July 24, 2017

How Debts are Collected in North Carolina

You may know that North Carolina law allows judgment creditors to collect judgments owed to them in certain ways and under certain circumstances, and that these laws vary from state to state. You may also know that North Carolina does not allow wage garnishment for consumer debts (credit cards, auto loans, mortgages, and the like) or for many private business debts (money owed to vendors, banks, the SBA, and the like). N.C.G.S. § 1‑362. The North Carolina Department of Labor sums things up nicely here.

So, while a North Carolina employer cannot withhold wages to pay to a credit card company with a judgment the employee, once an individual’s wages are deposited in a bank account, they may lose their protection.

Why?

The process of collecting on a judgement in North Carolina

Under North Carolina law, the process of collecting on a judgment against an individual includes the judgment creditor sending to the judgment debtor a Notice of Right to Designate Exempt Property.

The judgment debtor has only 20 days to serve and file a response. If the judgment debtor does not respond, then the judgment debtor’s exemptions are waived (including the exemption of wages earned within the past 60 days and reasonably necessary for the use of a family supported by the labor). Further, judgment creditors can and do repeatedly send these Notices, hoping that at some point, the judgment debtor will trip up and fail to timely respond – thus waiving the exemption.

How bankruptcy works when dealing with judgment creditors

If filed timely, a bankruptcy can revive exemptions and provide a mechanism for the return to the judgment debtor of wages taken from a bank account to satisfy a judgment. This law can be very complex and is always both fact specific and subject to strict timing rules.

Bottom line, both North Carolina debtors and creditors would be wise to obtain counsel from an attorney with experience in bankruptcy and collections law.