Before extending credit to a consumer, businesses conduct credit checks. A credit check provides information about a consumer's history of repaying debts and financial status, and it verifies credit references. Any business that extends credit to a consumer must follow federal and state consumer laws and fair debt collection practices. Businesses are not permitted to discriminate against an otherwise qualified applicant on the basis of color, race, national origin, age, sex, marital status, or religion.
The credit market is regulated by the Truth in Lending Act (TILA), which requires uniform disclosures to consumers. TILA applies when credit is extended to consumers, when credit is payable over four installments based on a written agreement, and when a finance charge will be applied to a loan. It also applies when the credit is for personal or household purchases, and the total loan is secured by a real property interest or a total value of $25,000.
When businesses extend credit to a consumer, they run the risk of a consumer not being able to repay the debt or not being able to repay it in a timely fashion. Some businesses attempt to collect the debt themselves, while others hire a debt collection agency.
If a creditor tries to collect a debt itself, state law covers the debt collection. In many states, the creditor must call the consumer and also notify the consumer in writing before beginning formal debt collection proceedings. In most states, repeated telephone harassment, threatening a legal action that is not possible, lying about the creditor's name, sending mail with a reference to debt collection on the exterior, or collecting an amount beyond the actual debt are prohibited.
Debt collection agencies must comply not only with state laws, but also with the federal Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits abusive and deceptive debt collection tactics, such as calling a consumer and failing to identify the reason for calling, calling at inappropriately early or late hours, contacting the consumer at work after being told the consumer cannot receive calls at work, revealing the consumer's debt to third parties, or threatening violence.
Bankruptcy and Collections
Filing for Chapter 7 or Chapter 13 bankruptcy triggers an automatic stay. This prohibits creditors and debt collection agencies from continuing their collection activities, including harassing phone calls, collection lawsuits, or wage garnishment. The automatic stay provides a sense of relief to a debtor and allows him or her time to develop a financial plan going forward. However, creditors can ask the court to lift the stay, meaning it would no longer apply to them and they could continue their collection efforts.
The court is more likely to grant motions to lift the stay by certain creditors. Secured creditors can ask the court to remove the stay if collateral is inadequately protected or the debtor has not been making payments. For example, a mortgage holder may ask the court to lift the stay so it can continue with a foreclosure sale. As a debtor, you can try to pay the arrearages to bring the payments current or show another good reason why the creditor's motion to lift the stay should be denied.
Landlords are also often granted motions to lift stays in order to proceed with evictions for nonpayment of rent. While a pre-bankruptcy rent is dischargeable, a post-bankruptcy rent is not dischargeable. If you have not paid rent since filing for bankruptcy, the court is likely to grant the motion to lift the stay so that the landlord can evict you. Motions to lift an automatic stay for unsecured debts are usually only granted where the unsecured debt is not going to be discharged by bankruptcy, such as when child support is at issue.