How Can I Protect My Property from Creditors?
Owing money does not mean that debt collectors can take your property. They may say if you don't pay them, they will take steps to garnish wages or take property. However, neither of those things can happen unless the creditor sues you in court, and wins. If that happens, the creditor has a "judgment" against you.
What if there is a judgment against me?
Even after there is a judgment against you, the law protects some income and property. The property that is protected is called "exempt." There are a number of exemptions that are very important. For example, payments from Social Security, or the VA, are beyond the reach of creditors. So are child support payments, and pensions. Wages are protected to some degree.
When money is placed in a bank account, it keeps its exempt status for about three months. However, there is a $1,000 exemption that can be claimed for a bank account, or for other property that might not otherwise be protected. The $1,000 exemption could also be used along with another exemption. For example, a car worth $7,000 or less is exempt. If a car is worth $8,000, the additional $1,000 could be used to protect the car.
So, I don't have to worry if the property is exempt, right?
The creditor may not know that money in the bank or a car is exempt. A creditor may try to collect the judgment by having the sheriff take property. For example, the creditor may have a bank account garnished. This is usually done by freezing the account for a period of time. If the money (or part of it) is exempt, the owner of the account can file a paper with the court, asking for the garnishment to be stopped ("quashed"). The court will set a hearing time, where each side can be heard. Then the judge will make a decision.
In the meantime, checks may be bouncing. Or, the money needed for the rent is not available. The attempt to collect on the judgment can cause a lot of pain, even if the judge agrees the property is exempt, and it eventually is given back.
Is there a way to stop this before it starts?
If the creditor knows the money, car, or other property is exempt, the creditor should not try to take it. In order to be able to prove the creditor knew the item was exempt, notice should be given in writing. The notice should be sent to the clerk of court, to be filed in the court file for the case. A copy of the notice should go to the sheriff as well. A copy should also go to the creditor. Notifying the creditor may be enough to prevent the attempt to take the item. If the creditor tries to take it anyway, the owner of the item is in a better position to get it back quickly. In a situation like this, the owner may want to consult an attorney. Low-income Iowans and seniors can call Iowa Legal Aid at 1-800-532-1275.
Special Action May be Needed for Cars
A creditor may try to collect on a judgment by putting a "lien" on a car or other vehicle. If that happens, the sheriff will serve papers on the owner. The sheriff may say the title needs to be given to the sheriff. It is important to look at these papers, and find the page that says "Request for Hearing." That page needs to be filled out (if it is not already filled out) and taken to the clerk of court within 10 days.
Filing the Request for Hearing with the court will allow the owner to claim the car is exempt. Again, if its value is $7,000 or less, it is exempt. The owner can also use the $1,000 exemption to essentially make a car worth $8,000 or less exempt.
If the owner does nothing, the sheriff may put a notation on the title. If the owner then tries to sell the car, the notation could be a problem, even if the car is exempt. Likewise, if the car is in an accident, and is totaled, the insurance company may not want to pay the full value of the car to the owner until the notation of the lien is cleared up. It may still be possible to strip the lien from the title. An owner in this situation should talk to a lawyer. However, if the car is exempt, the owner should claim the exemption when the sheriff serves the papers, to prevent problems later on.