Dealing with debt collection in Indiana? It's important to know the rules. This guide breaks down Indiana's debt collection laws in simple terms. These laws ensure fair and legal practices, protecting both creditors and debtors. From how collectors can contact you to what happens with unpaid debts, we cover the essentials. Whether you're collecting or owing, understanding these laws helps keep things above board.
Indiana Collection Laws are the rules about how debts can be collected in the state. They're there to make sure everything is done right and fairly. These laws cover various topics including:
A lender, collection agent or law firm that owns a collection account is a creditor. The law gives creditors several means of collecting delinquent debt. But before a creditor can start, the creditor must go to court to receive a judgment. See the Bills.com article Served Summons and Complaint to learn more about this process.
The court may grant a judgment to the creditor. A judgment is a declaration by a court the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, a lien on the debtor’s property, and in some states, ask a sheriff to seize the debtor’s personal property. The laws call these remedies. A creditor granted a judgment is called a judgment-creditor. Which of these tools a judgment-creditor will use depends on the circumstances. We discuss each of these remedies below.
Consistent with the Fair Debt Collection Practices Act Indiana enforces certain practices and limitations on debt collection to maintain fairness and legality in the process:
The most common remedy judgment-creditors use to enforce judgments is wage garnishment. Here, the judgment-creditor contacts the debtor’s employer and requires the employer to deduct a certain portion of the debtor’s wages each pay period and send the money to the creditor. However, several states — Texas, Pennsylvania, North Carolina, and South Carolina — do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the "preferred" method of judgment enforcement because, although possible, it is a tedious and time-consuming process for creditors.
In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state.
Garnishment of Social Security benefits or pensions for consumer debt is not allowed under federal law. Indiana law permits earnings garnishment for child support and maintenance up to 25% of the debtor’s disposable income (IC 24-4.5-5-105(2)). Indiana considers independent contractor (I-9) earnings as wages subject to garnishment (Ind. Surgical Specialists v. Griffin, 867 N.E.2d 260).
If you reside in another state, see the Bills.com Wage Garnishment article to learn more.
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A levy means that the creditor has the right to take whatever money is in a debtor’s account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state’s laws to find if a bank account can be levied.
Not all funds in your bank/credit union are open to levy/garnishment. Indiana’s bankruptcy exemptions found at IC 34-55-10-2 also apply to account levy. Note that these exemption amounts change relatively frequently, and the notices of exemption changes are found at the Indiana Dept. of Financial Institutions Web site.
Under Indiana law, the following may not be garnished, or a certain amount is exempt from garnishment:
As stated above, these amounts vary over time. If you reside in another state, see the Bills.com Account Levy resource to learn more about the general rules for this remedy.
A lien is an encumbrance — a claim — on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinances the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.
In Indiana, a judgment by a Indiana Court in the county where the consumer’s real estate is located is a lien against all the real estate owned by or acquired by the consumer for 10 years. However, if the court is in County A and the consumer resides in County B, the judgment does not become a lien automatically. The judgment-creditor must transfer the judgment to a County B court on its own (IC 34-55-9-2).
If you reside in another state, see the Bills.com Liens & How to Resolve Them article to learn more.
Each state has its own statute of limitations on civil matters. Here are Indiana’s statutes of limitations for consumer-related issues:
| Account/Type | Years | Statute |
|---|---|---|
| Credit card | 6 | IC 34-11-2-7 and IC 34-11-2-9 |
| Spoken contract | 6 | |
| Written contract | 6 | |
| Judgment Lien | 10 | Needham v. Suess, 577 N.E.2d 965, 1991. |
| Judgment | 20* | IC 34-11-2-12 |
| * Can be extended another 10 years (Lewis v. Rex Metal Craft, Inc., 831 N.E.2d 812) | ||
Indiana statutes of limitations. Source: Bills.com
When the statute of limitations clock starts is somewhat unsettled in Indiana. Under IC 34-11-3-1, the clock starts from the "date of the last item proved in the account on either side." Case law interprets this as the date of the last purchase. (McMahan v. Snap on Tool Corp., 478 N.E.2d 116.) However, the McMahan court left it unclear if this rule applies to credit cards or non-credit card open accounts only.
Indiana mortgage and foreclosure laws can be found in IC 32-29 and IC 32-30. A lender must foreclose judicially in Indiana, and give 30-days notice before doing so. A lender can collect a deficiency if doing so is written into the loan contract.
Indiana is not a community property state, so the general rule is one spouse not liable for the other spouse's separate debt, with the exception of medical debt.
Indiana's Necessaries Doctrine is not a state statute, but a product of court decisions. Both spouses have "secondary liability" the entire medical debt they incur. The debtor spouse retains primary liability for necessary expenses. If the cost of medical care exceeds the debtor spouse's separate funds and the debtor spouse is dependent on a financially superior spouse, then secondary liability is imposed on the non-debtor spouse. This secondary liability imposes liability only for the portion of the medical debt that exceeds the debtor spouse's available funds (Porter Mem. Hosp. v. Wozniak, 680 N.E.2d 13 (1997); and Barstrom v. Adjustment Bureau, Inc. 618 N.E.2d 1 (1993)).
Consult with a Indiana lawyer who is experienced in civil litigation to get precise answers to your questions about liens, levies, garnishment, and foreclosure.
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