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

Sometimes, struggling to pay down debt can feel like a full-time job. There are numbers to crunch, people to call, and programs to research. And to make things even more complicated, debt relief varies from state to state, so that the techniques that worked for a friend or family member across the country may not be relevant to your situation.

To make things less complicated, we rounded up all the information you need for debt relief and consolidation Vermont. Whether you’re considering a payday loan, tackling debt, or deciding whether filing bankruptcy in Vermont is right for you, here is a guide to specific resources and laws related to debt and bankruptcy in the state of Vermont.

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

Debt in Vermont: At a glance

Debt collection in Vermont

If you’re missing payments or worried about accounts going into collections, it’s important to know state and national laws surrounding debt collection. While Vermont allows “reasonable” attempts to collect legitimate debts, there are rules in place so you and your family don’t feel harassed or intimidated.

In Vermont, debt collection practices that are prohibited include:

• Threats and harassment. For example, a collector may not use profane language, call in the middle of the night, or threaten to tell your boss about your debt. A debt collector should only call between the hours of 8 a.m. and 9 p.m., and contact you no more than once a week at work (and then only if you are unable to be reached at home).
• Unreasonable publication. A debt collector cannot tell other people (including your employer) about your debt.
• Deceptive representation. A debt collector must represent who they are on the phone.
• Unconscionable means. A debt collector may not call multiple times, threaten to show up at your place of employment, or use blackmail to try to have you pay off a debt.

How to handle a debt collection call in Vermont:

• Ask for a verification of the debt in writing.
• Call the original creditor. Is this a bill you recognize? Errors do occur, so it’s important to ensure that the bill hasn’t been paid and has been sent to collections. Make sure you get the name of the collections agency and cross reference that the collections agency that’s calling is the same one used by the creditor.
• Under federal law, you can send a third-party debt collector what’s called a “cease contact” letter. This letter requests that the debt collector no longer contact you about the debt, or only contacts you (or your designated attorney) via the mail. Of course, this doesn’t mean the debt will disappear.
• If any debt collector behavior seems suspicious or borderlines on harassment, contact Vermont’s Consumer Assistance Program (CAP) at 1-800-649-2424.

Understanding Vermont’s Statute of Limitations

What happens if you don’t pay a debt? After a certain period of time — known as the statute of limitations — a creditor is no longer able to use you to collect the debt.

After the statute of limitations expires, the debt is considered time-barred. That means the debt collector cannot sue you, and it’s unlikely that paying the debt in full will make a significant difference in your credit score. Once debt has gone into collections on your credit report, lenders will see the debt went into collections — even after it’s paid off. That said, unpaid debts only remain on your credit report for seven years.

If you do receive a call about a debt, it’s important to assess whether the debt is active or time-barred. A debt collector must answer truthfully, but they may answer “I don’t know.” A credit counselor can assist you in next steps. If the debt is not yet time-barred, for example, it may make sense to negotiate a settlement offer, where you and the debt collector agree to a partial payment of the bill.

Vermont debt relief programs

If you’re struggling over next steps, or trying to figure out how to handle a bill in collections, it may be helpful to find an outside resource to walk you through the next steps.

Vermont has state-specific assistance and resources  available. Here are some programs to look into:

• The United Way. A national organization with local chapters in Vermont, the United Way provides information and resources related to debt relief and financial support.
• GreenPath. GreenPath offers free debt counseling over the phone as well as financial information and education.
• Credit.org or the National Foundation for Credit Counseling. These are national organizations that can connect you to a debt counselor to help you plan next steps for debt repayment.
• Vermont Department of Financial Regulation. While not a credit counseling service, it’s important to check the licensure of any private debt consolidation agency you use prior to agreeing to terms.

Payday lending laws in Vermont

Payday loans in Vermont are strictly banned by state law.

Loans offered over the internet may still be advertised to Vermont residents, but these loans may not be legal.

Just because payday loans are banned, lenders may find some loopholes that allow them to still make small dollar loans in Vermont. Excluding banks and credit unions, however, all lenders need a state license from Vermont Department of Financial Regulation to operate.

If the lender is not licensed, then you can file a complaint with the Department of Financial Regulation at 802-828-3307 or email [email protected] with “unlicensed lender complaint” in your subject line.

Do you have a payday loan from an unlicensed lender? Cease all payments immediately, fill out a cancellation form to revoke the lender’s access to your bank account, and report the lender to the Vermont attorney general.

Remember: A payday loan can be a short-term solution, but the high interest rate of most loans may mean that there are other options worth researching that may be less expensive in the long run.

Tips to tackle debt in Vermont

If you’re struggling with debt, there are a few strategies that may make it repayment less overwhelming and less expensive. Here, some options to consider:

Consolidate your debt

Debt consolidation is one way to potentially lower your interest rates and improve your credit score. With debt consolidation, you’ll get a personal loan that can be used to pay off your outstanding debts. Instead of paying multiple bills each month, you’ll now pay one bill to the new lender.

It’s important to consider the terms of this loan, as there may be fees such as an origination fee, early termination fee, and penalties for missed payments. This option can make it easier to stay on top of your bills, as you now have one instead of multiple ones, and may offer lower interest rates than the ones being offered by your current lender.

Refinance your debt

Is your debt primarily your mortgage, an auto loan or a student loan? There may be refinancing options available. Refinancing options allow the lender and you to agree on terms that change the payment plan for your loan, so you may be paying less each month, but over a longer period of time. Refinancing a loan changes the terms of the loan, including the interest rate. There are pros and cons to doing so. For example, federal student loans have loan forgiveness options. When you refinance a federal loan with a private loan, these options are no longer available to you.

Use a balance transfer card

In some cases, it may make sense to transfer your credit card debt to a card offering zero or low interest. If you have good credit and a strategy for paying back the debt — for example, maybe you’ve changed jobs and now bring home more money than you used to — this can be a smart strategy. The low interest rate tends to be set for a certain period of time (usually 12 to 21 months), and the interest rate can become quite high after that point if you’re unable to pay it off before then. But if you’re confident you can pay the debt back within that time period, you’ll save money by eliminating interest on the debt.

Filing for bankruptcy in Vermont

Maybe your debt is too overwhelming. Maybe you and a credit counselor have determined that the best path forward is through bankruptcy. There are two types of consumer bankruptcy — Chapter 7 and Chapter 13 — with potential upsides and downsides for both.

Chapter 7 bankruptcy: Also called liquidation bankruptcy, Chapter 7 bankruptcy discharges credit card debt, medical debts, lawsuits, and obligations under leases and contracts. It does not discharge child support, alimony or tax debts, however. This type of bankruptcy requires you sell off certain assets (exemptions for cars and homes allow you to maintain some equity and potentially keep these assets) in order to pay off creditors. It is generally an option for those who make less than 50% of the median income in their state. This type of bankruptcy will remain on your credit report for 10 years.

Chapter 13 bankruptcy: Under Chapter 13 bankruptcy, you’ll still pay back creditors, but will set up a plan to do so with the court. You will keep your assets like your house and car. After paying off debts for three to five years, any eligible remaining debts will be discharged. This will remain on your credit report for seven years.

If you’re considering filing for bankruptcy in Vermont, you’ll likely need a bankruptcy lawyer. It’s also important to know exemption rules if you plan to file for bankruptcy. Exemption rules are the property you can keep if you file. Speaking with a bankruptcy lawyer can help you assess the best path for you, and also help you determine if you need to heed state or federal limits. Vermont Legal Aid offers resources through Vermont’s Legal Help website.

Here, commonly exempt property:

*A wild card exemption is one you can use on any property you choose.
Note: There are other exemptions a person may claim; this list is meant only as a sample.
*Courtesy Vermont Legal Aid

The bottom line

When it comes to paying down debt, understanding the unique resources and laws of your state can help you avoid any confusion. While debt can feel scary, consumer protection programs are in place to protect you and your money. If anything sounds funny or you feel harassed or threatened by a debt collector, getting in touch with the Vermont Attorney General’s office can ensure that you have all legal protections while paying down your debt. Taking advantage of nonprofit resources for consumer credit help, understanding your options, and making an informed decision are all smart ways to get on secure financial footing.

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