What Federal Benefits Are Exempt from Garnishment By Creditors

Your rights in protecting federal benefits in your bank account against garnishments

When you are unable to pay back a debt to a creditor, he may sue you in a court of law and get the order that your wages or the money in your bank account be garnished to pay back the debt. When this happens, the bank freezes the amount of money in your account and you are not able to access it. If you cannot subsequently reverse the garnishment order from the court, these funds are used to pay back the creditor. You should understand that typically any federal benefits that you receive such as Social Security amount, unemployment benefits etc. are exempt from garnishment. You can usually prevent these amounts from being garnished and used to pay back the creditors although you may have to go to court and get the order from the judge in order to do so.

The federal benefits that are ordinarily exempt from punishment are as follows. The Federal Trade Commission which is the nation’s consumer protection agency gives out the following list of federal benefits that are exempt from garnishment.

  1. Social Security benefits
  2. Supplemental security income benefits
  3. Veterans benefits
  4. Civil service and federal retirement and disability benefits
  5. Military military amenities and survivors benefits
  6. Student assistance
  7. Railroad retirement benefits
  8. Merchant seaman wages
  9. Longshoremen’s and harbor workers death and disability benefits
  10. Foreign service retirement and disability benefits
  11. Compensation for injury, death, or detention of employees of US contractors outside the US
  12. Federal emergency management agency federal disaster assistance.

However, there are certain cases in which even these funds which are typically protected against garnishment may be used to pay off your certain debts and other financial obligations. For example, these federal benefits may be used to pay unpaid federal or state tax. They may also be used to pay a student loan. Your Social Security benefits may be used to make payments on child-support or alimony.

The law governing the federal benefits and the provision for its garnishment differs from one state to another. For complete information and better management of a situation such as this, you should consult an attorney who practices in your state. You can also get additional information from local consumer protection agencies or a legal aid office in your area.

What To Do When A Creditor Tries to Garnish Your Bank Account

How A Creditor Can Garnish Bank Account Funds To Recover a Debt

A creditor can sue you in a court of law for unpaid debt. It can ask the court to issue an order that garnishes your bank account. A court order for garnishment means that the amount in your bank account is frozen until the time that the court decides with a final decision as to whether the money must be paid to the creditor. In certain states, there is a provision and a law that states that you are to be notified when judge issues a garnishment order for the money in your bank account. This notice also tells you what to do if you think that some of the money in your account is exempt from garnishment. However, sometimes you will not receive this notice when the judge issues order and the bank freezes you account.

What to do when you receive a notice of garnishment

If you believe that your account contains money and funds that are exempt from punishment such as federal benefits like Social Security benefits, unemployment benefits, veterans benefits etc., the first step that you should take is to get in touch with a competent attorney. It is also very important to follow the instructions and the deadlines mentioned in the notice for telling the judge that your money in your account is exempt from garnishment. You may inform the bank immediately that the money in your account is exempt and for what reasons. You can ask the bank to lift the freeze on your account immediately. However, under most circumstances, you will have to go to court and present suitable evidence to the judge such as receipt for federal benefits in order to have the order for garnishment revoked before the bank can once again unfreeze the funds in your account. Till then, the bank will keep the account and the funds frozen after receiving a garnishment order which will prevent you from accessing those funds.

Step to take when your bank account is frozen due to a garnishment order.

As already mentioned, the first step to take is to contact an attorney and take his legal counsel. If the bank freezes your account, this restricts you or anyone else from getting money out of your account. This means that any checks you wrote or any authorized electronic payments that have not been cleared yet may be returned unpaid. Your bank can also charge you a fee for having insufficient funds in your account when these payments bounce.

Therefore it can be important to immediately make arrangements to prevent outstanding checks from bouncing and to inform the people you have made the payments to that you are resolving a problem with the bank and they are not to present the check you have signed and given to them till you inform them further.

Steps to take to get the judge to prohibit creditors from obtaining exempt funds in your bank card

In order to convince the judge that the funds in your bank account are exempt under federal law, you and your attorney will need to get a hearing before the judge and present suitable documentation and proof showing that your bank account funds are exempt. We have already mentioned the commonly exempt funds such as Social Security benefits, unemployment benefit, veterans benefit etc. If the federal government provided your benefits through electronic deposit you should summit the proof showing these deposits and the source. If you received checks from the federal government which are deposited in your bank account you should submit bank deposit slips, statement from the agency that is the source of the exempt funds, bank account statement or other documents proving the same. Basically if you can show the judge that your bank account contains funds exempt under the federal law, the judge will not allow the creditor to obtain these funds to pay the judgment against you or to collect them as other fees and charges.

At this point you should also remember that certain kinds of debt obligations can be repaid using the exempt funds in your account such as child support and alimony.

If your bank has not already done so, you should show the order of the judge saying that the freeze on exempt funds should be lifted to the bank. You should also ask your bank to waive or refund any NSF or other fees resulting from the temporary freeze on your account.

Important Things to Keep In Mind When Co-Signing

Things to keep in mind when you do cosign on a loan

Although it is never really recommended, there are situations and circumstances in which you may want to cosign alone application. The commonest situation is parents wanting to help out a child get their first loan or even helping out a close friend when he needs help.

Consider the following points before you cosign:

  1. Ensure that you can afford to pay the loan in case the primary borrower cannot or does not in the future. Failing to do so could mean that you get sued in a court of law, your property or wages are used to pay off the loan as well as your credit rating and taking a dent.
  2. You should understand that even though you may not be asked to repay the debt, the debt will show as an additional liability on your credit file. If the debt is large enough, it may hinder your chances of qualifying for credit on your own because the future creditors will consider the cosigned
  3. Be careful when you pledge your property to secure a cosigned loan such as a tangible assets like your automobile. If the borrower defaults and you do not pay back the debt, you could use these items.
  4. You can consider asking the lender to give you specific and different terms than the primary borrower. For example, you might ask to borrow to limit your liability to the principal on the loan and not include any late charges, court fees, attorney fees or interest charges. If the lender agrees to such an agreement, have him put it down in written in the contract. You can also ask the lender to calculate the amount of money that you might owe in the future if the primary borrower defaults. The lender is not required to do so as per the law but he may if you asked.
  5. You should put in a clause in the contract that says that you are to be notified immediately when the borrower misses a payment. This could give you the opportunity to deal with the problem quickly in the future. Many cosigners are notified when the debt has gone unpaid for a long amount of time and the amount to be repaid has increased substantially.
  6. Make sure that you get the copies of all important documents such as the loan contract, the truth in lending disclosure statement and any warranties when you are cosigning for a purchase. You may need these documents if there is a dispute between the borrower and the seller. The lender is not required to give you these papers as per the law and you may need to get them directly from the primary borrower.
  7. Different state laws may have slightly different provisions for the rights of a cosigner. Check your state law for these updates.

In the end, remember that in case you need help when you have cosigned on a loan, you can go to the Federal Trade Commission. The Federal Trade Commission works to prevent fraudulent, deceptive and unfair business practices in the marketplace as to provide information to help the consumer spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call on 1-866-653-4261.

The Federal Trade Commission helps and fights unfair business practices and helps to resolve consumer issues by entering Internet, telemarketing, identity theft and other fraud related complaints into consumer Sentinel which is a secure online database available to hundreds of civil and criminal law enforcement agencies in the US as well as abroad.

How Credit Rating Affects Your Loan Application

(This is a guest post by Martha Jackson.)

How do lenders consider loan approval with regards to your credit?

Credit in itself is a complex thing. There are so many attributes with regards to your credit rating if the finances are considered, that you may not always be able to understand as to what is helping with credit improvement, and what is actually dinging it. It is not only your credit score which is going to affect your eligibility to obtain a loan. There are so many other factors embedded within your credit rating, which too are supposed to affect your ability to take out a loan. Though, commonly, it is considered that if you have a good credit score, you may be able to take out a loan, it is your debts too that matters. So, if you have too many debts, it is better to try paying those down through credit card consolidation, as much as possible.

Loan approval and your credit

The lenders consider various factors with regards to your credit, before approving the loan. So, the factors which are considered by the lenders and the banks are:

  1. Your outstanding debt amount – Debt to a certain amount is considered to be good. But, the amount is just a relative one, as it will depend upon the number of debts, and the credit limit and also the affordability of the person concerned. However, the main thing is the when you apply for a loan, the lender does check your credit reports and the outstanding debt you owe. Your credit score depends on the outstanding debt, and the debt payments. So, the lower the debt amount, the better is supposed to be your ability to obtain a loan.
  2. The credit history – Credit history is yet another very important thing that the lender is concerned about. This helps the lender to decide, as to how much of a credit worthy person you are.
  3. The debt payment history – The debt payment history shows how accurate you have been towards your debt payments. The more the number of on-time payments are there on your credit report, the better is supposed to be your ability to get approved for a loan.
  4. Type of credit lines – The different types of credit you have, matters a lot too. When you apply for a loan, the lender pulls your credit report. The lender checks with the different lines of credit you have. The more the types of credit lines you have, the better is your credit score.
  5. The debt to income ratio – The higher the outstanding debts, the higher is supposed to be the debt to income ratio. This has a negative effect on your ability to obtain a loan.

So, some of the things you will have to keep in mind are that you will always have to maintain low debt levels. This does not simply mean that you will have to make the on-time debt payments. You will also be required to maintain low debt levels and carry low balance on the credit cards. In addition, you should be able to check your credit report from time to time. All of these together are going to help you maintain a good credit rating and a good credit score too. What the lenders in general look for, is a well balanced credit situation.

Author’s Bio: Martha Jackson loves to write financial articles and she is a contributory writer associated with the Debt Consolidation Care Community and has written several articles on debt consolidation, debt settlement, credit card consolidation and get out of debt for various financial websites. She holds her expertise in the Debt industry and has made significant contribution through her various articles.

Importance of a Good Credit Rating

There are many reasons why a good credit rating is important to almost every individual. In the currents times more and more decisions by various people and businesses are getting dependent on the information present on the credit file of a person. The credit history is used to measure the reliability off a person to make payments on a service or utility by various different providers.

A good credit report is important in all of the following cases:

Good Credit Rating for Home and Shelter

You do not need a good credit report just for getting a home mortgage loan but also when you are looking for a house on the rental. It has become a common practice in major housing societies to check the credit report of a person before giving an apartment or a house on rent. Landlords consider the lease on a home as a loan. Having a good credit history will demonstrate to the lender whether you will be responsible with paying him back on the lease and rent the time comes. A mortgage loan is one of the major loans that an individual is likely to take in his lifetime. Blemishes on the credit report will most likely result in the rejection of the credit application or in a much higher interest rate.

Good Credit Rating for Transportation

Similar to a mortgage form loan your credit history will be called into account when you want to take a loan to purchase an automobile. It will also impact the interest rate on the loan as well as the premium on the insurance that you get for your automobile.

Good Credit Rating for Employment

Many employers have taken to check the credit history of potential employers before hiring them. It is commonly believed that a person with no debt hassles is a happy person and performs better at work. A good credit history also demonstrates a person who is better at managing personal affairs and financial matters which could be translated as a reflection of his ability to work in a steadfast and responsible manner.

Good Credit Rating for Utility Services

It may come as a surprise but here credit report may also be checked before you are approved for a utility service. Utility services such as electricity or cable television will see the credit report of an individual before considering several factors such as requirement of down payment. Sometimes the rate may also differ from a person with a good credit rating to a person with a substandard credit rating. This usually applies to most utility services such as cable television, telephone, water and even mobile phones.

Good Credit Rating for Other Kinds of Loans

Any and all can of loans such as personal loans, small-business loans etc. will depend upon the information present on your credit file. The better your credit rating the more likely are you to be approved for a loan and with better terms and conditions.

What Is Credit and How It Works

Every time that you make a purchase with the promise to pay for it later or take a loan to buy something now and pay in installments for it later you are using credit. The commonest kind of credit is using a credit card and applying for a loan to make a purchase. Whenever a creditor agrees to give you money on credit he does so on the basis of your creditworthiness which is a measure of your liability to pay back the money that you borrow. Creditors usually rely on the credit report present with the credit bureaus to determine the risk of a consumer before landing in the money. Other factors such as employment, job stability, income and residents may be taken into account by the creditor in order to determine the risk worthiness of an individual.

Using credit responsibly is the only way to build a good credit score and maintain a healthy credit file with the credit bureaus. New consumers who have not used credit in the past and do not have a sufficient credit history may face a little more difficulty in getting credit as the lender will have to rely on the other dimension factors such as employment, income and job stability. They may also ask for someone with reliable credit worthiness to cosign on your application as a guarantor.

How Credit Works?

In order to apply for a credit you need to make an application to the creditor. Creditor will then use the information present on your credit report and use identifying information such as your address and social security number to investigate your creditworthiness. If your credit report and your credit rating are sufficient to prove that you are a good risk the lender will approve you for the credit or the loan.

Every line of credit or a loan comes at certain terms and conditions. These terms and conditions will be presented you in a written format in a contract form. They usually cover how you supposed to repay the loan and the interest rate being charged as well as other actions that the creditor can take in different circumstances such as non-payment.

If it is a matter of getting a credit card, the lender will also established the maximum credit limit which is the maximum amount of money that you can use in a particular billing cycle.

If it is a secured debt such as an automobile loan or a mortgage form loan, you will know your monthly installments and payments right from the start. You will also know if the interest rate is fixed or it can vary according to the changing interest rate in the economy.

If the credit you are going to use is an unsecured line of credit such as the revolving credit on a credit card, your payment every month will depend upon the amount you charge.

It is important to understand that credit should not be used as a substitute for cash in the wallet. You should only use a credit card to charge put you can afford and preferably what you can afford to pay off in full at the end of the billing cycle when it’s time to make the payment to the credit card issuer.

Starting out with Credit

It is important to learn about credit and credit management and you start out with credit for the first time. Using credit improperly can prove to be an expensive proposition and can land you in a financially tight situation. It helps to know how credit works and the basics of credit management before you even use your first credit card. Understanding credit will help you choose the right kind of loans and the right kind of credit cards.

Choosing the right kind of credit card is important because and credit card comes to different terms and conditions. One credit card may suit you more than the other depending upon the kind of use that you intend to put the credit card to.

Features on a credit card like interest rate, credit limit and other terms and conditions that allow the creditor to increase or decrease your credit limit will affect the total cost of your credit card. It can also be the features such as cash back, airline miles etc. which may prove to be beneficial to a particular consumer in the long run.

A credit card can become very expensive if you do not understand the charges and fees associated with using it and carrying a balance. Not all credit cards are made the same and choosing the right one for your needs is essential.

Getting a credit card that you can use with ease and comfort will not only serve as an important financial tool but will also ensure that you build a good credit score and a good credit history with its regular usage.

The Difference between Secured and Unsecured Debts

There are two main ways of distinction between different kinds of debts. One is a secured debt while the other is unsecured. Paying off secured debts is usually more important than paying off your unsecured debts. You’ll understand this once you understand the difference between secured and unsecured debt.

Secured Debts

Secured debts are those kinds of loans that are backed by some kind of an asset that is used as collateral for the loan. For a secured in debt the creditor places a lien on the asset and agrees to give the loan while considering the asset as a guarantee in case of non-payment. This means that the creditor has a right to take the asset and sell it to recover his money in case the consumer does not follow the repayment plan. The creditor has the right to take possession of the asset and sell it in case you become delinquent on your loan. In case the sale of the asset does not completely cover the debt, the creditor can hold you responsible for the remaining amount of money and can pursue you to recover that some of money. Common examples of secured debts are automobile loan and a home mortgage loan where your automobile and your home are collateral is on the loan respectively. The creditor reserves the right to take possession of your automobile off your home in case you go delinquent on the loan account to recover his investment.

Unsecured Debts

Unsecured debts are the opposite of a secured a debt which means that it is the loan even on a personal guarantee with no asset being provided as collateral. In an unsecured debt the creditor has no right to take possession of your assets directly in order to recover his money. The creditor however does maintain the right to transfer or sells your account to a collection agency for the purpose of recovery or sue you in a court of law which may result in a judgment that allows the creditor to garnish your wages or take an asset to recover his investment. A common example of an unsecured debt is the balance on your credit card. Other unsecured debts include student loans, medical bills and court-ordered child support.

What Is Credit Crunch

Credit crunch is a period of time in which credit and loans are more difficult and costly to obtain. Owing to the economic meltdown and failing of mortgage is in the year 2007 the consumer is started relying more on credit cards as a source of money on credit. Database credit card delinquencies increased. The credit card agencies then in turn started taking measures to cut down the losses by increasing interest rates and credit card fees and decreasing credit limits. Due to a higher delinquency rate the approval criteria for all kinds of loan and credit became more strict. While the person could qualify for a mortgage or a credit card with an average credit score will good interest rates a few years back, this was no longer possible.
A credit crunch happens when investment in debt is no longer profitable. Corporations and institutions invest in debt and make money when the borrower’s repay the loan with an interest. When the borrowers begin to default on their payment the investors lose their money. Is when credit card and loan delinquencies rise debt investments become unattractive which results in investors pulling their funding. As a result banks become more strict with their guidelines of approving credit and loan. This leads to a situation where it becomes more difficult for a consumer to get approved for a loan or credit.

Reasons Why You Should Never Cosign A Loan Application

Why you should not, in the best of situations, cosign on another’s loan application.

It could be a credit card for a girlfriend or a loan for a loved one. It may even be your own family where your child or a spouse may want you to help them get a credit card. Because you love the person and trust them you may be inclined to offer your signature without realizing the responsibility that you are taking. Before you cosign on an application that someone else make sure you understand all the reasons why you should never cosign for others.

The number one thing that you should understand is that there is a reason why the other person cannot get approved for credit on its own. The lack of credit history or presence of make a credit information may be preventing him from getting qualify for credit on his own. This means that the lender is not consider the person responsible enough to qualify for credit individually. If the creditor having used the tools and resources available to him for predicting the creditworthiness of a person has determined that the person is a high-risk the maybe you should give yourself a pause to consider the same thing. If a creditor does not think that your loved one will pay on time, they require a cosigner. A decision that a lender usually makes for the consumer is based solely on facts and data that he has access to. This usually comes from the credit report of the applicant and the documents that applicant provides such as proof of income, employment, residential status etc.

This means that your loved one could very well lose control of his debt situation in the future and leave you responsible for the money that he or she has spent.

Whenever you cosign on a loan application you are just as responsible for the debt as you the person. You are also completely responsible for the whole amount. Many people think that the burden of the debt is broken up into two parts since there are two people on the credit card account. But the truth is that each single person is completely responsible towards making the complete payment. If your loved one is late in making the payments then it’s the same as you’ve been late on the payment and the same gets reported on the credit file of both the people. This will damage your credit score. Your debts to income ratio will also increase which will hinder your ability to get a loan free yourself in the future if and when the need arises.

In case of the account getting sold to a collection agency, the collection agency is in their right to try recovering the money from either of the joint account holder. They are not mandated by the law to try and recover the money from the family account holder. They can and may try and recover the money from the cosigner witches you because you were the one with the better credit rating and hence a better bet for a successful recovery. You can also be sued in a court of law where a judgment entered against you will not only require you to pay the debt but also be recorded on the credit report which is one of the worst entries that can find their way on your credit file. If your loved one happens to bankrupt the debt he or she will be let off the hook for it. You one the other hand will be solely responsible for paying the debt.

This does not mean that the person who is asking for your help in cosigning for the reputation is doing it with the intention of seeing the payments in the future. But there are risks involved with cosigning on an application and doing it for a person who is unable to qualify for credit on their own is something that you should think about carefully.

If the person involved is the near and dear friend or family then perhaps it would be better if you help the person develop good spending habits and build a good credit score so that they can qualify for credit on their own.

You may be thinking that you are doing a good deed by helping someone out get credit at any or building a good credit history. Do not do it because it could result in big financial problems for you.

It is a common scenario where a parent, partner or ex-spouse than ends up with a large amount of debt from their Child, partner or ex-spouse respectively. It’s one thing finding yourself under debt due to your own credit mismanagement but it is doubly worse when it is somebody else’s debt and you are fully responsible for the payment. For those of you who are contemplating the thought of helping out a partner, parent or sibling or child by cosigning on the loan do not to do it as adding your name to somebody else’s loan is a very serious matter. Tying your own financial history to a natural history of someone else is a serious decision and could end up in a financial disaster for you ought of no-fault of your own except for the fact that you did not think through the decision of cosigning for someone else.

Cosigning on somebody else’s loan makes you fully responsible for the entire amount of the loan. The bank or the creditor is free to try recovery from either of the cosigners and with whom they feel they have a greater chance of success in getting the money back.

This means that even though you are a cosigner, you may be the one with the shining credit history and in the lender’s eye, more liable to pay the debt rather than the primary applicant.

The very fact that a lender needed a cosigner in the first place is a sign that they do not think that the primary applicant is a good enough credit risk.

When parents co-sign for their children and then the child happens to default, the lender is aware of the fact that the defaulter may not care much about the dent on his credit rating. He/she is young and does not much credit history to start with. Young people find it easier to ignore credit rating issues simply because they do not give it much of a thought or think that they will have plenty of opportunity to build it in the future.
However, the parents are probably more serious about their credit rating since several of their financial affairs may depend on it like, credit card rates, insurance premiums, future plans for a personal loan, mortgage or auto loan. Therefore, the lender might just prefer to collect the debt from the parents simply because he thinks that they are more liable to pay up to avoid the negative mark against their credit file.
It is also easier to track and communicate with the parents since they are the ones who are in all likelihood settled down in a home. The kids can be harder to track when in college and soon after as they are likely to be moving to different places.

When you cosign for the person you are putting your credit rating at risk. You are signing a legal contract that holds you completely responsible for the entire debt. If there is a delinquency on the debt most of the cosigner’s do not learn about it till it’s very late. By the time a cosigner finds out about the defaulting primary for the debt is already many months late and has been reported to the credit bureau. A delinquent or a charged off account on a credit report is of the worst entries that can be present. Apart from that the bank can also sue you in a court of law where it can force the sale of your assets such as your house in order to recover the money of the loan. Most of the legal documents and agreements offer loans also allow the bank to charge you its own legal fees in collecting the debt from you.

Most of the time the terms and conditions of a loan is printed in very fine rent. Most of the people will sign the document without reading it. The truth is that while people resume that the lender will only come after the cosigner once they have exhausted and failed in every means of collecting from the primary borrower, the truth is that the lender will come after whoever it feels it has the best chance to recover from. And since you are the person with the better credit rating who cosigners are guaranteed, the lender may decide to come after you without even trying to recover the money from the primary lender first.

Another effect of cosigning for a loan is that it increases your debt to income ratio. Lenders look at the debt to income ratio before approving any further loan to the consumer. It is possible that since your debt to income ratio is already high due to the loan that you co-signed on someone else your own loan application may get denied in the future.

If you’re already stuck with someone else’s debt you may have no other option but to pay it off. What you can do is try and negotiate with the creditor or the credit card company. Most of the consumers do not know and understand that you can negotiate with credit card companies to agree on how much you will pay. You can reduce the payment for the given debt to 75 or even 50%. Settling the debt with the creditor will probably not clean up your credit history completely but having a settled and paid off status on an account is better than a charged off account. You will also be able to get rid of the collection agency who might be trying to recover the debt from you.

If you are planning to cosign on a credit card for your teenage child in order to help them get the first credit card and build credit history and make sure to provide them with adequate credit education. High school seniors and College students are bombarded with credit card offers. Since an average adult already has plenty of credit cards teenagers, high school seniors and College students comprised the untapped market. The credit card companies love students because they figure that they are a good risk because parents stand behind their debt. Students that are absorbed by a credit card company into using their credit card earlier on also tend to make loyal customers for the future as well. And