Creditor Threats - Are They for Real?
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Health problems, job loss, the death of a spouse and other events can make it hard to pay your bills. Creditors and debt collectors may contact you and threaten to take your income and property. You should know that federal and Iowa laws protect certain property from being taken by most of your creditors.
Most creditors cannot generally take your property without first filing a lawsuit and getting a judgment against you. (Note that creditors who make loans secured by property like your car or motor home can sometimes take back the secured property without first suing or getting a judgment.) If a creditor sues you and gets a judgment, Iowa and federal laws allow you to keep certain kinds of "exempt" property. Exempt property includes:
- your home,
- household goods and clothes worth up to $7,000,
- most wedding and engagement rings,
- other jewelry worth up to $2,000,
- burial plots,
- certain interests in insurance policies and benefits,
- health aids prescribed by a doctor,
- one motor vehicle up to $7,000,
- farm equipment or tools of a trade up to $10,000,
- rental and utility deposits up to $500,
- most pension and retirement plans such as IRA's and 401(k)s, and
- cash on hand or other personal property up to $1,000.
Special Kinds of Income
Certain types of income are also exempt from collection by most creditors. These generally include social security benefits, unemployment compensation, public assistance benefits, veteran's benefits, disability or illness benefits, alimony or support payments that are needed for support, and pensions. An important exception is that a portion of your social security benefits may be garnished if you owe back child support or money to the federal government.
Except for income tax and child support debts, creditors are limited in the amount they can take or "garnish" from your wages. There are two limitations. The first limits the amount that can be garnished each year. This amount depends on your income. If your income is less than $12,000 in a calendar year, a creditor with a judgment cannot garnish more than $250. The second limitation is on the amount that can be garnished each pay period. The amount of wages protected by this limitation depends upon whether your debt is consumer debt (for example, credit cards and car loans) or non-consumer debt (for example, business loans). For consumer debt, you are allowed to keep at least $290 per week. For non-consumer debt, you are allowed to keep at least $217.50 per week.
There are also limits on the amount of money in a bank account that can be garnished. First, if a creditor could not garnish your money before you deposited it into the bank account, they generally cannot garnish it after it is deposited. Generally, these funds are protected for at least ninety days after you deposit them. In addition, you are allowed to keep up to $1,000 in cash or bank deposits.
*This is a general summary of exempt income and property rules. There are other rules and exceptions that may apply. For more information, you can call your local Iowa Legal Aid office.
Iowa Legal Aid provides help to low-income Iowans.
To apply for help from Iowa Legal Aid:
- Call 800-532-1275.
- Iowans age 60 and over, call 800-992-8161.
- Apply online at iowalegalaid.org
If Iowa Legal Aid cannot help, look for an attorney on “Find A Lawyer.” A private attorney there can talk with you for a fee of $25 for 30 minutes of legal advice.
*As you read this information, remember this article is not a substitute for legal advice.