Consumer Debt Collection and Garnishment
| Author | Jeffrey Wilson |
| Pages | 289-293 |
Page 289
In a robust economy (such as that of the economic boom during the 1990s and early 2000s), credit comes easy and consumers often respond by over-indulging in purchases and loans. Many consumers ultimately find themselves overextended in both available credit and outstanding debt. However, when credit tightens, or personal circumstances in the life of a consumer-debtor change, there can be a domino effect spreading from individual debtors all the way to the national economy.
During rough financial times, there is often nothing as difficult as picking up the telephone and informing a creditor that a payment will be late or not coming at all. However, this is precisely what needs to be done. Creditors often have as much at stake in a defaulting account as the debtor. Therefore, it is to the benefit of both parties to attempt a solution short of formal proceedings.
In order to fairly accomplish this, debtors should be acquainted with their rights and the various laws, remedies, and procedures available to both them and their creditors.
At the outset, it is important to distinguish between two main classes of creditors, to whom debts may be in default. The distinction directly affects the outcome of a debt collection matter.
A secured loan is one that requires the debtor to pledge something of value as collateral for the loan. Home mortgages and auto loans are common examples affecting most consumers. In each of these two examples, the purchased house or the purchased automobile becomes the collateral for the loan, and the lender has a "security interest" in the collateral/property that secures the debt. When a debtor defaults in payments, the "secured creditor" can simply repossess the car or house. (A foreclosure on a house is a form of repossession by the lender, but federal and state laws impose additional notice requirements upon defaulting debtors. However, in the classic "land contract" sale of property at common law, debtors who defaulted in payments generally lost the property and all equity therein.)
On the other hand, most credit card debts, revolving credit at retail stores, student loans, etc., are unsecured debts. The "general" (unsecured) creditors
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must file suit and win a judgment against the debtor before they can seize or sell any assets or belongings of a debtor to satisfy the debt. Once the general creditor has obtained a judgment against a defaulting debtor, the general creditor stands as a secured creditor who may then move on to levy liens or writs of execution against a debtor's assets and personal property. (See "Formal Proceedings" below.)
Once a debtor has defaulted on making a payment as originally agreed to between the debtor and creditor, the creditor has several choices. It may contact the debtor directly, turn the matter over to an internal collections department, or turn the matter over to external collection agencies.
It is clearly within the best interests of both creditor and debtor to resolve the matter "internally." Depending on whether the creditor is a general or secured one, the options available are broad. Generally, however, most consumer debt (other than for houses and automobiles) is unsecured, and creditors are general creditors whose collection activities are more limited prior to obtaining an actual judgment against a debtor.
Depending upon the debtor's prior payment history with a particular creditor, no action may be taken at all, other than a friendly "reminder" letter, if a monthly payment is missed on an installment agreement, revolving credit account, or credit card account. Creditors are happy to charge late fees, add accrued interest to the new balance, and double the amount owed for the following month. However, after a certain number of days without payment (again, depending on the debtor's prior history), creditors will contact the debtor, usually by correspondence and...
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