Can a Creditor Take Your Belongings if You Owe Them Money?
No, a creditor cannot take your belongings if you owe them money—at least in the United States. Debt collectors typically buy debts from original creditors and their main goal is to pressure you into paying. In most cases, they will not take drastic measures unless the debt is substantial, and even then, the process often involves the legal system.
Understanding the Legal Process
Assets can be attached and liens can be placed only after a judgment is awarded to the creditor. This means that the creditor must first secure a judgment, a process that usually involves validating the debt and following through with legal proceedings if the debtor fails to comply.
How Debt Collection Works in the United States
Let's assume you are referring to collections agencies when you mention "debt collector." The process is similar for the original creditor/issuer of debt. If you truly owe a debt and refuse to pay, the debt collector can file a civil case against you. You have the option to fight it or simply ignore it, which can have serious consequences. Around 15 years ago, the paperwork for selling debts was so poor that it was often enough to drive a debt collector away with a simple reasonable answer and request for proof. Today, however, most states allow for electronic paperwork as evidence, making it easier for collectors to proceed with their claims.
Consequences of Ignoring a Debt Collector
Most debtors in the United States do not answer the summons and complaint, leading to a summary judgment in favor of the creditor. If you do answer, the creditor might proceed to arbitration, but this can be costly and risky for both parties. In states like Minnesota, where most debtors don't answer, the chances of the creditor getting a judgment are high, even without a defense.
Laws and Judgments
Once a creditor gets a judgment, they can start to seize assets, including bank accounts and income streams like wages from a job. In some cases, they might even put a lien on your home if you own it and have a mortgage. To remove such liens, you would need to refinance your home or sell it, ensuring that the creditor is satisfied with the debt repayment.
Debtor Examinations and Contempt of Court
Creditors can also conduct a debtor's exam, which requires you to either fill out a form or testify under oath about your assets and financial status. Ignoring these summons can result in contempt of court charges, leading to jail time. This is a common reason why some people end up in such situations and why these stories make the news.
Being Judgement-Proof or Collection-Proof
There are some individuals who claim they are "judgment proof" or "collection proof." This means they have no assets or income that can be attached under the law or are exempt from collection under the law. However, the statute of limitations on judgments can be long, and in some states, they can be renewed indefinitely. The creditor earns an interest rate on the judgment during this time, hoping that you might do something drastic like win the lottery.
Best Practices for Managing Debt
If you owe money and the creditor can prove it, it is best to work with the creditor to pay it off as soon as possible. Once a judgment is secured, the creditor can take more severe actions to collect, making your life considerably more difficult.