When discussing debt repayment, the creditor is sometimes described as a “bad guy” trying to rob the poor. In reality, creditors are simply doing their jobs. In fact, the creditor also faces financial loss when the debtor cannot pay the agreed amount.
Consumers are protected from unfair debt collection, but, on the flip side, creditors have legal rights as well.
Repossession and liquidation
Certain types of credit may affect your ability to collect payment. For example, a debtor finances a car and fails to pay for the subsequent bills. Because the value of the car was essentially a loan until the debtor pays the full amount plus interest over time, you may be able to seize the car. This is an example of a secured transaction.
Secured transactions must be in writing and presented to the debtor so that they know the consequences of skipping repayment. Debtors can run into trouble if they agree to secure their property on a loan they may not be able to afford.
Even if the loan was not secured with a specific property, creditors might be able to liquidate other property. If the debtor fails to pay, you can start a lawsuit and ask a judge to award the debtor’s property to you.
Alternatively, you may receive a lien, which is a right to a piece of property similar to a secured transaction. Once the debtor pays you in full, the lien will dissolve and they will own the property again. If they cannot pay, you may sell the property.
When a debtor files for bankruptcy, creditors don’t always completely lose the owed value. There are a few ways that creditors can still receive a portion or the entire amount.
First, creditors with secured transactions hold priority over non-secured transactions. This means that if there is a dispute between creditors about who is entitled to seize a property, the creditor who secured the property takes precedence.
In addition, the type of bankruptcy matters. If the debtor files for Chapter 13 bankruptcy, they may begin a repayment plan that will benefit their various creditors. In Chapter 7, many of the debtor’s assets could be available for liquidation with the help of a court-appointed trustee. Creditors can even choose to begin the bankruptcy process for a debtor, but you should approach this option with caution.
As a creditor, you have a difficult job. Many of your debtors generally aren’t happy to see you and some might be uncooperative. These legal rights, however, can help you receive the value to which you are entitled.
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Sheehan, Barnett, Dean, Pennington, Dexter & Tucker, P.S.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.