Originally published: October 30, 2019 -- Updated: July 28, 2022

Update: In addition to understanding the time limits that apply in debt collection cases, creditors will need to know about the procedures they will need to follow to take legal action against a debtor within the applicable statute of limitations. By pursuing a legal judgment against a delinquent debtor, a creditor can ask the court to order debts to be repaid, and different methods may be available for collecting what is owed, including wage garnishment or liens against a debtor’s property.

To initiate a lawsuit against a debtor, a creditor will need to file a complaint in the applicable circuit court, which will typically be the court in the county where the debtor lives. This complaint will detail the amounts owed by the debtor, and it will ask the court to enforce the debtor’s obligations. The creditor will then need to serve a summons to the debtor. This document, which notifies the debtor of the lawsuit and informs them of when they will need to appear in court, may be served to the debtor by a sheriff or process server. After receiving the summons, the debtor must file an appearance with the court and an answer either confirming or denying the claims made in the complaint. If the debtor fails to respond correctly within 30 days, the creditor may receive a default judgment, which will allow them to take action to collect the debts owed.

Creditors have multiple options for collecting debts that are owed. However, debt collection efforts may be affected by a debtor’s bankruptcy filing. In cases where a person files for Chapter 7 bankruptcy, certain types of debts may be discharged, preventing a creditor from collecting what is owed. Creditors will want to understand how different types of debts will be affected by a Chapter 7 bankruptcy and how they should proceed in these cases.

Creditors’ Rights Regarding Secured and Unsecured Debts

During a Chapter 7 bankruptcy, a debtor’s non-exempt assets will be seized, and these assets will be liquidated. The proceeds received from the sale of assets will be used to repay some or all of what is owed to creditors. However, payments are made in order of priority, and a creditor’s ability to recover what is owed may depend on whether a debt is secured or unsecured.

Secured creditors are given a higher priority, and they are entitled to receive either the value of the debt that is owed or the collateral used to secure the debt, whichever is less. If assets are seized and liquidated, secured creditors may receive the full amount of what is owed, or they may repossess the collateral. Debtors also have the option to redeem secured debts by paying a lump sum to the creditor for the value of the collateral.

When a debtor who owes money to a creditor defaults on these obligations, the creditor will have a number of options for recovering the amount that is owed. However, debtors have the option to file for bankruptcy, which will affect a creditor’s ability to collect debts. Debtors who have secured debts such as home mortgages or auto loans may pursue Chapter 13 bankruptcy, or they may use this type of bankruptcy to avoid the liquidation of certain assets. A Chapter 13 bankruptcy will create a repayment plan that will allow some of the person’s debts to be repaid over a period of three to five years. In these cases, creditors will need to be sure to understand how they can protect their rights and their ability to recover at least some of the debts that are owed.

Priority of Debts in a Chapter 13 Bankruptcy

A Chapter 13 repayment plan will be created based on a debtor’s disposable income. The amount that a person will be able to put toward their repayment plan each month will be calculated by considering all forms of income and subtracting applicable expenses, including taxes, living expenses, utilities, transportation costs, and union dues. The amount remaining will be considered disposable income that the debtor may use to make ongoing payments throughout the entirety of their repayment plan.

When determining how the amount paid through a repayment plan will be allocated between different creditors, certain types of debts will be prioritized differently. Domestic support obligations, including child support or spousal support, are given the highest priority. Secured debts will usually be given the next highest priority. Unsecured debts will be addressed after payments are applied toward other types of claims. When debts are classified into different categories, the debts within each category must be treated equally, and a plan cannot unfairly discriminate against different claims within a certain class.

When a borrower defaults on a loan, a creditor has the right to repossess the collateral used to secure the loan. This option may be used by auto lenders or other creditors, and a vehicle or other property may be repossessed if a borrower fails to make the required payments. However, a debtor may attempt to avoid repossession by hiding a vehicle or other property, keeping it locked inside a garage, or moving it to a location where it cannot be accessed. In these situations, a creditor may be able to file a detinue complaint against the borrower, asking the court to require the debtor to turn over the property or face consequences.

When Is Detinue Appropriate?

Typically, creditors use the legal process of replevin to repossess property. In these cases, a creditor will be required to post a bond, and a court order will be issued giving the sheriff the authority to seize the property. A representative of the creditor will usually need to accompany the sheriff when executing the repossession order. However, if the property cannot be located, a replevin action may not be appropriate. 

Detinue differs from replevin in that it will seek recovery of property that is wrongfully held or retained by a borrower rather than property that has been wrongfully taken. When pursuing a detinue complaint, a creditor will ask the court to issue an order requiring the borrower to turn over the property in question or repay the creditor for the value of the property that has been wrongfully sold or destroyed. If the borrower refuses to comply with the court’s orders, they could be held in contempt of court and face penalties such as fines or jail time.

For many people who are struggling with overwhelming debt, one of the things that holds them back from filing for bankruptcy is the myth that they will lose everything that they own as a result. While it is true that there may be some assets that must be given up during the bankruptcy process, many of these assets are considered exempt property, or property that is not able to be included in the bankruptcy estate. As a creditor, you should know which property is and is not able to be used to repay debts.

Illinois Property Exemption

When a person files for bankruptcy, they will be assigned a bankruptcy trustee who is responsible for gathering, overseeing, distributing, and/or protecting the debtor’s property that is contained in the bankruptcy estate. The bankruptcy estate contains nearly everything that the debtor owns and is used to pay back creditors in some situations. However, certain property is excluded from being used to repay creditors. This is called exempt property and varies from state to state, in addition to federal exemptions.

In Illinois, however, residents are only able to use the state’s set of exemptions, instead of being able to choose between the state’s and federal exemptions. When looking at a debtor’s bankruptcy estate, some of the applicable exclusions may include: