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Commonly Omitted Assets in Bankruptcy & Their Effect On Creditors
Creditors facing one or more debtors who have filed for bankruptcy protection may be understandably concerned about getting paid on outstanding debt. Sometimes debtors will omit assets from the bankruptcy filing intentionally or by mistake, which may affect the value of the bankruptcy estate and the likelihood that creditors – particularly unsecured creditors – will get paid. An experienced Chicago creditor representation attorney can advise creditors concerned about getting paid when a debtor files for bankruptcy.
How Can Omitted Assets Affect Creditors?
How creditors are paid in bankruptcy depends on many factors, including the type of bankruptcy protection the debtor has filed. Yet as a general matter, creditors are paid from the bankruptcy estate, which is made up of the value of the debtor’s assets sold by the bankruptcy trustee. That means that the value of the bankruptcy estate will be determined by the value of the debtor’s assets, which debtors must list on the Schedule B form of the bankruptcy filing.
Using Judgement Liens to Collect On Judgments
Creditors who have received a court judgment against a debtor may sometimes find that the judgment is only the first step to collecting the debt. Unfortunately, that judgment does not guarantee that the creditor will receive payment. One of the tools to which creditors turn to enforce judgments is the judgment lien, which gives the creditor the right to force the sale of property owned by the debtor to collect on a judgment. In Illinois, an experienced creditors’ rights attorney can represent lenders to obtain judgment liens and collect on judgments.
How Can Judgment Liens Protect Creditors?
A judgment lien provides a way for creditors to obtain payment on an unpaid judgment by allowing creditors to force the sale of a property and use the proceeds from that sale to recover the unpaid judgment. It is not an automatic process. The creditor must file court documents in the appropriate country recorder as well as a copy with the Illinois circuit court clerk in the county in which the property is located.
Replevin vs. Detinue in Asset Recovery Actions
When it comes to recovering certain types of assets such as electronics, vehicles, or furniture, two types of actions to which a creditor can turn in Illinois are detinue and replevin. Although related, these two asset recovery actions are different. Both can help a creditor recover property when a debtor has defaulted on their payments. A creditor’s rights attorney can represent a business seeking to use replevin or detinue to recover these types of assets.
Replevin and Detinue Compared
While detinue and replevin are similar in that they are both used to recover smaller assets such as vehicles, there are some key differences.
What is Replevin?
Illinois law provides that when goods have been wrongfully kept or taken, a replevin action may be brought in court to recover those goods to the entity entitled to possession of the goods. In a replevin action, the creditor will take possession of the property temporarily while a lawsuit proceeds. As part of a replevin action, a creditor may obtain a writ of replevin, which is a legal document that authorizes its holder to get back possession of the assets.
Objecting at a Debtor’s Chapter 13 Confirmation Hearing
While you can not necessarily stop your debtor from completing the Chapter 13 bankruptcy process, you can file an objection at his or her confirmation hearing. At a confirmation hearing, the repayment plan and each of the petitioner’s debts are reviewed and confirmed. If there is something inaccurate about how your debtor has disclosed what he or she owes you or the value of any collateral involved, you may want to consider filing an objection. If you do not object during the confirmation hearing, you generally lose your chance to object. If one of your debtors is filing for bankruptcy, an experienced Chicago, IL debt collections attorney should review the filing to ensure that your interests are protected as well as possible.
Negotiating a Settlement Out of Court
Ideally, you should try to resolve the dispute with your debtor out of court. If there is a discrepancy between the amount your debtor owes or the value of any collateral and the amount or value he or she reported to the court, it could be simply due to an error. For example, if your debtor has numerous credit cards, he may have mixed up the balances on two of them. If that is the case, the error can readily be corrected.
Which Creditors Can Garnish Wages in Illinois?
If you have tried almost everything to get your debtor to start making payments and all less extreme methods have failed, it might be time to consider wage garnishment as a means of getting paid back. When you receive a court order giving you permission to garnish your debtor's wages, his or her employer will have to start withholding a portion of your debtor’s pay and sending it directly to you. In Illinois, nearly all creditors can use wage garnishment to recoup a debt. However, you will need to obtain a court order. An aggressive Chicago, IL debt collection lawyer can help you petition the court for a wage garnishment order.
What Types of Debt Can be Recovered Through Wage Garnishment?
Some states are very restrictive regarding wage garnishment, allowing only certain types of creditors to resort to this method of debt recovery. These states often reserve wage garnishment as a remedy for specific types of debt, like family support obligations or tax debt. Illinois allows most commercial creditors to use wage garnishment after getting a court order. You might be able to get a wage garnishment order to recover:
What if I Suspect a Debtor is Hiding Assets?
People who have gone into severe debt may try to hide assets from their creditors, hoping to avoid repaying even part of their debt. After getting a judgment against your debtor, you can still only collect what your debtor can pay based on his or her assets and wages. You may come to realize that your debtor appears to have more money or a more upscale lifestyle than he or she should be able to afford based on the assets he or she reported. When this is the case, it is quite likely that the debtor is hiding assets from you and his or her other creditors. An experienced Chicago, IL asset recovery lawyer can help you search for any assets your debtor may be concealing.
How Debtors Try to Hide Assets
People may try to conceal assets in any number of ways, such as:
- Putting assets in another person’s name - Your debtor may have no savings to his name, but his five-year-old daughter might have a shockingly large bank account in her name. People may also do things like retitling their cars so the vehicle appears to be owned by a family member while the original owner continues driving it.
When Your Business Debtor is Failing
As a lender, it is best to be aware of how your business debtors are doing. Most new businesses rely on loans to cover startup costs, and unfortunately, quite a few will fail within the first year. Even longstanding businesses may rely on loans to expand. If a small to mid-size business you have loaned money to is failing, you may have a limited time to act before the business goes under and your hopes of being repaid drop precipitously. When you become aware that one of your business debtors is struggling to stay open amidst financial difficulties, there are steps you can take now to increase your chances of collecting on that debt. Before you act, it would be wise to consult an experienced Chicago, IL debt collection attorney.
When to Consider Repossessing Commercial Assets
If the business has fallen far behind on its payments, and the loan is secured by business capital, you may be able to use repossession to avoid losing your investment. You may want to first consider what the chances are that the business will recover and catch up on overdue payments. If the business has been operating for quite a while and has a reasonable explanation for a current financial setback, you may instead want to give the business time to start making payments again. However, if the company looks to be on the brink of collapse, it may make more sense to proceed with repossession.
Why Lenders Should Consider Out-of-Court Restructurings
Out-of-court debt restructuring can offer financial institutions and creditors a more flexible, efficient, and less adversarial way to resolve debt issues compared to traditional court proceedings. When financial institutions face difficulty recovering payment from distressed borrowers, it becomes necessary to explore strategies that protect creditor rights while facilitating a resolution process that benefits everyone.
Understanding the advantages of out-of-court restructuring can help financial institutions maintain stronger relationships with borrowers and avoid the complexities of court-supervised bankruptcy. Call a Chicago, IL debt collection attorney to learn more.
What Is Out-of-Court Restructuring?
Out-of-court restructuring is a debt resolution process that takes place outside of the formal bankruptcy court system. This approach allows creditors and debtors to negotiate and reach an agreement on restructuring debt obligations without the need for court intervention.
How to Deal With Objections to Confirmation in Illinois
Navigating the bankruptcy process in Illinois as a debt collection agency can be difficult, especially when dealing with objections to confirmation. An Illinois lawyer can help you understand how to handle these objections effectively, which is crucial for protecting your interests and ensuring a fair resolution.
What to Know About Objections to Confirmation
Objections to confirmation occur when a creditor or trustee disagrees with the debtor’s proposed repayment plan in a Chapter 13 bankruptcy case. These objections can arise for various reasons, including insufficient repayment amounts, inaccurate property valuations, questionable good faith in filing, or failure to commit all disposable income.
By familiarizing yourself with these common grounds for objection, you can better identify potential issues early in the process and prepare your response effectively. This proactive approach allows you to address concerns promptly and increases your chances of a favorable outcome.
The Hidden Costs of Delayed Asset Recovery
Maintaining a steady cash flow is vital for success. Yet many companies struggle with unpaid invoices and delayed payments. While the immediate impact of outstanding debts is evident, the long-term consequences often remain hidden, silently crumbling a company’s financial foundation. If you find yourself in this situation, an Illinois lawyer can help you with a strategic plan.
The Ripple Effect on Working Capital
One of the most notable unanticipated charges of delayed asset recovery is the pressure it imposes on working capital. Every dollar tied up in unpaid invoices represents a missed opportunity for reinvestment. This limitation can force companies to postpone critical equipment upgrades, delay expansion plans, or even struggle to meet regular operational expenses.
The burden of unpaid invoices often leads businesses to seek additional financing to bridge cash flow gaps. This reliance on credit lines or short-term loans comes at a price, typically in the form of interest payments and fees. These additional expenses represent a direct reduction in profitability – a hidden cost that compounds over time.
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