Mortgage debts are secured debts. What happens if you stop making mortgage payments? Does the lender have the legal right to garnish your wages?
Collecting Secured Debt Payments
Mortgage lenders have a variety of techniques they can use to pursue debt repayments: reporting the late payments to the credit bureaus, calling you at home and at work, sending payment notices, foreclosing on your home.
If you repeatedly ignore your lender’s efforts to collect the mortgage payment and you do not pay your mortgage payments, ultimately the lender will foreclose on the property and sell the house, generally at auction.
What if the sale of the home does not cover the debt?
So what if the mortgage company forecloses on the property and sells the home, but the amount of the sell price does not cover the remaining balance of the loan? This is called a mortgage deficiency and the original homeowner is responsible for this deficiency. What is the difference between a mortgage deficiency and the original mortgage? The mortgage deficiency is unsecured debt.
Wage garnishment of unsecured debts
Mortgage companies may decide to pursue the mortgage deficiency through a wage garnishment, but this can only be done with a wage garnishment order from the court.
How does the lender obtain a wage garnishment order? They will have to win a lawsuit against the debtor and be granted an order by the court. If the court grants the wage garnishment order, the order is sent to the debtor’s employer and the employer is required by law to send a portion of the debtor’s wages to the creditor until the debt is paid.
Do all states allow wage garnishments for unsecured debt?
No, state laws vary in regards to wage garnishments. Debtors who live in South Carolina or Texas, for instance, cannot have their wages garnished for unsecured debts. Other states do not allow mortgage companies to pursue mortgage deficiencies through wage garnishments. Exceptions for wage garnishments exist in these states for federal taxes, child support and spousal support payments.
Keep in mind, wage garnishment amounts are restricted by laws. Generally, no more than 25 percent of a worker’s take-home pay can be garnished, although states may establish their own wage garnishment guidelines.
Hiring a Bankruptcy Lawyer
Some debtors may be able to file bankruptcy without the help of a bankruptcy lawyer, but most debtors will need legal assistance. Debtors who have outstanding debts may be able to discharge them by filing Chapter 7 Bankruptcy. Chapter 7 Bankruptcy is the simplest and fastest way to discharge unsecured debts.
Debtors who do not qualify to file Chapter 7 Bankruptcy may restructure their debt payments and create a 3 to 5 year debt repayment plan. Filing Chapter 17 Bankruptcy will not immediately discharge debts, but debts included in the bankruptcy repayment plan may be discharge, assuming the debtor completes the plan within 3 to 5 years.
Filing bankruptcy is a serious financial decision with long-term financial consequences. Bankruptcy may remain on a credit report for up to 10 years. Talk to a bankruptcy lawyer for more information.
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