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Wage Garnishment and Tenants By Entireties in North Carolina

Debtor Protections in Bankruptcy and against Creditors

North Carolina is often considered a very “debtor-friendly” state. First, a debtor is someone who owes money. When a debtor owes money, it is often the creditor’s right to seek repayment. A creditor will often seek repayment through collection calls and eventually lawsuits. In a typical lawsuit, a creditor files a complaint against the debtor for those damages it alleges, plus attorney’s fees often set at 15% of those damages. A debtor is given his or her constitutional right of due process; in other words the debtor has the right to respond to these allegations and put forth defenses as to why he or she does not owe the money that the creditor alleges. The problem that most of our clients face is that it is hard for them to dispute the creditors’ claims. It is hard for the debtor to argue that they do not owe the money. For instance, in a typical lawsuit for credit card debt or a foreclosure, the creditor is a large financial bank with advanced accounting programs that keep track of payments and defaults. There is a very high burden placed on the debtor to dispute that debt when the creditor can put forth such persuasive evidence of a default.

That leaves the debtor facing the very real possibility that a judgment will be entered against them in state court. Once a judgment is entered in state court, the debtor then faces the collection attempts by the creditor. While there are many avenues that a creditor to take to collect debt that is owed to it, we have found that our debtor clients are concerned often with two important items: their paycheck and their house.

Wage garnishment. Surprisingly, North Carolina does not allow wage garnishment for the most common debts that people face. In fact, North Carolina is one of few states that does not allow wage garnishment for typical credit cards debt, medical debt, or personal loans. That uniqueness in North Carolina law provides debtors with significant protections from the debt collection arising from a lawsuit. While those particular debts can be enforceable against a debtor’s personal property, such as automobiles, houses or furniture, they are not enforceable by attaching to wages. It should be noted, however, that once a creditor receives a judgment for unpaid debts, the creditor can go to the bank to clean out a debtor’s bank account. But note that such action is not wage garnishment, but rather a simple execution on a judgment. Not surprisingly, there are exceptions to the lack of wage garnishment in North Carolina. In North Carolina, a few creditors are allowed to garnish wages, such as the Internal Revenue Service, North Carolina Department of Revenue, and delinquent student loans. There is another exception too: if a debtor happens to work for an employer whose home base is another state that allows wage garnishment, then there is some chance that the creditor could go to the home state and ask that the debtor’s wages be garnished despite the fact that the debtor lives in North Carolina. Notwithstanding, debtors can take comfort that the general rule in North Carolina is that wage garnishments are not allowed.

Tenants by entirety. Another tremendous safeguard for debtors in North Carolina involves the protection of their house. Tenants by Entirety is an ownership form of real property or dirt. In the most common example, a husband and wife own a house together as tenants by entirety. Only a husband and wife can own a house by tenants by entirety and thus, the protection afforded tenants by entirety can only exist for those spouses that own real property or dirt together. But what is that protection? Simply stated, when one spouse owes debt and a creditor gets a judgment against that one spouse, that creditor cannot seek to enforce its judgment against a house that the spouse owns together with his or her spouse. The concept is simple: North Carolina loves marriage. Accordingly, North Carolina has designated this particular marital property to be protected against the claims against one of the spouses. Therefore if you own a house with your spouse and that spouse has a judgment, then it is very likely that your house that you own with your spouse will be immune to that judgment.

Resisting creditor attacks against your wages will and your homes are serious matters. Not every situation is the same and us you should consult an experienced attorney to better understand your rights, your protections, and any exceptions that may apply to you. Arnold and Smith, PLLC has experienced attorneys in the field of creditor and debtor relations and can help navigate the process for you. If you would like to set up a consultation with one of the attorneys, please and not hesitate to contact us. We look forward to assisting you.