A debtor is someone who owes money to someone else. Generally it is not a crime to fail to pay a debt. There are, of course, exceptions. For instance, the failure to pay some court-ordered debts such as child support or criminal fines may lead to criminal charges. Under some circumstances, the failure to pay taxes could have criminal consequences also. Except in certain bankruptcy situations, a debtor can choose to pay debts in any priority.
Debts often arise from the failure to follow a contract or agreement between you and a creditor. Most oral and written agreements for the repayment of consumer debts (debts for personal, family or household purposes, and debts secured primarily by a person’s residence) are enforceable. However, most debts that are for business or commercial purposes must be in writing to be enforceable. If the agreement requires you to pay a certain amount of money, the creditor does not have to accept a lesser amount. Even if you have lost your job, become ill, or just cannot afford to pay the debt, you still owe the amount stated in the agreement. Also, if there was no actual agreement, but the creditor has lent you money, performed services, or provided you with a product and you have kept the product or benefited from the services, you generally are liable to (and must pay) the creditor.
If you owe money, the creditor may assign the debt to a debt collector, which is typically a collection agency. The creditor may hire an attorney to collect the debt. The attorney may also be considered a debt collector. The debt collector may send you a letter or other notice requesting payment. If the debt is based on a consumer transaction, a federal law called the Fair Debt Collection Practices Act requires that the first notice from a debt collector describe the debt and additional charges, costs and expenses according to the agreement between you and the creditor. If you orally dispute this debt, or any portion of it, within 30 days after receiving the notice, the debt collector cannot assume it is valid. If you dispute the debt in writing within this 30 day period, the debt collector must stop any further contact with you until the debt collector sends you proof of the debt. The fact that you do not respond to the debt collector’s notice cannot be used as evidence that you owe the debt.
An Oregon law called the Unlawful Debt Collection Practices Act also controls how a creditor may try to collect a debt, whether by letter or phone call. Unlawful debt collection practices would include the use of obscene or abusive language. The creditor cannot call your employer about the debt or call you at your place of work if you have notified the creditor not to. The creditor may call you at work only after he or she has in good faith, but unsuccessfully, tried calling you at home during the day or between 6 p.m. and 9 p.m. A creditor can write to you at work only if your home address is not available. In either case, the creditor may contact you at work only once a week. A creditor who willfully violates this law may be liable to you for minimum damages of $200, your legal fees, and in some cases punitive damages.
A creditor may sell your debt to a collection agency. This means that the collection agency buys the right to collect the debt. A collection agency may be operated by one person, or it may be a nationwide business. A collection agency has no greater rights than the original creditor and cannot make you pay any fees that could not be charged by the original creditor. Generally, however, the amount of your debt will be increased because it has been assigned to a collection agency. Debt collectors — both collection agencies and lawyers who try collecting debts — must comply with the federal Fair Debt Collection Practices Act, as well as Oregon state law. The federal law prohibits a debt collector from communicating with anyone about a debt except for those involved in the debt collection process. These include you, your spouse or your parents if you are a minor. The debt collector may not harass you or call you at work if the debt collector knows that your employer prohibits that type of communication. A debt collector is also subject to the same collection rules as an original creditor. You may prevent a debt collector from calling or writing to you by notifying the debt collector in writing that you either will not pay the debt or want to stop all further communication with them. You should keep copies of any such communication, as well as any envelopes. If a debt collector violates this federal law, it may be liable to you for all actual damages you suffer and additional damages up to $1,000.
If you have purchased something on credit and signed an agreement called a “security agreement,” and you have failed to pay the debt for your purchase, the creditor may try to repossess or take it back. This will usually only happen when you purchase a major item like a car or furniture and agree to pay the price in installments. Even though the creditor can repossess your property if you do not pay your debt, the creditor cannot enter your house without permission, assault you or take your property if you physically try to prevent the repossession.
If you have not signed a written security agreement, the creditor does not have a right to take any of your property unless the creditor has first obtained a judgment against you. In order to get a judgment, the creditor must go to court. Either the original creditor or a collection agency may sue you to collect a debt. If this happens, you will be served with a summons and complaint. If you want to dispute the existence or the amount of the debt, you must file a timely response with the court. You must file a response within 14 days of the date you are served if you are sued in small claims court. You must file a response within 30 days of the date you are served if you are not sued in small claims court. Filing a response means filing a motion or answer. The summons and complaint generally do not reflect the service date or provide a hearing date. If you do not respond to the complaint, or if you file a response and ultimately go to court and lose, the creditor will obtain a judgment. This judgment will include the amount of debt and may include interest, court costs and the creditor’s legal fees. It may also create a lien upon any real property, such as a house, that you own.
Every claim is subject to a statute of limitations. The statute of limitations is the time within which a lawsuit must be filed if a person wants to use the court system. There are a variety of statutes of limitations depending on the nature of the claim, as well as considerations as to when the limitation period begins to run. If a person is sued and the person believes the statute of limitations has expired, that defense should be raised in the response to the lawsuit. For many claims based on breach of contract, the statute of limitations is six years, often beginning to run from the date of default. Making a payment typically starts the limitation period running anew.
If you are sued, you may have not only have a defense but also a claim for damages against the plaintiff. Your claim for damages may be raised and pursued as a counterclaim in the lawsuit.
A judgment is not a court order that tells you that you have to pay any money. Instead, it is a way for the court to confirm that you owe the creditor a certain amount of money. If the creditor wants to collect any money from you based on the judgment, further action must be taken. The creditor may try to collect your debt by having the sheriff take some of your real or personal property to sell at a public sale. The proceeds of the sale would then be applied to pay the judgment. The creditor may also take money from your savings and checking accounts, or garnish your wages. It is not a crime to fail to pay most judgments.
Oregon law protects, or exempts, some of the property you own, some types of income, or the equity you have in certain property, from being taken by creditors if they obtain a judgment against you. For example, clothes and jewelry are protected up to a maximum of $1,800 in value. Up to $3,000 in value for a vehicle (cars, trucks and other motor vehicles) is protected. Household goods, including furniture, a television set, and utensils are protected up to $3000. There are a number of other exemptions. The value of these items is often determined by “market value.” Except for a car, market value is often called garage sale value. Social Security benefits, TANF, unemployment benefits, retirement income and many other types of government benefits are protected from garnishment. This income may also be protected when deposited in a bank account. Net wages are protected from garnishment unless they exceed a certain amount. For instance, of the date of this writing the first $218 of net weekly wages are exempt. If you are paid once each month, the first $936 of net wages are exempt. (Note that these numbers will undoubtedly change over time.) Except for certain debts, such as student loans, taxes and child support or alimony, a judgment creditor cannot garnish more than 25 percent of your net wages. Net wages are gross wages minus those deductions required by law.
There is also an Oregon exemption (sometimes call the “homestead exemption”) available for the equity a person has in a residence if the residence qualifies as a homestead and is located within the state of Oregon. A single debtor may exempt up to $40,000 of equity in a homestead. Married debtors may exempt up to $50,000 of equity. A judgment may constitute a lien on your interest in a homestead. The lien could be used to sell the homestead to satisfy the lien. In most cases, the judgment amount must exceed $3,000 at the time it was entered before a judgment creditor can force the sale of a judgment debtor’s homestead.
For many of the exemptions, if two or more members of a household are judgment debtors, each person may be entitled to claim the exemption in the same or different property.
Note that the exemptions can be complicated. You may want to consult with an attorney to determine what exemption value (if any) you have in your home or other property when faced with a judgment or the need to file bankruptcy.
Legal Editor: Richard Slottee, Portland State University Student Legal Services, July 2016