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Recent Blog Posts
What Are a Creditor’s Rights When Collecting from Cosigners?
A person looking to create a loan agreement may need a cosigner if the creditor is uncertain whether the borrower will be able to continue making payments until the loan is repaid. As a creditor, a cosigner may allow you to take a chance on a potential client by mitigating some of the risks. If the borrower defaults on their debt, you have another party that you can order to repay the loan. However, the cosigner will want to avoid paying you if they can get out of it. You must understand the rights of creditors and cosigners and the circumstances under which the cosigner is liable for the debt.
When Can You Collect from a Cosigner?
According to Illinois law, creditors are not allowed to take collection action against a cosigner until:
- The primary debtor has defaulted on or is delinquent on the debt;
Three Limitations of Wage Garnishment for Creditors
Wage garnishment is one of the most direct tools that creditors use to collect from noncompliant debtors. A creditor can submit a garnishment order after it has filed a lawsuit against the debtor and received a money judgment from the court. Employers are required to comply with a garnishment order and can be fined if they do not withdraw the exact amount ordered or if they retaliate against the debtor for the garnishment. However, wage garnishment has limitations that can sometimes prevent a creditor from collecting the necessary money from the debtor. Here are three facts about wage garnishment that creditors should know:
- Cap on Withdrawals: There are federal and state protections against wage garnishment to prevent creditors from taking all of a debtor’s wages. First, garnishment must come from the debtor’s disposable earnings, which is the debtor’s wage after deducting expenses such as Social Security and pension contributions. Commercial creditors in Illinois are not allowed to garnish a wage unless the debtor makes more than 45 times either the state or federal minimum wage – whichever is higher. With Illinois currently having a higher minimum wage, debtors must earn more than $371.25 per week. If the debtor is eligible, commercial creditors can take the amount that the wage exceeds $371.25 per week or 15 percent of the debtor’s wage – whichever is lower.
Illinois Law Protects Commercial Loan Lenders
When creating a loan agreement in Illinois, there is a big difference between personal loans and commercial loans. Individuals or spouses take out personal loans in order to pay for family or household expenses – the most common example being home mortgages. Commercial loans are credit agreements made with business owners for the purpose of starting or expanding a business. In Illinois, commercial loans are more favorable to lenders than personal loans because of the Illinois Credit Agreements Act. Thus, making sure to classify a loan as a credit agreement could save you from a lengthy legal battle.
Commercial Loan Rules
The Illinois Credit Agreements Act states that a credit agreement or any revisions to an agreement is valid only if the agreement is in writing and signed by both parties. The law defines credit agreements as not including credit cards or loans for personal, household, or family purposes. The lender and the commercial debtor cannot create an agreement by:
When You Can Foreclose on a Reverse Mortgage
Older homeowners can use a reverse mortgage as a source of income or credit. While borrowers qualify for regular mortgages based on their income, a reverse mortgage is based on the borrower’s equity in their home. People age 62 and older are eligible to take out a reverse mortgage on their principal residence as long as they own it outright or have enough equity in it. The mortgage balance is not due until a qualifying event occurs. If the borrower or their heirs do not repay the mortgage, the lender may foreclose on the property.
When Can a Reverse Mortgage Become Due?
According to Illinois’ Reverse Mortgage Act, there are five ways that the balance on a reverse mortgage can become due:
- The borrower or last remaining tenant dies;
- The property is sold;
- The borrowers no longer use the property as their principal residence;
Differences Between Debt Consolidation and Debt Restructuring
When a client is unable to pay a debt, it sometimes makes sense to offer to modify the loan. Though you may lose some money after the modification, it would be less of a loss than if the client filed for bankruptcy and discharged the debt. The modification may also allow you to maintain your relationship with the client. Two forms of modification are debt consolidation and debt restructuring. Though they have some similarities, they are each best suited for certain debtor situations.
Debt Consolidation
With debt consolidation, the debtor enters a new loan agreement that pays for multiple, smaller loans over a longer period of time. Debt consolidation can be attractive to the debtor because:
- It simplifies payments of multiple loans into one payment;
Illinois Reducing Interest Rate, Revival Deadline on Consumer Debt Judgments
Illinois Gov. J.B. Pritzker is expected to sign a bill that will change the rules for collecting consumer debt after a debt judgment. The bill, which has passed both the Illinois Senate and House of Representatives, would reduce the interest rate charged to outstanding consumer debts. More significantly, the bill would cut by 10 years the amount of time that a creditor has to revive a judgment that has become dormant. Sponsors of the law tout it as a way to protect low-income Illinois consumers from cumbersome debts. Creditors of Illinois debtors may need to work faster to collect on court-ordered debt judgments.
Qualifications
There are two important caveats of the law as it applies to debtors. The changes affect debt judgments only if:
- They involve consumer debts; and
- The debt is $25,000 or less.
Supreme Court Sets Civil Contempt Standard for Creditors in Bankruptcy Cases
A recent U.S. Supreme Court ruling established that creditors can be held in civil contempt for violating a bankruptcy discharge order unless there is “fair ground of doubt” as to the violation. A chapter 7 bankruptcy discharge will clear a debtor from having to repay most of their debts incurred before filing for bankruptcy. A discharge does not apply to certain debts, such as student loans or debts incurred due to fraud. Otherwise, a creditor is not allowed to ask a debtor to repay debts from before the discharge order and could be punished for knowingly violating the order. While not a landmark Supreme Court decision, lower courts will likely cite the ruling during disputes between debtors and creditors after a bankruptcy discharge.
Case Details
Taggart v. Lorenzen is an Oregon case involving a business investor who had received a bankruptcy discharge to protect him from repaying his creditors. Litigation continued over the ownership of the debtor’s business interests, and the court ordered the debtor to pay the creditors’ legal fees at the end of the case. The debtor filed for an order of contempt, claiming that the creditors violated the discharge order by trying to collect legal fees. This case became a larger argument about what constitutes a creditor being in civil contempt of a discharge order:
What Voluntary Repossession Means for Auto Lenders
Repossession is often the last resort for auto lenders when dealing with debtors who are behind on their loan payments. You are more likely to retrieve full value on the loan if the debtor continues to make payments than if you repossess the vehicle and resell it. There is also the hassle of notifying the debtor of your intention to repossess and hiring someone to tow the vehicle for you. However, the process can be simpler if the debtor voluntarily turns the vehicle over for repossession. In most cases, the debtor will be the one to suggest voluntary repossession.
How It Works
The result of voluntary repossession is the same as involuntary repossession. You will regain possession of the vehicle and sell it to recuperate the money owed on the loan. The debtor will be liable for any deficiency between what you receive in the sale and what remains from the loan. The difference is that the debtor agrees to surrender the vehicle and will deliver it to you at a time and place of your choosing. The debtor’s compliance means that you will not be fighting over whether you have the right to repossess the vehicle or using a towing service to retrieve the vehicle.
Can You Retrieve Debt From a Retirement Plan?
When you receive a court judgment against a debtor, you are looking for any of the debtor’s available money or assets that you can claim. Retirement accounts can be one of the most lucrative assets that a debtor owns if he or she has had time to contribute to it. However, many retirement accounts are protected from creditors, whether after a successful lawsuit or after the debtor has filed for Chapter 7 bankruptcy. Creditors need to understand what type of retirement account the debtor has to know whether they can try to collect from it.
Federal Laws
Both federal and state laws address which types of retirement accounts are exempt from creditors. Federal law protects debtor retirement plans if they are:
- Qualified retirement plans created under the Employee Retirement Income Security Act; or
- Social Security benefits.
Illinois Court Rejects Interest Added to Charged-Off Debt
A creditor will usually charge off a delinquent debt if the debtor has gone six months without paying. By charging off the debt, the creditor is classifying it as a bad debt and will typically:
- Write off the debt as an asset on its books;
- Stop sending notices to the debtor; and
- Stop charging interest on the debt.
Efforts to collect the debt will often continue after it is charged off by either hiring a collection agency or selling it to a debt buyer. Many debt collectors would like to charge interest on a charged-off debt, but courts in Illinois have recently ruled against collectors who do so. If you have purchased a charged-off debt, you risk violating the Fair Debt Collection Practices Act if you charge interest on the debt without authorization.
Recent Case
The U.S. District Court for the Northern District of Illinois recently ruled against a debt buyer who added interest on a charged-off debt it had purchased. In Tabiti v. LVNV Funding, LLC, the defendant was the debt buyer who purchased a charged-off debt worth $10,463. The plaintiff was the debtor who claimed that the defendant violated the FDCPA because it did not have the authority to charge interest after it had purchased the charged-off debt. The court found in favor of the plaintiff in a summary judgment, citing two reasons:
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