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Rhode Island Debt Relief: Your Guide to State Laws and Managing Debt
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Rhode Island is the smallest state in size in the United States and, with its historical mansions and modern development, it’s a beautiful place to visit. But is it a great place to live and manage your finances?
Let’s crunch the numbers. When it comes to income, Rhode Island residents made a median $61,043 in 2017. Their per capita credit card debt load in 2018 at $3,360 was similar to per-person U.S. credit card debt of $3,220 (see the chart below for a Rhode Island breakdown of other types of debt, such as auto, student loan and mortgage). The state also has relatively low unemployment at 3.8%, as of March 2019.
The numbers look good, but unfortunately, things can happen in life and, whether because of a job loss or an unexpected expense, sometimes bills can’t or don’t get paid. This article shows Rhode Islanders what you can do to get out of debt, what to do when debt collectors come calling and how to file for bankruptcy as a last resort.
- Debt in Rhode Island: At a glance
- Debt collection in Rhode Island
- Rhode Island debt relief programs
- Payday lending laws in Rhode Island
- Tips to tackle debt in Rhode Island
- Filing for bankruptcy in Rhode Island
- The bottom line
Debt in Rhode Island: At a glance
|Rhode Island debt|
|Type||Per capita balance, 2018||Rank out of 50 states*||U.S. per capita balance|
|Credit card debt||$3,360||15||$3,220|
|Student loan debt||$5,390||22||$5,390|
|*No. 1 is highest
**First-lien debt only
Source: Federal Reserve Bank of New York, March 2019
Debt collection in Rhode Island
Debt collectors can’t just do what they want to get the money you owe them. Instead, they must follow the Fair Debt Collection Practices Act (FDCPA), which outlines the legal, and illegal, methods of collecting debts. Each state can add laws specific to their state, so it’s important to look at the federal act for guidance, but to check the Rhode Island Fair Debt Collection Practices Act as well. Some of the federal laws include:
- How to reach you: Debt collectors need to reach you to discuss payment options, but they must follow certain guidelines. If you have an attorney, they must contact the attorney, if they have that information.
- When to contact you: Debt collectors cannot contact you at a time that is inconvenient or unusual for you. If they are not aware of what those times are, the debt collector is obligated by law to only call between 8 a.m. and 9 p.m. local time.
- When to cease contact: If you refuse to pay the debt in question or you want the debt collector to stop contacting you, you must notify them in writing and they must oblige. However, they are allowed to communicate with you to tell you they will not communicate with you any further or that they are going to invoke a specified and ordinary collection remedy.
- No harassment: Sometimes, debt collectors harass consumers in order to obtain their money. This is illegal. They are not allowed to threaten you verbally or physically or use any other means of threats, use obscene language or profanity or advertise the sale of any debt to coerce payment. If your phone is ringing off the hook and you know it’s the debt collector, that is harassment, too.
- Transparency: By law, a debt collector must identify itself when calling.
- How to collect debt: Let’s say you owe $1,000 to a credit card company. The debt collector must collect that money in a fair, legal way and is not allowed to tack on unnecessary charges, threaten to deposit a postdated check before the date agreed upon, or have your name published in a newspaper.
Responding to collection letters
Hurdles emerge in everyone’s life, and perhaps because of a job layoff or an unexpected expense, a bill may not get paid. The bill gets away from you, and before you know it, it is sent to a debt collector. You receive a letter in the mail from the collector, but what do you do?
- Don’t ignore it: According to the Consumer Financial Protection Bureau (CFPB), you may only have 30 days to respond to a debt collection letter before the collection agency takes any next steps in trying to collect. Even if 30 days have passed, you should still reach out to them. The CFPB has sample letters you can use to respond.
- Get it in writing: If the agency calls you, make sure you get what they are saying in writing with a debt verification letter. There are many debt collection scams, and getting the debt verified in writing can help to ensure that the collector and the debt are legit.
Filing a Complaint
Not all debt collection companies follow legal collection practices. If a collector is breaking any laws of the state rules above or the federal Fair Debt Collection Practices Act, you can take steps to protect yourself. You can report the debt collection agency to:
- The Rhode Island Attorney General’s Office, which provides consumer protection services.
- The Federal Trade Commission (FTC): online via Complaint Assistant or call 877-FTC-HELP.
- The CFPB: submit your complaint online. This bureau looks into the complaint, contacts the company and publishes the subject and date of the complaint on their public Consumer Complaint Database. It is done with your permission and with personal information removed.
Take Them to Court
If a debt collection agency has broken a law, you have the right to sue it in a state or federal court within one year of the date the law was violated.
Understanding Rhode Island’s statute of limitations
Every state has a specific period of time — otherwise known as the statute of limitations — during which a creditor can file a lawsuit to collect a debt. This statute will vary, depending on the type of debt owed (mortgage, auto loan, etc.) and the laws of your particular state. For Rhode Island, the statute of limitations is between three and 10 years, depending on the type of debt.
|Rhode Island Statute of Limitations on Debt|
|Mortgage debt||10 years|
|Medical debt||10 years|
|Credit card||10 years|
|Auto loan debt||4 years|
|State tax debt||3 years through writ, or 6 years through a property lien|
Knowing the statute of limitations on your debt is important so that you know if a debt collector still has a legal right to sue you although they can still try to otherwise pursue the debt. If you are sued, check the statute of limitations for Rhode Island (above) and do not agree to a payment arrangement either verbally or in writing until you know if it has expired. If it has, either consult an attorney or show up in court and let them know if it has.
Rhode Island debt relief programs
If you’re saddled with debt that you can’t handle and want to conquer, you might be interested in using a debt relief program. There are state-based organizations that can help you. Rhode Island, for example, has Capital Good Fund, a non-profit financial institution that helps people in the state fix their finances with small loans and personal finance coaching.
There are also national debt relief companies and services that can help you. For example, National Debt Relief, CuraDebt, and New Era Debt Solutions settle debt for consumers. but be cautious about any firm that promises to relieve your debt or improve your credit or requires any upfront service charges.
Payday lending laws in Rhode Island
Sometimes, when money gets tight and bills and day-to-day expenses are piling up, you need money — fast. Many consumers turn to quick payday loans to help cover costs until the next paycheck comes in. Payday loans are typically required to be repaid by your next pay cycle, but many borrowers end up extending loans for many weeks afterward, adding lots of fees to their original balance in the process.
In Rhode Island, the annual percentage rate (APR) on payday loans can top 260%, making it one of the least restrictive states in the country. That being said, there are a few protections in place for consumers looking to borrow these short-term loans:
- Maximum loan amount: $500
- Maximum loan term: No maximum term
- Finance charges: The payday loan company cannot charge check-cashing fees in excess of 3% of the face amount of the check, or $5, whichever is greater, for public assistance or federal checks. They cannot charge personal check-cashing fees in excess of 10% of the face amount of the personal check or $5, whichever is greater. Finally, for all other checks, the limit is 5% of the face amount of the check, or $5, whichever is greater.
Although Rhode Island permits payday lending, Gov. Gina Raimondo declared a plan to rein in predatory payday lenders after the Rhode Island Advisory Committee to the U.S. Commission on Civil Rights listened to testimony on payday loans in April 2018. Based on this briefing, the state is currently examining a change to the interest rate to cap it at a 36% APR.
Payday loans aren’t recommended, except as a true last-ditch resort. There are many better alternatives to payday loans instead, even if you have poor credit.
Tips to tackle debt in Rhode Island
Forget the overpriced payday loans. There are several other ways to tackle burdensome debt, including debt consolidation, refinancing and balance transfers.
Consolidate your debt
If you have multiple debts to manage, consolidating your debt into one payment with a debt consolidation loan can help you to keep track of your finances and might lead to paying off your debts faster. With a consolidation loan, you use the new loan to pay off your debts and you’re left with one fixed-rate, fixed-term loan to manage.
Depending on the interest rate and your creditworthiness, you could also save money. Here are some things to consider:
- Credit score: Some personal loans require that you have a “good or better” credit score to be approved.
- Fees: Some personal loans charge origination fees, late fees or prepayment penalties. Make sure you read the fine print and know all of your terms before you sign on the dotted line.
- Rates: Ideally, you want to find a loan that offers a lower rate than the debts you are consolidating. To be sure you’re getting the best deal, compare multiple offers from lenders. A good place to start with is your local credit union before researching options from online lenders.
Use a balance transfer card
A balance transfer moves your higher interest debts to a credit card that has a lower APR. Some balance transfer cards have a 0% introductory rate, typically for 12 to 21 months, giving you time to pay off your debt without incurring additional interest charges.
A balance transfer isn’t the right solution for everyone, though. Be sure to check the terms and conditions of the card offer for more details. Here are some important factors to consider:
- Fees: Most card issuers charge a balance transfer fee. An issuer may charge a 3 to 5% fee on the amount you are transferring.
- Make sure you can pay: Can’t pay the debt before the introductory rate expires? You may get hit with deferred interest charges, which can set you right back at square one. Also, once the promotional period ends, a regular APR will begin to apply.
Debt avalanche or snowball methods
You’ve tried chipping away at your debt — a few extra dollars on one card and a few on another — but you’re not making any progress. Perhaps you’re going about it the wrong way. Even a few extra bucks’ payment can help to reduce debt Here are two methods that can help you to get back on your feet financially.
First, the debt avalanche method repayment system means that you take that extra cash and pay off your debt that has the highest interest rate first. Once that debt is paid off, you use that extra money to pay off the next debt, and so on.
You might prefer the debt snowball method, which means you use that extra cash to pay off your smallest debt first. You’ll feel better knowing you’ve accomplished something and then can use that extra cash to pay off the next debt and so on, until all of your debt is paid off.
Filing for bankruptcy in Rhode Island
Sometimes your debt can just be too overwhelming and you need a way of discarding it or creating a plan to pay back your debt. Bankruptcy might be an option for you.
You can file for bankruptcy in the Rhode Island district of the U.S. Bankruptcy Court. Individuals may file Chapter 7 or Chapter 13 bankruptcy. What’s the difference? The biggest is that Chapter 7 bankruptcy does not involve a plan of repayment, whereas Chapter 13 bankruptcy does. Chapter 7 instead allows you to “wipe the slate clean” by liquidating, or selling, your assets. However, taking this action can be damaging to your credit score and report for a long time.
Should you file for bankruptcy? These are some things to consider:
- To file for Chapter 7 bankruptcy, you must earn a lower income than your state’s median income.
- It doesn’t wipe out tax, student loan or child support debts.
- You may need to liquidate some property to sell off your debts.
- It stays on your credit report for up to 10 years. This can prevent you from buying a home or a car.
- Chapter 13 allows you to save your home from foreclosure, but remember that you must make all further mortgage payments on time.
If you are looking to file for bankruptcy, here are some local resources to help you:
- U.S. Bankruptcy Court, District of Rhode Island
- R.I. Free Bankruptcy Legal Clinic, 401-626-3100
- Rhode Island Legal Services, 401-274-2652
- Rhode Island Bar Association, 401-421-5740
The bottom line
If debt is hounding you, there are many options for you to consider. Just do your due diligence and review each of them to decide which offers you the most suitable benefits.
The information in this article is accurate as of the date of publishing.