Connecticut Debt Relief: Your Guide to State Laws and Managing Debt

Connecticut is considered to provide a high quality of life for its residents. The 2017 median household income in the state was $74,168, which is 23% higher than the median income across the country that year.

Despite higher-than-average incomes, Connecticut residents also experience higher-than-average debt levels — at least for some types of debt. The state ranks fifth-highest in the country for credit card debt per capita and ninth-highest for mortgage debt per capita.

If you’re a Connecticut resident who is struggling to get out of debt, there are numerous resources available to you both in the state and nationally. In this article, we’ll take a look at some of those resources, as well as explore Connecticut’s debt relief laws and strategies to help you improve your financial situation.

• Debt in Connecticut: At a glance
• Debt collection in Connecticut
• Connecticut debt relief programs
• Payday lending laws in Connecticut
• Tips to tackle debt in Connecticut
• Filing for bankruptcy in Connecticut
• The bottom line

Debt in Connecticut: At a glance

Debt collection in Connecticut

In Connecticut, the Department of Banking enforces debt collection laws and regulations. One of those laws is the Fair Debt Collection Practices Act (FDCPA), a federal law that protects consumers from unfair debt collection practices.

Some guidelines and protections in place under the FDCPA include:

• A debt collector may contact you in person, by mail, telephone, telegram or fax.
• A debt collector may not contact you before 8 a.m. or after 9 p.m.
• If you inform a collector that you have an attorney, the collector can only contact the attorney.
• A debt collector may not contact you at work if you inform them you cannot receive such contact.
• A debt collector may contact people you know to find out your address, your home phone number and where you work. However, they may not disclose that you owe a debt and cannot contact the same third party more than once.
• You can stop a collector from contacting you by writing a letter telling them to cease contact. Once the collector receives your letter, they may not contact you again except to confirm that there will be no further contact or to notify you that they intend to take certain specific actions.
• A debt collector may not harass or abuse you or any third party they contact.
• A debt collector may not use any false, deceptive or misleading statements when collecting a debt.
• A debt collector may not engage in unfair practices when they try to collect a debt.

In addition to the FDCPA, Connecticut debt relief laws state the following is protected in the event a creditor successfully sues you and obtains a court order against you:

• 75% of your net income
• Up to $3,500 of one car’s equity
• Up to $75,000 of the value of a home by claiming a homestead exemption
• Up to $1,000 in your bank account

Responding to collection letters

If a debt collector contacts you, it’s best to respond. It is not uncommon for collection agencies to have wrong information on a debtor or the debt they are collecting. Responding can clear up potential mistakes.

Keep these tips in mind as you communicate with debt collectors:

• Request validation. You have 30 days upon receiving a collection letter to dispute the debt or amount owed, or to request validation. The collector must send you proof the debt is yours. CTLawHelp.org provides letter templates you can use to respond to or contact collection agencies.
• Document your contact. Keep all letters you receive from the agency, and maintain a detailed log of phone calls including the date, the name of the person you spoke with and the outcome of each conversation.
• Do not ignore a court summons. If you receive a court summons, you must respond. CTLawHelp.org suggests the following sources for legal help:
  • Statewide Legal Services
  • Consumer Law Project for Elders (consumers age 60 or over): 1-800-296-1467
  • Court Service Centers
  • A private lawyer
• Get it in writing. If you make a payment arrangement with the debt collector, get it in writing before making any payments.

Debt collectors must be licensed in Connecticut. If you suspect a collection agency is not licensed or if you feel they are violating the FDCPA, contact the state’s Department of Banking to verify their license or file a complaint.

• Department of Banking260 Constitution PlazaHartford, CT 06103-1800860-240-8170Toll-free: 1-800-831-7225, ext. 8170[email protected]

Additionally, you can file a complaint with:

• Federal Trade CommissionConsumer Response Center600 Pennsylvania Avenue NWWashington, DC 20580202-326-2222www.ftccomplaintassistant.gov

• Consumer Financial Protection BureauConsumer Financial Protection BureauP.O. Box 2900Clinton, IA 52733Toll-free: 855-411-2372TTY: 855-729-2372

  www.consumerfinance.gov/complaint

Understanding Connecticut’s statute of limitations

Another aspect of debt collection that consumers should familiarize themselves with is their state’s statute of limitations, which is the time period within which creditors can pursue legal action to collect a debt.

In Connecticut, creditors have between four to six years to take legal action depending on the type of debt. (For state tax debt, the state has 15 years.) Once the statute of limitations ends, the debt becomes “time-barred,” which means the collector cannot sue you.

This does not absolve you from owing the debt, though. Creditors can still contact you and attempt to collect the debt, but they cannot take action beyond their own collection efforts.

Knowing your creditors’ limitations, it is up to you whether or not to pay time-barred debts. But beware of making partial payments if you do not intend to satisfy the debt in full, as a partial payment may effectively restart the clock on the statute of limitations.

If you receive a court summons on a time-barred debt, do not ignore it; seek legal help to discuss your options.

Connecticut debt relief programs

Connecticut residents can access debt relief programs and resources on both the state and national level.

• National Foundation for Credit Counseling (NFCC) is an excellent source for finding reputable credit counselors in the state.
• Financial Counseling Association of America (FCAA) can connect you with a certified credit counselor in the area.
• National Consumer Law Center (NCLC) offers consumers brochures on debt relief and additional consumer topics.
• CTLawHelp.org provides self-guides on debt collection and other topics as well as a portal for finding legal help.
• State of Connecticut Department of Banking has resources on a variety of consumer issues and can confirm the licensing of a particular agency.
• Statewide Legal Services provides free legal advice to Connecticut residents.

As you research and consider using a debt relief service, make sure you understand the terms of their program and what you are signing up for.

Some debt relief services legitimately help customers get out of debt, but the industry is also fraught with disreputable companies whose primary goal is to make money off of consumers who are already struggling.

There are some common warning signs to watch out for when pursuing a debt relief service. Avoid any company that:

• Promises specific results. Companies cannot guarantee or predict the outcome of their negotiation efforts.
• Advertises new government programs. A common tactic of some companies is to call consumers offering a new government debt relief program.
• Asks for payment upfront. Avoid working with a company that charges you before they’ve done any work.
• Does not explain the risks or consequences of using their services. Companies are required by law to disclose the potential repercussions of using their program.
• Pressures you to make voluntary contributions. Some companies often disguise their fees as “contributions.”

Payday lending laws in Connecticut

Payday loans are short-term, high-interest loans that lenders market to consumers who have trouble making ends meet. These loans — which are typically for a few hundred dollars — are one of the most expensive ways to borrow money. The short terms of the loans can make the effective APR as high as 391% on average. Needless to say, consumers should avoid payday loans.

Most states have laws that govern the practices of payday lenders, including the fees they may charge. There are no specific Connecticut payday lending laws, but the state laws that govern small consumer loans (loans under $15,000) effectively ban payday lending in the state.

Connecticut law states that only individuals and companies licensed with the state’s Department of Banking can charge more than a 12% APR on small consumer loans. And the permitted interest rates above 12% are far lower than typical payday loan interest rates. The law also bans lenders from using future wages as security for a loan — which is the basis for payday loans.

While payday loans are unofficially banned in the state, you may encounter lenders who offer them, especially online. To see if a lender is licensed with the state, or to file a complaint, contact the Department of Banking.

Tips to tackle debt in Connecticut

In addition to knowing the federal and Connecticut debt relief laws that protect consumers, you should familiarize yourself with the multiple strategies that can help you manage your debt. Here are a few.

Consolidate your debt

Some consumers who are overwhelmed by managing multiple bills turn to debt consolidation as a solution. With debt consolidation, you combine your multiple debts (e.g., credit cards, medical debt, personal loans, etc.) and pay them off with a new loan, leaving you with a single debt to pay. There are multiple ways to consolidate debt, including taking out a personal loan, home equity loan, or home equity line of credit (HELOC).

Regardless of the method you use, the goal with debt consolidation is to reduce the amount of interest you pay by consolidating the debt at a lower rate. This may or may not happen depending on the interest rates of the individual debts and the rate of the new loan, as well as your credit score. It is possible to pay more in interest if you consolidate low or no-interest debts at a higher rate.

Debt consolidation does not reduce the amount of debt you have; it simply decreases the number of debts you owe. While this strategy can reduce the stress of juggling multiple bills and creditors, some consumers end up in deeper debt after consolidating if they don’t address what led them to get into debt in the first place.

Also, keep in mind, if you use a home equity loan or HELOC to consolidate unsecured debt such as credit cards and medical bills, you put your home at risk should you have trouble paying the new loan.

Refinance

If you own a home or car, refinancing your mortgage or car loan is an option for you. With a refinance, your lender can lower the interest rate or extend the term of the loan (or both), resulting in a lower monthly payment.

In the case of a mortgage, you also have the option of doing a cash-out refinance in which you take out a lump sum of money against the equity in your home. You would then use the money to pay other debt.

Know that you will need to have equity in your home or car to refinance. And with a mortgage refinance, you will need to pay closing costs. While the idea of a lower monthly payment may be appealing, beware that if the refinance extends the term of the loan, you’ll likely end up paying more over the life of the loan.

If you have student loans, you may be able to refinance or consolidate them. Check with your lender to see what your options are or consider contacting a third-party lender. Before refinancing student loans, make sure you understand the terms and any potential consequences. For example, if you refinance federal student loans, you lose access to forbearance and deferment options.

Use a balance transfer card

Another strategy to tackle your debt is to take advantage of a low or promotional balance transfer rate on a credit card. This strategy is most helpful if you have good or excellent credit and can qualify for a low- or no-interest credit card with a credit limit high enough to cover all or most of your debt.

With this approach, you transfer the balances from your high-interest credit cards to the new card or use it to pay off other bills. For this strategy to be most effective, you will need to pay off the new debt before the promotional rate ends, typically anywhere from 12 to 21 months.

Like debt consolidation, some consumers who use this strategy may be tempted to run up the credit cards they pay off if they don’t change their spending habits.

Get credit counseling

Working with a credit counselor can help you address both short-term and long-term issues you have with managing your debt.

During one or several sessions, a counselor can help you establish a budget and put together a plan for paying your creditors. There is typically a fee for counseling, although nonprofit counseling agencies may make some of their resources available to you for free.

You can find a counselor by contacting the NFCC, FCAA, housing agencies or other community agencies in your area. Additionally, the U.S. Department of Justice provides a list of approved credit counseling agencies in Connecticut.

Enter a debt management plan

Working with a credit counselor may lead to entering a debt management plan. You can also pursue this strategy directly.

A debt management plan is a structured agreement between you and your creditors that a counselor manages. Typically, you stop paying your creditors directly and instead make payments to a separate bank account dedicated to the payment of those bills.

Debt management plans can help consumers who are extremely overwhelmed by their situation, but the programs can take a long time to complete and are costly. On average, debt management plans take four to five years to complete and typically charge $25 to $35 per month.

Work with your creditors

Depending on the amount you owe on your debts and how past-due they are, you may have success by negotiating directly with your creditors. Contact each one to see if they have options for remedying your debt. Remember, your creditors want to get paid, so many will be willing to work with you. And in some cases, they may have established hardship procedures.

Filing for bankruptcy in Connecticut

Another option available is to file bankruptcy. Filing bankruptcy is a decision you should consider only after exploring all your options and consulting a financial professional. Bankruptcy can stay on your credit report between seven to 10 years and will impact your ability to gain credit during that time.

Consumers typically choose between two types of bankruptcy. Chapter 7 bankruptcy is a total liquidation of your assets and gives you a blank slate, whereas Chapter 13 bankruptcy is a structured repayment plan over a three- to five-year period.

If you are considering bankruptcy, the U.S. Courts offer a guide on bankruptcy basics, and CTLawHelp.org provides an overview of bankruptcy in Connecticut, including resources for additional help.

The bottom line

Whether you are dealing with a temporary hardship, answering calls from collection agencies or looking for ways to streamline your bills, the resources covered in this article will help you navigate your situation.

Take the time to familiarize yourself with the Connecticut debt relief laws and debt pay-off strategies we’ve highlighted. As you weigh your options, be sure to consider what will meet both your immediate and long-term needs.

The pressure and weight of dealing with debt can sometimes be paralyzing, but educating yourself on your situation and the options available to you will help you choose a course of action and move forward with confidence.

The information in this article is accurate as of the date of publishing.