company was planning on disconnecting a service due to nonpayment, the stay will prevent the disconnection for a minimum of 20 days.
While the automatic stay is very powerful, it’s important for debtors and creditors alike to note two critical weaknesses:
- The stay only blocks collection actions which haven’t already begun.
- The stay can be lifted by creditors.
Creditor Rights: Lifting the Automatic Stay
Time and time again, consumer bankruptcy and the effects of the automatic stay pose a considerable challenge for creditors who are attempting to collect on a debt. While bankruptcy looks like a life preserver from a debtor’s perspective, to creditors it’s more like a barbed-wire fence. Nonetheless, creditors are armed with their own rights and options should a bankruptcy interfere with their collection attempts. Notably, creditors may be able to lift the stay altogether.
However, lifting a stay does take some effort on the creditor’s behalf. First, the creditor must file a motion with the appropriate court, at which point the debtor will be notified and granted the opportunity to attend a hearing. At the hearing, the burden of proof falls on the creditor, who must successfully demonstrate that there is sufficient reason to lift the stay.
Secured creditors typically have more success than unsecured creditors in doing so, though unsecured creditors may prevail in instances where the unsecured debt will not be discharged by the bankruptcy (e.g. child support debt, alimony debt). If a secured creditor can persuade the judge that the debtor is unlikely to continue paying off their debts, a lift on the stay may be granted.
It should also be noted that while the automatic stay prevents creditors from initiating collection actions (e.g. foreclosure, repossession), it cannot turn back the hands of time to invalidate actions which were begun prior to the stay. For example, if a creditor begins the foreclosure process before the debtor files for bankruptcy, the stay will put a temporary freeze on the foreclosure while it is in effect. However, the stay is neither lifelong nor permanent — and when it is removed, the stalled collection actions may proceed.
Navigating your financial rights and obligations can be difficult. Whether you are a debtor or a creditor, Maselli Warren can answer your questions, make negotiations, and ensure that your legal rights are observed. To arrange for a consultation with an attorney, call our law offices today at (800) 891-2657, or contact us online.