Creditors would generally prefer to be able to collect a debt from a debtor simply by sending the debtor a bill and receiving immediate or gradual payment from the debtor. Unfortunately, not all debtors pay their bills on time, and some do not pay the debt at all. When a debtor defaults on a debt, the creditor has to decide how to best collect the debt.

Creditors who make the decision to file a lawsuit to compel a debtor to pay a debt may do so in order to preserve their rights. If a debt goes unpaid for a certain period of time, the debt can become unrecoverable through a lawsuit. This period of time is known as the statute of limitations and can be used as a defense by a debtor. Therefore, a creditor can file a lawsuit before the time is up in order to stop the debtor from raising this defense.

If the debtor chooses not to participate in the lawsuit, the court can automatically rule in the creditor’s favor, and grant a default judgement. Even if the debtor does not pay the judgement awarded in a lawsuit, the creditor can use the judgement to take other collection actions, such as wage garnishment.

The preservation of the creditor’s rights by avoiding a statute of limitations defense is one of many considerations that go into the decision to file a lawsuit. Another major concern is the cost of litigation to preserve the creditor’s rights. If the cost of filing a lawsuit and litigation to collect the debt is more than the debt, the creditor may decide to write off the debt.

In many cases, especially if the debt is small and it would cost the creditor more to try and collect the debt, a creditor may decide to turn the debt over to a collection agency. In some cases the creditor sells the debt to the collection agency for less than the debt owed.

It is more difficult to collect a debt that is unsecured if the debtor files for bankruptcy. A bankruptcy trustee usually pays off secured debts first, and then unsecured debt may be paid off for a fraction of what is owed. In some cases, unsecured debts are not paid at all. If commercially possible, creditors should ensure that all credit extended to debtors is secured by some collateral. Securing a debt can also be useful before a debtor files for bankruptcy.

A creditor can use a lien to foreclose or repose property that secures a debt and force its sale to pay the debt. Arranging a sale of repossessed property usually requires taking certain steps to ensure the best price is paid for the repossessed property. Before organizing a sale to recover a debt, the creditor should consult an attorney to ensure that they do not violate the debtor’s rights when executing the sale.

Contact Us for More Information

For more information on how you can best collect a debt with minimal costs to your organization and how to deal with debtor bankruptcy, you need to consult an experienced creditor’s rights attorney. Contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

(image courtesy of Fabian Blank)

Debt settlement is a process by which a debtor settles a debt to a creditor for less than the total balance of the debt owed. Creditors realize that they are not able to collect the full amount by debtors 100% of the time. Therefore, where there is a chance of settling the debt, a creditor may be willing to take the lower settlement amount than risk never getting paid at all. Some debts, such as a mortgage or a car loan, are not generally settled, and bankruptcy may be a better way to resolve these debts.

Creditors are generally under no obligation to settle debts. However, through negotiation, some creditors may be willing to take a lower settlement amount. Negotiating with creditors can be tough, and in most cases, having a skilled negotiator with experience handling debt settlements can make a big difference. If the creditor agrees to a settlement, there are some things to keep in mind.

• The amount of the debt that gets cancelled in the settlement becomes taxable as income if it is over a threshold amount. This means that if a person owes $20,000 to a creditor, and settles the debt for $15,000, the debtor will owes taxes on the $5,000 that is cancelled. This sometimes comes as a surprise to debtors because they never actually receive $5,000 in cash or in their bank accounts, but the tax still attaches to the money.
• In order to ensure that the debt is truly settled, you must have it in writing, and confirm all the terms of the settlement are what you understand them to be. This is where having an attorney handling the debt settlement can come in handy. An attorney can negotiate on your behalf and ensure that, under the terms of the agreement, you do not end up owing any hidden fees, and that your debt really is settled.
• Even with debt settlement, your credit will still be negatively affected. However, if you are significantly behind on your bills, the settlement may not make as big of an impact on your overall score. Additionally, even with debt settlement, payments can be spread out over a period of time, and while making payments may help overall, it will not mean an immediate improvement in your credit score.

Call Us for Legal Assistance

Before you decide how to best deal with mounting debt, you need to know all your options. To schedule a consultation to discuss bankruptcy, debt settlement, and other ways you can manage your debt, contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan.

(image courtesy of Fabian Blank)