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Tell A Debt Collector Where To Put It

By Karen Oakes, Southern Oregon Bankruptcy Attorney

This past week,  I had a consultation with a frantic debtor who really did not want to file bankruptcy.   She was facing a garnishment  of her wages and did not understand the garnishment.   Back in 2003, a debt collector had sued her and obtained a judgment for approximately $1100.00.   No payments were made from 2003 to 2007.   However, in January 2008, the debt collector discovered where she worked and sent a writ of garnishment to her employer.  Since under the law, a debt collector may seize 25% of wages, this garnishment meant a serious reduction in income.   The debtor contacted the debt collector and negotiated a lower payment to be made, out of each paycheck through a voluntary wage assignment.   After costs and interest had been added in, the judgment amount was $2045.00.   No written wage assignment was provided to the payroll department; the employee just directed payment to the debt collector. 

Each and every month from February 2008 through November 2010, the payroll department sent money each pay period to the  collector.   In November 2010, the payments stopped as both the payroll department and the debtor believed that finally the judgment had been paid.   The debtor was quite surprised to get a phone call from the debt collector demanding a new wage assignment in December.   The debtor believed the collector was wrong and ignored the phone call.  In January 2011, a new writ of garnishment was served on the employer with a balance of $1800.00 left on the judgment.   How could this be?  

After investigation, my office determined that there were other debts being collected by the collector.    Each of those payments over nearly three years had been applied to different debts being collected, proportionally.   Instead of what the debtor wanted — the judgment being paid, other debts were also being paid.    Is this a violation of the Fair Debt Collection Practices Act?  The Act was created to protect consumer debtors from mistreatment from debt collectors while the debt collector attempts to collect a debt.   Under 15 U.S.C. 1692h, if a consumer directs that payment be made on a specific debt, then the debt collector must pay that debt.   However, in this case, there was no document directing payment.  There was no account number on any of the checks from the payroll departmnt to the collector.  And so the collector did what it believed was fair–spread the payments proportionally between all creditors for whom it was collecting accounts.    All the balances were reduced over the three years, but the debtor once again was facing wage garnishment.

My colleague, Cathy Moran, recently discussed telling the IRS where to put payments.   Like the IRS, debt collectors have enough power to make debtors’ financial difficulties worse.   The debtor did not protect themselves by relying on the collector to do what the debtor wanted after the negotiation.   The moral of this story is:  Put it in writing  where one wants the payment to be applied.

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Full post as published by Credit Law Network on February 12, 2011 (boomark / email).