Supreme Court Decides Against Debtors

Last week, the CNMI Supreme Court issued its decision in Triple J Saipan v. Mateo V. Norita et al. The court ruled that federal law limiting how much can be garnished from your wages does not apply in the CNMI. We unsuccessfully argued that the federal law not only applies here, but that it also 1) offers more protections to debtors and 2) more fairly spreads out the risks of credit extension between creditors and debtors.

What the Supreme Court decision means is that the status quo is maintained. Our courts turn to local law when figuring out a debtor’s schedule to pay back a debt. In practice, as I discussed in my previous post of 11/1/07, there is an uneven playing field. Low-income debtors who can’t afford an attorney end up paying something back on a regular basis, even though their income is considerably below poverty level. This will continue to happen despite the fact that debtors have the right to keep everything they need for their basic needs.

Our clients’ household income was SSI and the minimum wage (then $3.05/hour). SSI (or Supplemental Security Income), is a federal benefit entitled to those who are poor and disabled. They have already been deemed poor enough to receive SSI. Those benefits were not an issue in the case, because they cannot be taken to pay back a debt. That’s a federal law that unquestionably applies in the CNMI. On the other hand, the court endorsed a payment order against the minimum wage earner.

Today, the minimum wage in the CNMI is $3.55/hour. This comes to a gross annual income of $7,384. Under the 2007 federal poverty guidelines, the threshold amount for a household of one is $10,210 per year. Those of us living in poverty here are less protected from creditors than elsewhere in the States. This is the court's implicit opinion.

In reaching its decision, the court made a difference between a garnishment and an “order in aid of judgment,” which is the typical CNMI court order that requires a debtor to regularly surrender money to the creditor as each paycheck is received. As the court argues, a garnishment is when you take money from a third party who owes the debtor, such as the debtor’s employer. Technically then, taking money directly from the debtor is not a garnishment. Since the federal law governs garnishments, it has no bearing on our orders in aid of judgment.

What the court completely fails to take into account is that a garnishment and an order in aid of judgment have the same effect: you risk being deprived of future paychecks needed to support yourself and your family. What good is a paycheck when you have to surrender it the second you receive it?

3. Debt Collection

We see a lot of people who owe money that they can't afford to pay back. Most times, they don't dispute the debt. They owe the money. The sad fact is, however, they have no money with which to repay the debt. (And by "debt," I mean money owed for goods and services, NOT child support or spousal support.)

We've seen some pretty bad abuses of the debt collection system in the CNMI, too. There is a very strong sentiment that people who owe money MUST pay it back. I have seen the moral and legal obligation to repay money considered more important than supporting children, than buying food, than providing for utilities for one's self, than having transportation, than health needs, than any of the basics of life. And I've seen that attitude from not only collection attorneys and their clients, but from judges.

People who are too poor to pay have been "ordered" to pay anyway, and those orders are under threat of contempt, which can result in jail time. I know of dozens of cases where poor people here in the CNMI were put in jail for not paying their debts, and put in jail without being given an attorney first to help protect their liberty.

MLSC has been relentlessly trying to help poor clients be educated about their rights. We have tried to push the court to follow the law through our representation of indigents in consumer cases. We've had limited success.

So here are a few reminders. This is not an exhaustive list, but it may help people understand the debt collection process, and how it is supposed to work, a little better.

1. When you owe a debt, you can be taken to court for a judgment to be entered against you, and for the court to consider your ability to pay it.

2. When a collection agency like "Reliable Collection" contacts you, you have a right to certain notices. If they call, tell them to stop calling, and keep track of every call, what they say, and what you say. If they write, keep the letters you get. If they threaten you with court action, say "that's a good idea." Because RCA adds on more charges than you typically pay in court. If you are a debtor, collection agencies are not your friends. Don't trust them.

3. DO NOT BE AFRAID OF COURT. You have a chance to have your rights protected in court. If you get papers to go to court, be sure to show up, or you can be arrested.

4. It's a good idea to get legal advice before you go to court. If you are poor, come to Micronesian Legal Services with your court papers (and your collection letters or notes about collection agency contacts).

5. No matter how much you owe, there are some kinds of income that can never be taken from you in payment of the judgment: food stamps, SSI, Social Security benefits, VA benefits, NMI Retirement benefits and income from other similar programs.

6. You also get to protect a certain amount of your income that is necessary for your daily needs.(The federal rule sets this equal to 30 times the federal minimum wage per week). The CNMI law, along with certain federal laws, are designed to keep poor people from going over the edge-mentally, financially. The laws want to help you avoid bankruptcy. The laws want you to be honest, repay your debts within your ability, and support yourself and your family at least to a basic level.

7. But if you are in serious debt and you have some income or asset to protect from the reach of creditors, then you might want to consider bankruptcy relief. This may discharge all of your debts completely, or set up a payment plan for 3 to 5 years and discharge whatever is beyond the plan. Bankruptcy is helpful, but you can only file once every 7 years, and it has a negative effect on your credit rating.

8. If you're thinking about bankruptcy, get a lawyer. There are new rules. You must have credit counseling before you file. And you must meet other requirements that are somewhat tricky.

9. If you have bench warrants out for your arrest, get a lawyer. You don't need to keep hiding. You can do something to get things straightened out and stop worrying.

10. But the best way to avoid running into debt collection problems is to avoid unrealistic debt. Stay away from Friendly Finance, Wells Fargo and Isla Financial Services. These businesses say credit is easy-but it's not. It comes at a very high price and is extremely hard to repay, for anyone. Don't use credit for birthdays, weddings, funerals, baptisms, holy communion or confirmation parties, or anything else like that. Credit is best used for big purchases that you really need and most people aren't going to have enough money for, like houses and cars. Use cash for everything else, and if you don't have cash--don't spend, as hard as it is.

I really admire a lot of my clients who live in poverty. They are strong. They survive without power, telephones, and transportation. Their lives are difficult. But they do what they can and keep trying.

If you're facing tough economic times, please, don't make your life more difficult with bad credit choices.

Good luck.