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

We have Pennsylvania to thank for a lot of innovations. The Slinky, No. 2 pencils, candy corn and Monopoly were all invented in the state. Not to mention, very important historical moments took place in the Keystone State. Major fundamental documents that shaped our nation, such as the Declaration of Independence and the U.S. Constitution, were executed there, after all. Pennsylvanians have undeniably contributed to the success of this country, but even in such an impressive state, some are struggling with debt.

This is why it’s so important to discuss how debt is affecting Pennsylvanians. Struggling with debt can feel overwhelming, so we’ve broken down what you need to know about the Pennsylvania debt-relief options available. Knowing your debt management options, as well as the pros and cons of choices like consolidation, bankruptcy and refinancing can help empower you while you work toward paying off debt. Managing debt can be a challenge, but there are resources available to help you overcome it.

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

Debt in Pennsylvania: At a glance

Debt collection in Pennsylvania

Unfortunately, no matter where you live, ending up in debt collection can happen to you. But where you live does affect how the debt collection process will work. Here are the facts to know about debt collection practices and protections in Pennsylvania.

The Fair Credit Extension Uniformity Act: This act helps regulate the activities of debt collectors and creditors in Pennsylvania regarding debt collection. This state law prohibits debt collectors and creditors from engaging in certain unfair or deceptive acts while attempting to collect debts. There are strict rules regarding when and where a debt collector or creditor can contact you, how they locate you, and who they tell about your debt. This act bans threatening behavior, lying to the debtor, and other behavior that can be considered damaging or harassment.

Wage garnishment: Wage garnishment is a legal action that leads to a person’s earnings being withheld for the payment of a debt. For example, this can happen if unpaid taxes are owed to the IRS or if a lender wins a judgment against you for a debt that is long overdue. Wage garnishment is not voluntary like a wage assignment. For a wage assignment, an employee can agree to allow their employer to turn over a specified amount of money from their paychecks to a creditor.

There’s typically a cap on how much of your wages can be garnished. For example, the Debt Collection Improvement Act gives federal agencies or collection agencies under contract with them the ability to garnish only up to 15% of disposable earnings to repay defaulted debts owed to the U.S. government. And just 10% of disposable earnings can be garnished under the Higher Education Act to repay a defaulted federal student loan.

You are legally protected against certain actions taken against you as repercussion for wage garnishment. Title III of the Consumer Credit Protection Act (CCPA) limits the earnings that may be garnished. And it protects employees from being fired if the pay is garnished for only one debt. Title III applies in all 50 states and all U.S. territories.

Responding to collection letters

Once you’ve been contacted by a debt collector in writing, they’re legally required to provide you with a written notice with certain key information about the debt. If you’re first contacted by the agency via phone, you should insist that it contact you in writing. You should not give any personal or financial information until you have confirmed you were contacted by a legitimate debt collector.

When you’re contacted by a collection agency, you should take steps to uncover the following information, and do your best to retrieve this information quickly. In certain situations you will only have 30 days after a debt collector contacts you to ask for certain information.

• The name, address and phone number of the collector.
• The amount of the debt you supposedly owe, as well as any fees such as interest or collection costs.
• What the debt is for, as well as when the debt was incurred.
• The name of the original creditor of the debt.
• Information about whether you owe the debt or someone else may owe it.

If you have a complaint to file against a collections agency, you should contact the Federal Trade Commission (FTC).

How you proceed after confirming the debt is yours depends on a variety of circumstances. These are a few situations you may find yourself in.

If you aren’t certain it is your debt: You can write the debt collector to dispute that the debt is yours or request more information regarding the debt.

If the debt does not belong to you: If you are certain the debt does not belong to you, write the debt collector to inform them that the debt is not yours. Tell them that you do not want to be contacted about the debt again.

If the debt does belong to you: If you are not willing to pay the entire debt, negotiate with the debt collector on a settlement amount to pay. Agree to terms regarding how much of the debt will be forgiven.

Understanding Pennsylvania’s statute of limitations

Once the statute of limitations on your debts has passed, creditors can’t pursue you in court for any debts you have — it’s now considered “time-barred.”

But be warned, they may continue to attempt to collect your debt by other means — such as calling you or sending you letters. The statute of limitations for debt varies by state and by debt type. In Pennsylvania, auto loan, credit card, mortgage and medical debt all have a statute of limitations of four years. However, state tax debt has no statute of limitations.

Before you pay on an old debt, even if it’s just $1, be sure that the statute of limitations on that debt hasn’t expired first. Because if you make a payment, it will completely restart that clock, giving the company more time to sue you (see below for more information on Pennsylvania’s statute of limitations below). Consulting an attorney can help you navigate this process.

Check out the following breakdown of Pennsylvania’s statute of limitations on debt.

Pennsylvania debt-relief programs

If you find yourself with an unmanageable amount of debt, there are nonprofits as well as state and national organizations that can help. One is the Advantage Credit Counseling Service, a Pennsylvania non-profit credit counseling agency that has been assisting people in the western part of the state with their debt problems since 1968. Companies like InCharge Debt Solutions offer non-profit debt consolidation nationwide.

Payday lending laws in Pennsylvania

While 37 states allow for payday lending, Pennsylvania prohibits such companies from operating within the state Even though payday loans are for small amounts, generally in the $100 to $1,000 range, they have high interest rates and fees. Some payday loans will require 300 to 1,000 percent interest, which is illegal in the state of Pennsylvania.

If you suspect you are working with a lender that is trying to take advantage of you, call the Department of Banking and Securities at 1-800-PABANKS (722-2657). You can ask them to check if the lender you’re working with is properly licensed. You can also call that hotline to discuss other financial options with a trained professional.

Tips to tackle debt in Pennsylvania

Fortunately, there are some options available for you to consider if you need help paying off your debt. Consolidating your debt, refinancing, using a balance transfer card and taking out a personal loan may be steps that can help you get your debt under better control.

Consolidate your debt

Debt consolidation is the process of rolling one or multiple unsecured debts into a single form of financing. Essentially, you walk away from the consolidation process with just one loan that you can use to pay off existing debts. You can use a personal or home equity loan (HEL) to consolidate existing credit card debt by using the funds obtained to pay off those bills. Then you can focus on paying down the single personal loan or home equity loan on a monthly basis. But when it comes to installment debt, like auto or student loans, they may be better suited for refinancing.

An unsecured personal loan is the most popular option for consolidation. When you take out an unsecured loan, you don’t have to offer any collateral, which is less of a risk. However, you may struggle to qualify for one if you have a low credit score because the lender won’t view you as a good risk for repayment.

This can also mean that your interest rate on the loan may be higher than with a secured loan. In Pennsylvania, 28.6 percent of people with personal loans use them for debt consolidation purposes.

Home equity loan. With a home equity loan, you’re offering collateral —  your home — to back the loan. For that reason, home equity loans have a couple advantages. They may be easier to qualify for if you have subpar credit and may come with a lower interest rate than an unsecured personal loan. But it’s important to note that if you default on a secured loan like an HEL, the lender can take your home from you.

Of course, there are both pros and cons to any consolidation loan.

The Pros:

• One monthly payment is less stressful than managing several. If you have a single installment loan, like a personal loan or HEL, it should be easier for you to budget for monthly payments. With an installment loan, the interest rate and term are fixed, meaning your payment will be exactly the same every month.
• You can save money. Best-case scenario, you will be able to use a financial product with a lower interest rate to help you pay off debts charging a higher interest rate. You can also save money on late fees, missed-payment penalties and other consequences that result from struggling with debt management.
• You can build your credit score. If you use financing to pay off debts that have gone to collection, or are creating a balance on a credit card, you can potentially add an immediate boost to your credit score.

The Cons:

• Debt consolidation does not erase poor money habits. You need to do your best to not accumulate more debt. If you have not learned how to manage your money more efficiently, it’s best to wait until you do so to consider debt consolidation.
• If you have a small balance, it may not be worth consolidating your debt. You won’t be likely to generate enough savings to make it worth your while to consolidate. Home equity loans carry closing costs and personal loans come with origination fees, for example. If you’re able to pay off your balance in less than a year, by making extra payments, that is a simpler way of tackling smaller debts.
• If you have a poor credit score, that may keep you from getting approval for a consolidation loan, or another form of credit. If you do get approved, there is a chance you may qualify at higher interest rates, which may not save you much, and may be even be higher than your initial interest rates on various cards with balances.

Refinance

Refinancing is yet another option you have for managing debt. This is an option that someone struggling with a mortgage, student loan or auto loan may want to consider.

Mortgage refinance. There are a couple of times when refinancing your mortgage makes sense. If you are struggling to pay a mortgage payment, you might try to refinance into a loan with a longer repayment term. A longer term means your payments would be spread out, making them smaller. In this case, you free up more cash flow each month and reduce your monthly mortgage bill, but it’s important to understand you’ll also likely pay more interest over the life of your loan when you extend your mortgage.

Alternatively, if your credit has improved since you originally got your mortgage or mortgage rates have fallen lower than your current rate, you could refinance if you’re hoping to secure a better rate. Refinancing at a lower rate could save you a lot of money over the life of your mortgage.

Before you refinance your mortgage, understand that there will be closing costs to consider. That’s because you are effectively taking out a new mortgage to pay off your existing mortgage, so you’ll have to go through a similar closing process as you would with a primary mortgage loan.

Auto loan refinance. Refinancing your car loan from a high-interest rate to a lower one may be possible if you have a decent credit score. Similar to refinancing a mortgage, you also may be able to lower your monthly payments by extending your loan timeline, but again, we don’t recommend that, as you’ll ultimately pay more in interest charges over time.

Use a balance transfer card

You can use a balance transfer to roll over your debt from one or multiple credit cards to another one with a lower interest rate — or potentially a 0% promotional annual percentage rate (APR) for a set amount of time. This strategy would allow you to pay less in interest and manage multiple sources of credit card debt in one place.

Some credit card companies offer good deals on balance transfers in order to attract new customers. This is an option to consider if you have higher-interest credit card debt. But don’t forget that this new credit card still needs to be paid on time. Eventually, the interest rate will revert to a higher one, so you don’t want debt remaining on the card when that happens and end up paying even more than you otherwise would have.

To qualify for a balance transfer card with a lower interest rate, it’s important that you have a good to excellent credit score. Usually, credit cards with 0% intro APR require that you have a credit score of at least 700.

Filing for bankruptcy in Pennsylvania

If you’re considering filing for bankruptcy, you should seriously review all of your options first. A good place to start is by understanding the two main types of bankruptcy for consumers.

Chapter 7: This form of bankruptcy is named for Chapter 7 of the U.S. Bankruptcy Code. With this type of bankruptcy, a debtor’s assets are liquidated, or sold to pay off any creditors. This process allows you to start over with a clean slate. Once you’ve filed Chapter 7, many of your debts can be discharged, or erased. But, this process does not apply to all debts. Because the discharge of debt is established by federal law, some debts cannot be discharged in bankruptcy.

Chapter 13: This form of bankruptcy is referred to as a “wage earner’s plan” by the courts. That’s because it’s designed for individuals who have a regular income, but can’t manage or repay all of their debts. Under Chapter 13, you will get help setting up a plan to pay creditors in installments over a period of time (three to five years). During the agreed amount of time, creditors aren’t allowed to pursue collection. Generally, Chapter 13 bankruptcy is viewed more favorably than Chapter 7. Unlike Chapter 7, under Chapter 13 the debtor is paying at least some of the amount of debt he or she owes. But do note that filing for Chapter 13 will remain on your credit report for seven years past the filing date.

The big question is, should you really file for bankruptcy? These are some of the pros and cons you should consider before filing.

The Pros:

• You’ll receive a court-appointed representative who will help you file your petition for bankruptcy. He or she will operate on your behalf during the bankruptcy process, including managing all communication between you and your creditors.
• You might be able to keep some of your assets, even in Chapter 7. And you may be able to prevent foreclosure or car repossession under Chapter 13 bankruptcy.
• Your debts generally will be settled for less than what you owe, as creditors will be forced to accept the payments determined in your bankruptcy case. This could even mean receiving no payment at all, such as under Chapter 7.

The Cons:

• You may still be responsible for some debts even after bankruptcy. Certain taxes and fines, student loans, child support, court orders and debts incurred through fraud cannot be written off.
• Bankruptcy isn’t free. You will be required to cover any costs of bankruptcy such as service and court fees.
• If you want to buy a home, you may need to wait one to four years, depending on the type of mortgage, before the bankruptcy falls off your credit report.

Before filing for bankruptcy, you should consider negotiating with your lenders, taking out a debt consolidation loan or meeting with a nonprofit credit counselor. You can also consider borrowing money from family or friends, if that is an option available to you. And if your debt is primarily student loan-related, you can consider an income-driven repayment plan. That will allow you to pay off your federal student loan debt at a rate consistent with your income.

Here are a few state-specific legal bankruptcy resources in Pennsylvania:

Pennsylvania Bankruptcy Courts:

• United States Bankruptcy Court for the Middle District of Pennsylvania
• United States Bankruptcy Court for the Western District of Pennsylvania
• Pennsylvania Eastern Bankruptcy Court, Philadelphia

The bottom line

No matter where you live, debt can affect your life and financial health. That’s why it’s important to learn your debt consolidation and debt-relief options in Pennsylvania. There’s help available, if you find yourself in a difficult financial situation, so don’t hesitate to ask for it.

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