Being in a feud with a creditor can happen to anyone, even to those who are financially responsible. It may begin from a slightly delayed rental payment or a debtor who suddenly insists that you owe them more than you actually do. Whatever the situation is, being subject to a creditor’s temperamental behavior puts you in a sticky situation in which your assets can be at stake.
Why will your assets be affected? It’s because creditors can seek a court order that would allow them to seize your property to settle your unpaid debt. Some states may allow for the seizure of tangible personal properties like clothing, heirlooms, furniture, and collections, but most creditors would rather opt for real estate, deposit accounts, investments, or paychecks.
As a debtor, being helpless when a creditor threatens to take your assets is the worst possible situation you can find yourself into. Fortunately, state laws exempt certain properties from seizure, but you can do something much better to protect your assets.
Asset Protection Plan
Establishing an asset protection plan is one of your best defenses against creditors. It’s a component of financial planning that safeguards your wealth and limits a creditor’s access to your properties without breaking any law. Ideally, individuals or business entities should start protecting their assets before a liability or claim occurs, because if it’s only done after the aforementioned occurrences, it’s usually already too late for the protection to be effective.
Thus, if you’ve just acquired debt in Utah or any other state, equip yourself with the right plan now to avoid helplessness if an unfavorable circumstance comes your way. If you live in Utah, for instance, you can avail for a powerful asset protection trust. Other methods for safeguarding assets include accounts-receivable financing and family limited partnerships.
Know Your Exempt Properties
Creditors aren’t permitted by law to seize joint properties. These include marital properties like a rented home you and your spouse both pay for and a trust fund you established for your child. The trust fund, in particular, isn’t considered your own property even if you control it, because it’s for the sole benefit of another person (in this case, your child) and not yours.
In the case of the rented home, it can only be exempt if the creditor has claims against one of the spouses only. If the creditor has legal claims against both spouses, the rented home will not be exempt and may be subjected for seizure.
Know Your Vulnerable Properties
You might have assets you never use, like a vacation home, or a car that your friend uses. Those are also vulnerable assets aside from your bank accounts, investments, and real estate. And speaking of investments, a deposit held by a stockbroker may also be seized.
Even if you give away or sell those properties for less than their worth just to evade seizure, it still won’t make you safe; in fact, in may make your situation worse, because your creditor can sue you and your property’s recipient for defrauding them. You might end up paying hefty fines in addition to having your property recaptured.
Other properties that can be seized are those that you’re entitled to but don’t possess yet, such as salaries, commissions, refunds, vacation and severance pay, royalties, inheritances, annuity, and insurance payouts. State law limits how much creditors may seize from those earnings.
Know Your Rights
Another good defense against an aggressive creditor is knowing your rights. That way, you won’t be taken advantage of, and creditors won’t resort to empty threats.
Here’s what your creditors are only allowed to do:
- Call you anytime between 8 AM to 9 PM
- Send letters
- List your debt on your credit report as long as that debt is within the credit reporting limits
- Contact your friends, family, or employer to obtain information about you
Creditors aren’t allowed to use profanity and threats, so don’t be fooled by those lousy tactics. And again, protect your assets because state exemptions can only protect your properties up to a certain value. With a solid plan, creditors cannot abuse you.
