Indiana Debt Relief: Your Guide to State Laws and Managing Debt
Although Indiana ranks in the bottom 20% of all states when it comes to credit card and mortgage debts, that doesn’t mean it’s easy going for everyone. According to a 2019 National Foundation for Credit Counseling survey, 25% of U.S. adults said they do not pay their bills on time, and more than half of them are struggling to minimize debt.
Hoosiers who are struggling with debt have options. Indiana debt relief is possible, and there are state laws in place to protect you as a consumer, if you are dealing with debt collectors. For those in difficult financial circumstances, county agencies can help as well. Read on to learn more about Indiana debt consolidation, your rights as a consumer, bankruptcy options and how to tackle debt.
- Debt in Indiana: At a glance
- Debt collection in Indiana
- Indiana debt relief programs
- Payday lending laws in Indiana
- Tips to tackle debt in Indiana
- Filing for bankruptcy in Indiana
- The bottom line
Debt in Indiana: At a glance
|Type||Per capita balance, 2018||Rank out of 50 states*||U.S. per capita balance|
|Credit card debt||$2,570||42||$3,220|
|Student loan debt||$5,300||25||$5,390|
|*No. 1 is highest
**First-lien debt only
Source: Federal Reserve Bank of New York, March 2019
Debt collection in Indiana
A debt collector is a person or company who collects debt owed to others. Some companies have their own employees who contact customers regarding past-due accounts. Others buy debt from other companies and attempt to collect those debts, making a profit when the debts are paid.
When it comes to debt collection practices, Indiana, like all other states, falls under the federal Fair Debt Collection Practices Act (FDCPA). This law limits what debt collectors can do and specifies what debt collectors are required to tell consumers. The FDCPA specifies that debt collectors must:
- Only contact you between 8 a.m. and 9 p.m.
- Not contact you at work, if you’ve told them not to contact you there
- Treat you respectfully and not harass or threaten you
- Communicate with your attorney, if you have asked them to do so
- Honor your written request to stop contacting you
Indiana consumers are entitled to take legal action if debt collectors don’t act in accordance with the FDCPA. Depending on the violation, a court could award damages of up to $1,000.
Furthermore, according to Indiana law, debt collectors must:
- Disclose that they are a debt collector
- Disclose the name of the original creditor during their initial contact
- Disclose when the debt was sold, if you are dealing with a third-party debt collector
- Send a written notice within five days of their first contact that includes:
- The total amount due
- The amount of interest that has been added since the debt was sold
- The total charges that have been added since the debt was sold
- The amount of payments that have been received from the debtor (the person who owes the debt)
- Communicate in a way that can reasonably be understood
Responding to collection letters
When it comes to collection letters, it can be tempting to take a “head in the sand” approach to the problem and ignore the debt. This could make things worse, though. If you ignore collection letters, debt collectors will continue to contact you, and some debt collectors may file a lawsuit against you if you don’t respond, which can be expensive and stressful. Set aside a time soon after you receive the letter to take a few deep breaths and carefully review the contents. Look for the name of the original creditor, the amount of the debt and when the debt occurred. Check to see if there is a time frame for you to respond. For example, in some situations, you may have 30 days to answer the collection letter.
Based on the contents of the letter, decide on how you would like to respond. You could:
- Inform the collection agency the debt is not yours, if applicable
- Explain how you would like to communicate, such as in writing or through an attorney you could end up paying even more than you would have before.
- Ask for more information about the debt
Requesting more information about the debt is also referred to as debt validation. If your debt has been sold to a debt collector, the debt collector must tell you who the original creditor was, the name and address of the original creditor and how much you owe. You have to request verification in writing within 30 days of receiving your first correspondence from the creditor. Even if you are sure the debt is yours, requesting verification from a debt collector confirms that the debt collector is legitimate, so it’s a good first step to take when dealing with debt.
The CFPB has sample letters for you to use to respond to collection notices and request verification, and they caution consumers to keep copies of any letters you send.
If you have a complaint regarding collection practices, you can contact the CFPB at 1-855-411-2372. You can also contact the Indiana Secretary of State, Collection Division, at 317-232-6576.
Understanding your state’s statute of limitations
Indiana’s statute of limitations refers to the amount of time a creditor has to file a lawsuit to collect a debt. If the statute of limitations elapses, that doesn’t mean you no longer owe the money. However, you may want to be careful about how you approach debt that may be past the statute of limitations (sometimes referred to as time-barred debt).
For example, if you promise to pay in writing but you discover the debt is past the statute of limitations, that promise will restart the clock on your debt and your creditor would have another six years to file a lawsuit. In Indiana, the statute of limitations starts on the date of the last action on the account, such as a purchase on a credit card.
If you suspect you are being contacted about a debt that is past the statute of limitations, ask the debt collector whether the debt is time-barred. If the debt collector knows that answer, they must answer truthfully. They could also decline to answer, though, in which case you should contact an attorney or credit counselor to decide how to move forward.
Most Indiana debt has a six-year statute of limitations, with the exception of auto loan debt (four years) and state tax debt (10 years).
|Indiana Statute of Limitations on Debt|
|Mortgage debt||6 years|
|Medical debt||6 years|
|Credit card||6 years|
|Auto loan debt||4 years|
|State tax debt||10 years|
Indiana debt-relief programs
Hoosiers don’t have to deal with debt on their own. There are local, state and national programs available that provide Indiana debt relief and financial advice. Some helpful organizations include:
- Indiana Community Action Agencies: These agencies provide a variety of relief programs in every county in the state, including energy assistance and homeownership counseling. You can find your local community action agency through the website.
- Indiana Foreclosure Prevention Network: This program provides up to $30,000 in assistance to Indiana homeowners facing foreclosure due to involuntary loss of employment or a reduction in income. You can apply through the program’s website.
- National Foundation for Credit Counseling: The NFCC is a nonprofit that provides counseling about credit and debt reduction. You can find an Indiana credit and debt counselor by requesting an appointment through its website.
- The Indiana Attorney General: The attorney general handles consumer complaints. Although you should direct complaints regarding debt collection agencies to the Indiana Secretary of State at 317-232-6576, you can file any other consumer complaints online.
Several national debt relief companies also work with Indiana residents. For example, National Debt Relief specializes in debt settlement and debt relief, and it is a member of the Better Business Bureau with an A+ rating. CuraDebt offers debt settlement services and a free initial consultation.
Payday lending laws in Indiana
Payday loans are short-term loans with high interest rates. Many payday lenders allow you to “renew” the loan, which means you can roll the amount you owe into a new loan. In Indiana, you can roll it over four times before you are required to pay it in full. Payday lenders are required to offer an installment plan when you take out your third loan. The maximum loan amount you can receive is 20% of your monthly gross (pretax) income, up to $550.
- Maximum loan amount: $550
- Maximum loan term: Minimum loan term of 14 days; a borrower can receive five consecutive loans, and then the loan amount must be paid in full
- Finance charges: The finance charges are limited to 15% on the first $250, 13% on the next $150 ($251-$400), 10% on the next $150 ($401-$550)
There are efforts underway in the Indiana legislature to raise the amount you can receive as a payday loan, but higher loan amounts would also mean higher interest paid. Although a payday loan can be tempting, especially if you have less-than-perfect credit, we don’t recommend them because you’re essentially borrowing from future earnings, which means you will have less money on hand to pay your bills. If you come up short, you may end up taking out another payday loan due to cover the costs of the last payday loan, and it ends up being an endless cycle of debt that’s difficult to overcome.
Tips to tackle debt in Indiana
When it comes to dealing with Indiana debt relief, the best strategy is to face it head-on. Gather your billing statements, any collection letters you have, your pay stubs and your bank account statements. Look at your debt, the interest rate on each type of debt you have and your income and spending, and then formulate a plan.
Here are a few strategies you can use to pay off your debt sooner rather than later:
Consolidate your debt
Debt consolidation is a strategy that takes multiple debts, such as personal loans, medical debt and credit card debt, and rolls them into one manageable loan. Rather than dealing with multiple billing statements, interest rates and due dates, you have a single payment to focus on.
There are multiple financial products you can use to consolidate debt. Personal loans are an option for those with relatively good credit and a good debt-to-income (DTI) ratio, which is the ratio of your debt payments to your income.
Home equity loans are another option for homeowners who have built up equity in their homes — equity in this case referring to the amount of your home that you actually own. For example, if you owe $100,000 on your home, but your home’s value is $125,000, you have $25,000 in equity on your home. Either a portion of that or the total difference could be used for a home equity loan.
Regardless of the product you choose, you would use your new loan to pay off your debt, then focus on paying down the new loan. Debt consolidation in Indiana is helpful if you have a good credit rating and can qualify for a loan that offers a lower interest rate than your debt. It may be less helpful for debt that already has a low interest rate or if you can’t afford the monthly payments on a consolidation loan.
When you refinance, you replace one loan for another one with hopefully better terms. Although most types of debt can be refinanced, including student loans, this method is most commonly used for mortgages and auto loans. When you are refinancing to lower debt, you should look for a loan with:
- A lower interest rate
- A different term that is a better fit for your financial situation
- A cash-out option, where you can use the cash you receive to pay off other debt, such as credit cards
Refinancing is best for those who can qualify for a new loan with better terms. If your financial situation is worse now than it was when you got the original loan, refinancing may not be the best option. If you are thinking about refinancing a student loan, look at the terms carefully. Private student loans may not have the same protections in place that you have with federal student loans. For example, federal student loans offer income-based repayment plans, and they will typically work with you if you are experiencing financial difficulties. Private student loans may not offer that flexibility.
If you’re considering a refinance, you should check with multiple lenders and carefully compare the terms, choosing one that improves your financial situation.
Use a balance transfer card
Indiana residents with a significant amount of credit card debt may want to consider carefully using balance transfer credit cards. This option is best for those with good to excellent credit, as you need to qualify for one or more new cards with better terms than your current credit cards.
A balance transfer credit card should have low balance transfer fees and a low annual percentage rate (APR) or low introductory APR, such as 0%.
The key to using balance transfer cards successfully is discipline. If you can’t pay off your new balance before the promotional rate expires, you could end up paying even more than you would have before. You also have to be diligent about making on-time payments, as some card issuers will penalize you if you’re late or go beyond the low-interest introductory period by raising the APR.
Additionally, once you transfer a balance, you shouldn’t use the old cards again, as that defeats the purpose of transferring the balance. You should also only use the balance transfer card for the transfer, and not for purchases. Set up automatic payments for the new card, hide or cut up the old cards (but don’t cancel them, as that could negatively affect your credit) and get a handle on your credit card debt.
Talking to creditors may not seem like the most fun way to spend your time, but it can pay off significantly. Before you negotiate, give careful consideration to how much you can afford to pay, either monthly or in a lump sum. In some cases, the lender may be willing to accept less than you owe, if you can pay it in a lump sum. You never know, unless you ask.
Pay close attention to the Indiana statute of limitations if your debt is older. Keep track of the details of your conversations and confirm that the creditor does what it says it’s going to do. For example, if it agrees to report the debt as settled on your credit report, check your credit report to confirm it’s reported as agreed.
Work with a credit counselor
A local debt or credit counselor can help you decide which approach to take with your debt. Dealing with debt can be emotional and overwhelming. A counselor can help you formulate a plan to address your financial life as a whole, including learning to budget so you don’t get overwhelmed with debt in the future.
They also may be able to enroll you in a debt management plan, which is a payment plan administered through your credit counseling service. You deposit funds with the counseling agency, and they send all the funds to your creditors. The counseling agency will work with your creditors, who may be willing to waive or reduce finance charges and fees because you are working with a credit counselor. Look for a counselor associated with a nonprofit organization, such as the NFCC.
Filing for bankruptcy in Indiana
Another option for Indiana debt relief is filing for bankruptcy. Obviously, this isn’t a decision that should be taken lightly, but for some, it could be the right move. Bankruptcy is a lengthy legal proceeding that will negatively affect your credit for at least a few years.
There are typically two types of bankruptcy filings for individuals. Chapter 7 bankruptcy gives you a clean slate when it comes to most of your debt. Your assets are liquidated or sold and your debt is discharged. To qualify for Chapter 7, you must pass a means test, which looks at your financial information. Chapter 13 is the other type of bankruptcy commonly used by consumers. With Chapter 13 bankruptcy, you develop a repayment plan to pay off all or a part of your debt.
If you have explored other options such as refinancing and negotiating your debt without success, it may be time to consider bankruptcy. An approved Indiana counselor can help you decide whether bankruptcy is right for you, and it is also a requirement for filing. You can find an approved counselor in the state through the U.S. Department of Justice website. If you move forward with filing, you should also look for an experienced attorney. If you don’t have the means to pay for an attorney, the nonprofit law firm Indiana Legal Services may be able to assist you.
Filing for bankruptcy isn’t the end of the world, financially speaking. In fact, a LendingTree study found that 65% of those who had filed for bankruptcy had a credit score above 640 within two years of filing, which means you can qualify for loans and other financial products.
The bottom line
Indiana debt relief is possible. It takes time, discipline and persistence, but you don’t have to go through it alone. Talk to a credit counselor, review your finances and stick to your debt repayment plan or other options that make the most sense for you. Your situation will get better; it just takes time.
The information in this article is accurate as of the date of publishing.