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 What Is Debt?

In general, “have debt” or “in debt” typically means you owe another person or entity something. In most circumstances, that “something” is usually money. For instance, if you are late on rent payments or carry a balance on your credit card, this would constitute “having debt.”

The person who owes money to another person or company is often referred to as the “borrower” or “debtor.” On the other hand, the party who is owed that money is called a “lender” or “borrower” and is normally some lending institution like a bank.

Nevertheless, debt may also involve other assets, such as interests in real property, equipment or machinery for a company, and inventory. Therefore, being “indebted” to someone can mean many things. Consequently, it would help if you considered hiring a local bankruptcy or finance attorney for further help with debt problems.

What Are Some Different Types of Debt?

Debt can be divided into two major categories: consumer debts and corporate debts. Many individuals are already familiar with consumer debt since it is also the most standard type of debt. Consumer debt typically consists of personal debt and debts incurred when trying to pay off bills related to living expenses.

Some typical examples of consumer debts include:

  • Mortgage debts and housing loans: For most individuals, mortgage debt accounts for the largest portion of their debt. Many individuals are also still recovering from the housing crisis in 2008 and have been forced to take on debts that were well outside their budget plan.
  • Student loan debt: Student loan debt is not far behind mortgage debt regarding the amount of money still owed. This is particularly true with the ongoing pandemic. These debts can also be blamed on high-interest rates, the housing crisis, little to no forms of relief, and the cost of education. Unfortunately, in bankruptcy, educational debts cannot be forgiven, so they often amass over time.
  • Credit card debt: Overspending and high-interest rates can lead to the crippling debt owed to various credit card companies. For instance, if a person cannot pay off their remaining balance, then the interest rate can escalate what was once a minimum balance to a staggering amount.
  • Bank loans and overdraft fees: Bank loans can be used for one-time expenses, such as money to buy a car or make home renovations. Given the large sum of funds provided to a consumer at one time, bank loans usually have repayment plans, and therefore, these payments may extend over long periods.

The second type, corporate debts, refers to debts incurred by businesses. Some typical examples of corporate debt may include:

  • Syndicated debt: Syndicated debts arise when one or more lending institutions work together to provide the amount of a principal loan to a corporation, for a single large project, or to an independent government agency. These funds are often loaned out by several banks, meaning they usually involve quite a bit of capital and can be challenging to pay off.
  • Private debt: This may refer to debts owed to a single bank, other lending institutions, a private investor, or a similar private company. Private corporate debts can range from a few thousand to millions of dollars.
  • Public debt: Public debt, also known as government or public interest debt, is owed by a country to other lenders, such as to people, businesses, and even foreign governments. Some models of public debt include bonds, loans from foreign countries, and Treasury Bills.

What Is a City Debt Collector?

Your city, county, or other local government offices may have the right to tax you and other residents and charge fees and fines within their jurisdiction. When a person fails to pay their local taxes or racks up fines with the government, they can be subject to various penalties, and a debt collector may be assigned to get the amount due from the person.

Examples of a city or local government debt can include:

  • Unpaid local taxes such as property or business taxes;
  • Unpaid fines for speeding, parking, or other traffic violations;
  • Unpaid fines related to property violations such as failing to comply with trash collection policies; and
  • Failing to pay for emergency services such as ambulance transport or local firefighters who responded to a house fire at your residence.

What Kinds of Debt Collection Activities Can You Expect from Your City Debt Collector?

  1. Notice: The first measure that most city debt collectors take is to send you notifications for the unpaid debt. That notice can take the form of a written letter mailed to your home address or whatever address the agency had on file.
    • You may also receive an electronic message if the city or local government has such a service, as many agencies offer the ability to pay taxes and fines online with a credit card. Many of the notices will include a late fee or the threat of one if the debt is not paid by a specific time.
  2. Collection Attempts: If you miss the deadline to pay the debt, the city debt collector will start to send more letters saying the debt is past due. They may also call you at home or work, ordering that you pay the bill.
  3. Credit Reporting: Although most city and local agencies do not report unpaid debt to credit reporting bureaus, some do, and others could report you. Reporting this unpaid debt can hurt your credit score and make it hard for you to get future lines of credit such as a mortgage, credit card, or other loans.
  4. Selling the Debt to a Third-Party Debt Collector: This method is the most common. Instead of the city continuing to pursue you for unpaid debt, they can sell your debt to a private business.
    • In doing so, the private company or third party becomes the debt owner, which can often increase the intensity of the debt collection activities.
  5. Wage Garnishment, Liens, and Levies: Either the city or a third-party debt collector can get a wage garnishment, a lien against your property, or levy other income and assets if they get a judgment and court order to do so.

What Happens When You Do Not Pay the City Debt?

If you fail to pay the debt, your credit score could suffer if reported, and your wages and assets may be seized. Wage garnishment and bank levies can take away your cash, leaving you unable to pay your other debts and necessities.

What Can You Do to Stop City Debt Collectors?

Paying any taxes, fines, or fees on time is the best way to stop negative debt collection activity. Nevertheless, if you cannot pay, ask about possible payment plans. Many cities and third-party debt collectors have affordable payment plans that spread the amount of the debt out over time so that you can make smaller, monthly payments rather than the total amount owed at one time.

Entering a payment plan and continuing payments can stop other negative debt collection such as adverse credit reporting, liens, and garnishment activities. If you do not want to make monthly payments, some debt collectors may accept a lump sum amount less than the original debt owed if you have some financial hardship and the debt is old.

How Can You Appeal a City or Local Government Debt?

If you think the amount due is incorrect, was already paid, or otherwise not relevant to you, you may be able to appeal. Nevertheless, appeals usually require timely notice to appeal shortly after receiving notice of the fine, tax, or other amounts due.

Check your notice if there is a process for appeal. You may also contact the locality responsible for the bill to see what appeal opportunities exist.

What Is the Fair Debt Collection Practices Act, and Does it Apply to City Debt Collectors?

The Fair Debt Collection Practices Act protects consumers from unjust debt collection practices of third-party debt collectors. If the city or another government agency collects the debt, this act does not apply.

However, it should apply if the debt was sold to a third-party debt collector. The act prohibits harassment, threats, abusive, or otherwise unfair tactics to collect the debt. If you think a debt collector has violated the act, you can report the conduct to the Federal Trade Commission. Some states, such as California, have their own fair debt collection regulations that apply to governments.

Should I Consult a Lawyer for Issues with City Debt?

A government lawyer can explain your privileges and obligations for a city debt collection case. They may also represent you with any debt collector. Having a lawyer negotiate on your behalf can offer peace of mind and help resolve the debt issue to your advantage.

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