Picking the State You Live in Based on Debt Collection Protection

“Hello Michael, I would love to get some info on being sued in a state where you don’t live. I am close to the point where I stop paying my credit cards and wait out the 5-6 month to try to get a settlement. The total credit debt is 100K (some business cards some personal). We have moved a lot for work reasons so we were in Tennessee, then Oregon, then most recently California for the last 1.5 years. Now we just moved back to Tennessee a month ago. If I get sued, could there be complications about what state the lawsuit comes from? Is that an advantage or disadvantage that we moved back to Tennessee? Thanks for any info you can share!”

Some states have consumer protection laws that can indeed be more friendly than others. When it comes to having a shorter time frame to legitimately sue you in court for collection, and what a collection judgment might mean to you afterward, I would rather be in California than Tennessee or Oregon.

The Tennessee statute of limitations to file a legitimate debt collection lawsuit is 6 years for credit cards. And it is the risk of being sued that should motivate anyone trying to settle debt to be as quick about it as possible. As someone who works in the space, I have generally limited the scope of a debt settlement plan to 2 years if stretching it, and ideally under 12 months whenever possible. I am not a big fan of trying to take too long to settle debts because the longer your accounts remain unpaid (a must if you hope to later negotiate a good lump sum pay off), the more the debt deck can become stacked against you.

Tennessee consumer protections from a credit card judgment creditor

75% of your wages are protected from judgment creditors. There is an additional tiny amount that is exempt weekly for each child in the household under 16. It is enough to buy milk at school… for a day or two. What the crap is that Tennessee? You wanted to be two dollars and fifty cents ahead of 21 states offering the base federal protections?

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Your home equity protection from a creditor with a judgment will run between $5,000.00 and $25,000.00. The variation will be due your age, whether you are married, and how many dependents you have.

There is a shared $10,000 dollar exemption for your vehicle, your household goods, and cash in your bank account. This could mean if you had no other stuff but a car worth $9,500.00 and $500.00 in your bank account, you are protected. But you do not want to be there fighting for your $500 back if it came to it.

If you had your pick of states to choose from to avoid debt collection, California is better than Tennessee and Oregon; with an established 4 year SOL to legitimately sue; and a brand new Fair Debt Buyer Protection Act. Too bad you could not head a bit further east into North Carolina where wage garnishment is not allowed at all!

All kidding aside, any serious discussion about settling debt should be set beside the costs and impacts of bankruptcy, and even other alternatives. You may want to check out some of my critical reports about settling debt before progressing to much further.

Assume for a minute that your $100,000.00 in credit cards can be settled for 40% or $40,000.00. Assess your capabilities to come up with the 40k you need in a 6, 12, and 18 month period of time.

Compare that to the national average cost of a chapter 7 bankruptcy of $1,800.00 and what can be a 3 month process. When you do the math you really should have some strong incentives to avoid chapter 7. The most reasonable of which is that you cannot qualify based on your states means test, which for Tennessee is just under 50k a year for a 2 person household. There may also be issues with the forced liquidation of nonexempt property in a chapter 7, where that same stuff could be sold and the proceeds used to settle debt. But even here the math on non exempt property will need to be tens of thousands of dollars for a dollars and cents argument on avoiding bankruptcy to hold water.

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Litigation risks are real. The best way to eliminate those risks are with bankruptcy or settling debts as quick as possible.

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