What can creditors do if I don’t pay them?
This question is an important one. For anyone facing a difficult financial situation, it is important to know what creditors can do to collect money from you. It’s also important to understand this when deciding to proceed with bankruptcy. After all, if a creditor can’t do anything to you, why file bankruptcy?
The specific actions creditors can take to collect debt varies from state to state, but generally creditors can do a number of things to collect debt. The first step besides calling and harassing you for the money is to file a lawsuit and seek a judgment for the amount of the debt. Once the creditor obtains a judgment the creditor must then take steps to collect the judgment.
States provide a number of options to creditors to collect judgments. The most common action creditors take to collect judgments is to garnish the debtor’s wages. Most states set limits on the percentage of the debtor’s income the creditor can get, usually somewhere around 25% of net income. There are some states that do not allow the garnishment of wages but most states do.
Creditors can turn judgments into liens against real estate making the debt a secured debt against any real estate the debtor owns. This means that when the debtor tries to refinance or sell a piece of real estate, the debt must be paid in full. Judgments continue to accrue interest, so even if a creditor must wait to get paid, it will be paid with interest.
Creditors can also seek to set aside transfers of assets. If the debtor paid money to a family member in the last couple of years, creditors can seek court orders for the turn over of the money against those family members who received money from the debtor.
Creditors can also force the sale of assets to satisfy the debt. If someone owns personal property like furniture, collectibles, automobiles, etc… that are worth more than a particular state allows the debtor to exempt, the creditor can seek a court order to sell the assets to satisfy the debt.
Creditors can also attempt to freeze the debtor’s bank accounts. If a debtor has money in a bank account that exceeds the state’s applicable exemption, then the creditor can seek a court order to take the money in the bank account to pay the debt.
As you can see, there are a number of things that creditors can do to collect judgments from debtors. The above are just a few basic things. Every state has laws governing collection of judgments and sometimes certain collection strategies are adopted depending on the state. So, the above list is by no means complete and exhaustive, but simply highlights some of the things creditors can do. Of course, you would want to discuss these things with an attorney specifically in your state to understand what creditors can do to collect a judgment against you. It is apparent, though, that there are a number of undesirable things that could result from a judgment against you.
My law firm can prevent most of these unpleasantries from happening to our clients by assisting them with a bankruptcy filing under either Chapter 7 or Chapter 13.
