Collections in Arizona
The most important consideration for most consumers is to know when a Collection Agency can begin Arizona Wage Garnishments and Arizona Bank Account Garnishments. In almost all cases, private companies MUST get a judgment before they garnish bank accounts AND before they can garnish earnings. But how do we get to that point?
The usual timeline flows in the following manner:
First, something happens to make you miss a credit card payment. It could be a job loss, or temporary time off for medical reasons. Or it may be much simpler, like you changed banks and the automatic payment feature did not pay right. It may also have to do with the way the Creditors play the game. See Creditor Dirty Tricks.
If you don’t notice the missed payment right away, there will be late fees and an increase in the interest rate. Once these are imposed creditors are very reluctant to change it back. They may “do you a favor” and remove one late fee, but they are probably going to leave the interest rate high. And a higher interest rate means higher minimum payments, making it even harder to be current.
If this goes on long enough and you miss enough payments, the creditor will send you a Charge Off notice. This is a required notice, but it does not actually mean the debt is extinguished. But most people think it does, so most people stop worrying about it at that point.
But not the creditors. They will either continue to attempt to collect on their own or they will sell the debt to a collection agency. They may also keep the debt but hire the agency to do the collections. And the creditors that do the collection on their own use in-house collection departments, but under different names, which makes it very confusing. For Example, Bank of America uses FIA Card Services, a wholly owned subsidiary.
Collections means the harassment will start. The Fair Debt Collection Practices Act puts limits on collections activities; but the Act does not apply to the original creditor. And even when it does apply, it is often violated.
I discuss violations of the Act in another post, so assume it has gotten past the point of collections contacts. At that point, the collector will either file suit on its own, or use an attorney. When the Collector is ready to file suit, it determines which court it should file the case into.
Arizona Justice Courts have jurisdiction over matters where the principal damages total $10,000.00 or less. If the creditor can distinguish interest and costs from the principal, the total damages can actually be much greater than $10,000.00; but for credit card creditors, this is often not possible. If the principal or indistinguishable damages total more than $10,000.00, the creditor must file in an Arizona Superior Court.
There are several important differences in the Courts. A very big one, in my opinion, is that Justices of the Peace do not have any legal training. That’s right, they are not attorneys. They only need to be alive, 18 or older, and have no felonies. And this will give them the authority to make rulings on the admissibility of evidence, consider objections to testimony, and decide non-jury civil and criminal matters.
Another difference is that a business can represent itself in Justice Court, as long as it is an officer or owner of the business. This is good and bad. It means that if your business is sued you do not have to pay an attorney to represent you. But I have also gotten the largest jury verdicts against the unrepresented. So you are probably much better off using an attorney. Plus, when the Plaintiff has to use an attorney, the added expense may make settlement easier.
Justice Courts also have lower filing fees, and take less time to trial so the attorney’s fees are likely to be lower.
If the case is filed into an Arizona Superior Court, and if the damages sought total less than $50,000.00, the court requires arbitration. In some ways, this allows the case to be handled as quickly as a Justice Court case. And just like a Justice Court case, if you are not satisfied with the outcome, your appeal will get a new trial in the Superior Court.
After picking the right jurisdiction, the Collector must also select the right venue. This means that they must file into a court which will have personal jurisdiction over the defendant. The case can be filed into a court in which the the contract was entered, or it can be filed into a court where you or any defendant resides. For Superior Court, the jurisdictional boundaries are the county lines. Justice Courts have more irregular shapes. In Counties with more than one Justice Court, the boundaries of each court wind and twist between each other–a product of politics.
Once the case is filed, it will then be served on the defendant. Service is done by a process server, though sometimes by publication. If the Creditor knows your address, that is where service should take place. But if it cannot find your address, service can be done by publishing notice of suit in a local paper.
Once you are served, you have 20 days to file an Answer the the Complaint. If you do not file, the Creditor can then file an Application for Entry of Default. If you then file an Answer to the Complaint, within ten days of the day the Creditor filed the Application, Default will not enter. If you are late, the Creditor will get a Default. The Creditor will then file a Request for Judgment. (Note: the Plaintiff does not have to use these exact terms, as long as it is clear what they are asking the Court to do. If you get something under a different Title, you should read it carefully to decide what you need to do.) A Default Judgment can be obtained in as little as 36 days. However, it will often take a little longer because the Creditor will not usually file each part immediately when it can; and documents are mailed in.
If you did answer, you will continue with discovery and then to trial or arbitration. This Post is not about that process directly. But if you do continue on, the time to get a Judgment will take about 4 to 8 months.
Once the Creditor has a Judgment, it can then attempt to garnish your wages and bank accounts. Arizona has exemptions for each of these; but only partially.
The exemption for wages is in two parts to determine how much is actually exempt. In the first part, the exemption is for 75% of your disposable earnings. “disposable earnings” means that remaining portion of a debtor’s wages, salary or compensation for his personal services, including bonuses and commissions, or otherwise, and includes payments pursuant to a pension or retirement program or deferred compensation plan, after deducting from such earnings those amounts required by law to be withheld. This is typically your take home pay, though the description does have some differences. In other words, if you are garnished, the Creditor will get 25% of your take home paycheck. But then there is the second part.
The first part is easy. The second part is designed to protect you a little more if you make very little. In the second part of the exemption, the Creditor will not be able to get even 25% of your disposable income if using the next calculation would result in a smaller amount. The calculation asks “the amount by which disposable earnings for that week exceed thirty times the minimum hourly wage prescribed by federal law in effect at the time the earnings are payable.” Right now, federal minimum wage is $7.25. Thirty times that is $217.50. So if your take home pay is $250 a week, then you exceed 30 times minimum wage by $32.50 ($250.00 – $217.50 = $32.50). In this case, the complex calculation is less than the simple one.
But the good news is that you don’t have to do the calculation, your payroll company will.
Bank accounts are protected by an exemption of $300.00. But only one of your accounts gets the exemption. But cash is not exempt at all.
So if you do get sued, do not ignore it. And once they have Judgment, you should start thinking about negotiating the debt, or even filing for bankruptcy.