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Recent Blog Posts
Four Ways to Prevent Excuses for Missed Payments
As a finance company, you are familiar with the common excuses that clients give when they miss a payment. They may admit to their mistake and say that they forgot or did not have the money to make the payment that month. Other clients may blame your billing process or circumstances that were beyond their control. Rather than tolerate the excuses, you can create a billing and payment process that prevents them. This way, clients can blame only themselves when they miss a payment. Here are four fixes to common excuses for missed payments:
- Multiple Ways to View the Bill: Clients may claim that they could not find the bill, whether it was losing a mail copy or accidentally deleting an email. This is a flimsy excuse because the client could have asked you for another copy of the bill. There is even less of an excuse if you allow clients to pay bills through an online account. Encourage clients to register on your site, where they can always view their bills and make easy payments.
Collecting Workers' Compensation Claims After Bankruptcy
When can a creditor claim a workers’ compensation award from a debtor who has filed for bankruptcy in Illinois? That question is at the heart of a recent case that is heading to the Illinois Supreme Court. In the case of In re Elena Hernandez, the debtor filed for Chapter 7 bankruptcy. Among her debts were more than $100,000 that she owed to healthcare providers for treating a work-related injury. She claimed a bankruptcy exemption for her $31,000 workers’ compensation settlement. The healthcare creditors contested the exemption, stating that it unreasonably undermines their ability to collect on the debt. Both the bankruptcy court and a circuit court agreed with the creditors, but the appellate court saw enough evidence on both sides of the argument to ask Illinois’ highest court to make a definitive ruling.
Best Practices for Collecting Healthcare Debts
Debt from medical bills is one of the top causes of people filing for bankruptcy in the U.S. Unlike purchasing a home or vehicle, healthcare is often an urgent need, and patients must immediately decide whether they will go forward with medical treatment. As a healthcare provider, you do not want medical bills to add to your patients’ stress but may need to be aggressive if a patient has gone months without paying. Organizations such as the Healthcare Financial Management Association have guidelines on how to best handle debt collection from patients:
- Understanding Patients In Advance: A patient may have limited health insurance coverage or no health insurance. You may need to educate patients about the ways that they can obtain health insurance or apply for financial assistance. Be upfront about the cost of the appointment or service and whether you offer a payment plan for patients who cannot pay the bill in a lump sum.
Illinois Considers Raising Homestead Exemption to $150K
Illinois lawmakers have once again introduced legislation that would change creditor’s debt collection practices. A similar bill from last year failed to make it out of committee, but lawmakers have outlined several goals that they believe will protect debtors:
- Requiring all court summons for a debt collection lawsuit to include a debtor’s “bill of rights”;
- Reducing the time in which a creditor can revive a judgment against a debtor to five years;
- Lowering the annual interest rate on debt judgments less than $25,000 to two percent; and
- Raising the value of the exemptions that debtors can use to protect their assets from creditors.
The proposed change to the homestead exemption stands out because of the sizeable jump. The exemption would increase from $15,000 to $150,000 for an individual homeowner and $30,000 to $200,000 for a couple.
Requirements for Creating a Reaffirmation Agreement
After bankruptcy filers discharge their debts, unsecured creditors may lose the ability to seek or enforce repayment. The debtor can voluntarily repay the creditor in order to keep a property but has no contractual obligation to make continued payments. In some cases, the debtor may choose to reaffirm the debt. The debtor signs a new agreement that requires him or her to repay the debt. As an incentive, the creditor may offer to refinance the debt into terms that are more manageable for the debtor. However, courts will not enforce a reaffirmation agreement unless you met the legal requirements in creating it. You could instead be liable for damages to the debtor if the court rules that the agreement violated the bankruptcy discharge injunction.
Deadline
You must meet two deadlines in order to file a reaffirmation agreement with a debtor:
Confusion When Collecting from Divorced Couples
A couple going through a divorce must divide their debts as well as their assets. Each spouse takes responsibility for paying off a portion of the marital debt, such as a:
- Mortgage;
- Credit card balance;
- Personal loan; or
- Medical bill.
Divorcees may mistakenly believe that they are not liable for the debts that their former spouse assumed. As a creditor, you are not bound by the terms of a divorce agreement and have the right to pursue repayment of the debt from either spouse after the divorce.
Loan Contract vs. Divorce Agreement
You can give a clear explanation to a debtor who argues that the debt belongs to his or her former spouse:
- Dividing debts during divorce is a personal agreement about who should be responsible for paying a debt; but
Collecting Debts from Unpaid Federal Employees During Government Shutdown
The federal government shutdown has affected hundreds of thousands of federal government employees who are either being furloughed or forced to work without pay. The employees have already missed paychecks and will continue to miss them as long as the shutdown continues. Without the pay, some employees may not make their regular debt payments. Creditors must decide how aggressive they want to be in collecting debts from federal employees while the shutdown is ongoing.
Working with Debtors
Several federal agencies have asked creditors to be lenient with federal employees who owe debts. Following previous government shutdowns, many federal employees have received back pay for what they should have earned during the shutdown. Assuming that the current shutdown ends soon, the employees could have enough money to make up for missed debt payments. Some creditors may modify their agreements with debtors, extending the length of time that the debtor has to repay the loan in exchange for increased interest or other fees. Though there is risk involved, creditors who show patience towards federal employees may still be able to receive the money owed to them while maintaining a good relationship with the debtors.
Banker's Options When Debtor Files for Bankruptcy
A bank must pause its efforts to collect a debt or foreclose on a property if the debtor files for bankruptcy. The automatic stay is one of the most powerful tools that a debtor has during bankruptcy. The stay expires after 30 days, but the debtor can file for an extension. As a bank, your priority when a client files for bankruptcy is to protect yourself and try to recuperate the debts owed to you. There are several actions you should consider.
Freezing Account
The automatic stay prevents you from withdrawing money from a bankruptcy filer’s account in order to offset debt. However, you can freeze your client's bank account in order to:
- Protect the money from a bankruptcy trustee; or
- Hold onto the money until you are able to offset it.
The trustee may order you to release the portion of the bank account that will be exempt from the bankruptcy. It may take weeks for the trustee to make this determination, which buys you time to pursue legal action.
Options for Junior Creditors During Foreclosure
Junior creditors are at a disadvantage when senior creditors decide to foreclose on a debtor’s mortgage. The senior creditor has priority in the foreclosure sale, and the junior creditor may receive little or no compensation for what the debtor owes it because its debt is often unsecured. A junior creditor can be:
- A lender that gave a second mortgage to the debtor with the property as collateral; or
- A party that received a judgment lien against the debtor’s property as the result of winning a lawsuit against the debtor.
A junior creditor can put itself in a position to receive some compensation from a foreclosure by participating in the foreclosure process. It may also file a lawsuit against the debtor to collect money still owed from its lien.
Sale Surplus
When Mortgagees Claim They Never Received Foreclosure Notice
A mortgagor can complete a foreclosure and sale of a property, all without hearing a word from the mortgagee who is living at the property. However, the mortgagee may object to the foreclosure sale at the last minute, claiming that he or she never received notice of the foreclosure. This may be a delaying tactic or a desperate attempt to hold onto a property. The mortgagee has the burden of proving that the mortgagor failed to properly serve notice of the foreclosure.
Service Methods
A mortgagor tries to directly serve the foreclosure notice to the mortgagee, who confirms receipt with his or her signature. The mortgagor has alternative methods of service when the mortgagee cannot be found, including:
- Leaving it with someone who lives with the mortgagee at the property;
- Mailing it to the last-known address of the mortgagee; or
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