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Alabama Debt Relief: Your Guide to State Laws and Managing Debt
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For those struggling with debt in Alabama, you certainly aren’t alone. Alabama is the nation’s sixth-poorest state, with a median household income of just over $48,000 in 2017, compared to the country’s median income of $60,336, according to a 2017 U.S. Census Bureau report. And Alabama ranks dead last in average credit score, at 653.1, compared to the national average of 704.
The average household in Alabama has $4,960 in auto loan debt, which is the 18th-highest per capita balance in the nation. Alabamans also owe an average of $2,420 in credit card debt, according to a LendingTree analysis of Federal Reserve data (see table below).
If you’re dealing with debt you can’t pay off, the key to relief is understanding the best options to deal with your debt. In this article, we’ll look at Alabama’s laws regarding debt as well as how to best manage your debt, including some state resources.
- Debt in Alabama: At a glance
- Debt collection in Alabama
- Alabama debt-relief programs
- Payday lending laws in Alabama
- Tips to tackle debt in Alabama
- Filing for bankruptcy in Alabama
- The bottom line
Debt in Alabama: At a glance
|Debt in Alabama: At a glance|
|Type||Per capita balance, 2018||Rank out of 50 states (1 is highest)*||U.S. per capita balance|
|Credit card debt||$2,420||46||$3,220|
|Student loan debt||$4,920||36||$5,390|
*No. 1 is highest
**First-lien debt only
Source: Federal Reserve Bank of New York, March 2019
Debt collection in Alabama
Residents of Alabama are covered by the federal Fair Debt Collection Practices Act, which requires debt collectors to tell you upfront who they are and what they are seeking from you. It prohibits debt collectors from engaging in abusive behavior like using profane language or calling you before 8 a.m. or after 9 p.m. The FDCPA also specifies that you can tell creditors to stop calling you and they must comply. It also gives you the option to sue harassing creditors for damages, as well as court costs and attorney’s fees.
Keep in mind, creditors can never seize your property or garnish your wages without a legal judgment, and if you are being sued, you must be sent an official summons according to the laws in your state. If you do receive a summons, contact an attorney right away to help you through the process. Don’t sign anything you are unsure of or commit to any payment plans without speaking to a qualified professional about your options.
The Alabama homestead exemption limit is $4,000 and 160 acres. If you’re 65 or older and you made less than $12,000 last year, or you’re on disability, you are exempt from all of the state portion of the ad valorem taxes (the amount based on the value of the property) and $5,000 of assessed value on the county portion of the ad valorem taxes. Proceeds of life insurance policies are also exempt.
Responding to collection letters
When you receive a letter from a debt collection agency, you have 30 days to seek validation for the debt. Don’t put this off. Once you’ve submitted a debt validation letter, the collection agency then will be required to send proof that you owe the debt, and will be banned from trying to receive payment from you until they provide this.
If you still want to dispute your debt after the 30-day period, you can send a letter refusing to pay it. If the creditor sends another letter, you may wish to seek out an attorney to help you fight it. If a creditor is harassing you, you can send a cease-and-desist letter, ordering it to stop contacting you.
If you feel you’ve been treated unfairly or illegally by a creditor, you can file a complaint with the state.
Understanding Alabama’s statute of limitations
The statute of limitations is the amount of time that a debt collector has to use the legal system to collect a debt from you, by suing you, freezing your assets or garnishing your wages. The clock starts once you miss your first payment, and when the statute of limitations runs out, the debt becomes time-barred and the collector can no longer pursue those options against you.
This is why you should pause before making a payment or making a commitment to make a payment on a very old debt. If the statute of limitations has passed, you can restart the clock by doing so, giving the collections agency another chance to pursue legal action. Be careful when speaking with debt collectors, and don’t make promises by phone.
|Alabama Statute of Limitations on Debt|
|Mortgage debt||6 years|
|Medical debt||6 years|
|Credit card||3 years|
|Auto loan debt||4 years|
|State tax debt||10 years|
Alabama debt-relief programs
Consumer debt can be a major burden for individuals and families, but there are resources in Alabama that can help. In Birmingham, there’s Gateway Finance Freedom, which offers Alabama residents financial counseling on debt solutions, including debt management planning, and credit and bankruptcy counseling. The nonprofit, which calls itself “a judgment-free zone,” offers sliding-scale payment services, and assures that no one will be turned away because he or she can’t pay.
There are national debt relief options as well, including, but not limited to the following:
- National Debt Relief can help you with credit counseling, debt consolidation and debt settlement, and can help negotiate settlements with creditors and collection accounts. It typically charges 20% to 25% of your monthly payment once it reaches a settlement.
- CuraDebt provides debt settlement services and also helps individuals and small businesses with IRS and state tax settlements. It typically charges a 20% fee on your monthly payment once it makes a settlement.
- New Era Debt Solutions, on average, settles consumers’ debt for 43.73% of the enrolled balance, which means the average consumer will see a savings of more than half, before fees.
Payday lending laws in Alabama
Payday loans are quick-turnaround cash loans with very high interest rates. Many payday lenders are generally regarded as predatory, because their sky-high fees and interest rates easily trap their low-income clientele into a debt cycle that’s hard to escape.
Payday lending is big business in Alabama. Between the fall of 2016 and the same time in 2017, Alabamians took out 1.8 million payday loans. Those consumers are twice as likely to become delinquent on credit card payments and end up in bankruptcy within two years, according to the Consumer Federation of America.
There are hundreds of payday loan shops operating in Alabama today. However, Alabama fortunately does have some restrictions in place for payday lending. Below, you’ll find some of the rules and regulations surrounding payday lending in the state:
- Maximum loan amount: $500
- Maximum loan term: Not less than 10 days and not more than 31 days
- Finance charges: May not exceed 17.5% of the amount of the loan
- Interest rate cap: None
The nonprofit Alabama Appleseed Center for Law & Justice estimates that the state’s low-income communities and local economies are losing one billion dollars per decade to payday lenders in fees alone. The group has started a Predatory Lending Project that’s working to advance legislation, including instituting a 36% annual percentage rate (APR) rate cap on payday loans, aimed at curbing these loans’ negative impact on many low-income Alabamians. This law already exists in nearby states like North Carolina and Georgia.
Tips to tackle debt in Alabama
There are multiple ways to make the process of repaying debt easier and cheaper. Most of them rely on finding lower-interest options to repay the debts you have. Here, we’ll talk about debt consolidation, refinancing and balance transfers.
Consolidate your debt
Debt consolidation means you roll one or more unsecured debts into another form of financing, essentially taking a new loan and using it to pay off existing debts. This process can result in fewer bills, lower interest rates and improved credit scores over time.
Keep in mind, though, that consolidation isn’t a cure-all. If you have bad credit, it might not be easy to get a new loan. And if the amount you owe is too much to realistically repay, you could be getting yourself into a bad situation if you find a lender that will let you take out a large loan when you’re not in a position to repay it.
Refinancing your existing home or car loan often allows you to improve the terms by getting a lower interest rate or monthly payment, or replacing an adjustable- or variable-rate loan with a fixed-rate loan.
You can also refinance both federal and private student loans, consolidating them into one monthly payment, through a private lender that offers this service. If you have a higher credit score than when you first applied, you’ll likely get a much lower interest rate, which can save you money long term. But keep in mind, if you want to pursue debt forgiveness on your federal loans, you won’t want to pursue this option, since it can make you ineligible.
Use a balance transfer card
If you have multiple high-interest credit cards, you might be able to save significantly by transferring the balances to a new credit card with a 0% introductory interest rate. These cards have a set term — usually 12 to 21 months — during which you can pay down your debts interest-free. Keep in mind, though, if you can’t pay your debt down within that term, the interest rates that follow might be even higher than what you are paying now. This is a good option if you have a solid credit score to be eligible and a plan in place to pay a significant amount down in the short term.
Alabama debt relief or debt settlement
A debt relief or debt settlement company can potentially help you negotiate better rates on your various debts and roll them into one monthly payment. These companies charge a fee, but might be able to negotiate your balances down as well, so it might be worth it to have an expert on your side if your debts are overwhelming but you don’t want to file for bankruptcy.
Keep an eye out for companies that require payment for services upfront or offer a 100% guarantee that they can have your debt forgiven or derogatory items removed from your credit history. These could be signs you’re dealing with a scam.
Filing for bankruptcy in Alabama
In 2017, an average of 60,000 Americans a month filed for personal bankruptcy. The most common types of bankruptcy that individuals file are Chapter 7, in which the debtor’s assets are liquidated or sold to pay off creditors to wipe the slate clean, and Chapter 13, which typically allows the debtor to keep his or her property and work out a plan to repay creditors.
Chapter 13 bankruptcy requires that you earn a steady income, and have the ability to repay your debts in three to five years. Chapter 7 bankruptcy is an option if it’s determined that you don’t have the means to repay your debts.
Bankruptcy stays on your credit report for seven to 10 years, which can hurt your credit score and make it harder or more costly to get loans, including a car note or mortgage. Before you decide to file for bankruptcy, talk to a lawyer. You can find see if you qualify for free legal aid at Legal Services Alabama.
The bottom line
Excessive debt is a heavy burden to bear, and the pressure can be immense. But know that you are not alone — many Americans and Alabama residents struggle under the same weight. As this article shows, often you have more options than you think you do.