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What to Do If Your Debtor is Judgment ProofIn most cases, receiving a court judgment against a debtor gives a creditor a clear path towards debt collection. The judgment allows you to seize assets and garnish wages until you have collected what is owed to you. However, a court may still stop your collection efforts if it determines that the debtor is “judgment proof.” Also known as “collection proof,” a judgment-proof debtor is someone who lacks the minimum income or non-exempt assets to collect from. This person could be without a job or meaningful assets and surviving on public benefits. What can you do if a debtor is judgment proof?

Understanding What Judgment-Proof Means

Federal and state laws provide exemptions for debtors who are facing debt collection or have filed for bankruptcy. In Illinois, these exemptions include:

  • A homestead exemption for as much as $15,000 of equity in the home, or $30,000 if owned by a married couple
  • Wage protection if the debtor’s weekly income after taxes is less than 45 times the Illinois minimum wage
  • Protection for public assistance, retirement benefits, injury awards, and unemployment insurance
  • An exemption for one motor vehicle whose interest is not greater than $2,400
  • A $4,000 wild card exemption that can be used on its own or combined with other exemptions

A person is deemed to be judgment proof when they have no income or assets available after these exemptions.

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How to Collect from a Deceased Debtor’s EstateIt is common for a person to die before they are able to pay off all of their debts. As a creditor, you have the right to seek repayment for debts even after a debtor has died. If someone cosigned on the debt, your collection efforts can shift towards the living party. Otherwise, you will be collecting the debt from the deceased party’s estate. Each state has its own rules for how soon creditors must make claims against the estate and how much of the estate is available to creditors. For creditors operating under Illinois law, here are the answers to three basic questions about retrieving debt from a deceased party:

  1. What Priority Do Creditors Have?: A deceased person’s estate must repay the person’s creditors before it distributes assets to beneficiaries. Illinois exempts certain assets from being collected, such as life insurance and retirement benefits. In the event that the deceased person’s debts are greater than their assets, their assets will be distributed based on the priority of each creditor’s claim.
  2. What Are the Deadlines for Collection?: The deadline for creditors to file a claim against a deceased person’s estate depends on whether the estate is going through the probate process. During probate, the executor of the estate must attempt to contact the deceased party’s creditors by delivering notifications to their addresses and posting an announcement in a local publication. If you are notified directly, you have three months to file a claim against the estate. If you discover the notification in a publication, you have six months to file a claim. Without probate, the executor of the estate is not legally required to contact you, but you can file a claim up to two years after the person’s death.
  3. Who Should You Contact About Collecting the Debt?: In most situations, you need to contact the person who has been designated as the executor of the estate in order to file a claim. The surviving family members of the deceased party do not inherit the debt and are not directly liable for repaying you. The exceptions are if one of the family members cosigned on the debt or if family members received assets from the estate without allowing creditors to file a claim.

Contact an Illinois Debt Collection Attorney

Collecting debt after a person has died is a sensitive issue. You need to be proactive in filing a claim while respecting those who are in mourning. A Chicago debt collection attorney at Walinski & Associates, P.C., can navigate the probate process to help you claim the money that is owed to you. To schedule a consultation, call 312-704-0771.

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Which Types of Federal and State Benefits Are Creditors Not Allowed to Garnish?When all other attempts to collect a debt have been unsuccessful, a creditor may be left with only more drastic measures, such as wage garnishment. You cannot garnish a debtor’s wages until after you have filed a lawsuit against the debtor and the court has found in your favor. With wage garnishment, you can order the debtor’s employer to divert a portion of their paycheck to you in order to repay their debt. You can also freeze the debtor’s bank account in order to garnish money without the debtor being able to withdraw it. However, there are some sources of income that you cannot collect from. For instance, many federal and state benefits are exempt from garnishment.

Which Benefits Are Exempt?

Federal and state laws protect individuals’ benefits from both garnishment and deduction. In Illinois, exempt benefits include:

  • Unemployment compensation and benefits
  • Social Security and Social Security Insurance
  • Public assistance
  • Disability benefits
  • Retirement benefits and pensions
  • Veteran’s benefits
  • Child support and spousal maintenance
  • Awards from personal injury lawsuits

Garnishment is allowed on protected benefits when it applies to certain debts, such as unpaid child support, federal student loans, and income taxes.

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Strategies for Creditors Negotiating a Loan ModificationWith the millions of people who have lost their jobs the past few months, creditors face the possibility of an increasing number of borrowers defaulting on their debts. With some clients, creditors will eventually need to decide whether to pursue collection on the debt or offer to modify the loan. Creditors who use debt collection may risk the debtor filing for bankruptcy and receiving little or no repayment if they are not a secured creditor. Negotiating a loan modification can be more beneficial for both sides but may not work with all clients. The creditor must balance receiving some return on the loan without surrendering too much money with the modification.

Should You Offer Loan Modification?

You should evaluate each client individually before deciding whether to approach them about loan modification or accept their offer to negotiate a loan modification:

  • Is the client truly incapable of repaying the loan as it exists?
  • What is the current financial circumstance that is preventing the client from repaying the loan?
  • What is the likelihood that circumstances will change, either for the better or the worse?
  • Is there a lower monthly payment that the client could afford?
  • What is your client’s history of making payments on time?

When modifying a loan, there is always a risk that the client will still default on the debt despite the modifications. The risk may be lower if the client appears to be suffering a temporary setback and has never missed a payment in the past.

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How the Coronavirus Is Affecting U.S. CreditorsThe coronavirus outbreak in the U.S. is being fought on two fronts: public health and the economy. Government efforts to slow the spread of the virus have caused many Americans to lose their jobs or see their pay drastically cut. Among other expenses, people who are out of work may have more difficulty repaying their debts. Creditors are in a delicate position where they must balance their own interests against the hardships that many debtors are experiencing. As a result, forces in the public and private sector are providing debt relief by allowing some debtors to suspend their payments without penalty.

Government Action

The federal government has recently issued orders in regards mortgages and student loan payments:

  • Mortgages that are backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration are eligible for up to 12 months of forbearance.
  • Lenders cannot charge late fees on the delayed payments.
  • Foreclosures are suspended for 60 days, starting from March 18.
  • The proposed stimulus bill would suspend federal student loan payments until Sept. 30.

Various states have enacted similar suspensions on foreclosure and eviction for mortgages that are backed by state programs. As of March 25, Illinois had not announced any mortgage forbearance period.

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Retrieving Debt from Third-Party AssetsWhen a court rules in favor of a creditor who has filed a lawsuit against a debtor, that creditor becomes a judgment creditor. This status gives a judgment creditor in Illinois several methods by which it can collect on the debt, such as filing a citation to discover the debtor’s assets and obtaining a judgment lien against a debtor’s property. It is wise to also look into any third-party assets that the debtor can claim, such as bank holdings and people who owe the debtor money. Third-party assets may help you in retrieving a debt if the debtor’s own assets are not enough.

Third-Party Discovery

If you believe that a third party may be holding some of your judgment debtor’s assets, you will need to file a citation for discovery with that party. The debtor must also be notified of the third-party citation. The third party is required to respond to your citation, even if they do not hold any of the debtor’s assets. If they fail to respond, you can receive a conditional judgment against the third party for what the judgment debtor owes.

When discovery confirms the debtor’s assets, the third party must freeze those assets until the court rules on whether they should be turned over. The debtor is allowed to use exemptions to protect third-party assets, including:

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Chicago Debt Collection LawyerAn unsecured creditor can secure their claim on a debt by receiving a judgment lien. If a court finds in favor of the creditor in a lawsuit, the creditor can request that a lien be put on the debtor’s property – most often their home. If the debtor tries to sell the house, the buyer or seller must pay the lien before ownership can be transferred. The lien would also make them a junior creditor if another creditor foreclosed on the property. As a creditor with a judgment lien, you may wonder whether you can initiate a foreclosure on the property. While you do have that right, there are several reasons why foreclosing on a judgment lien may not be worth your effort:

Sale Process: Forcing a sale on a home will cost both time and money. You will need to publish a listing of the sale and pay a fee to the local sheriff’s department to hold the property. You will also need to hire a real estate attorney to ensure that the sale is legal. Once you are able to sell the property, you will be required to give the debtor time to repay the lien. The whole process could take the better part of a year, with no guarantee of success.

Homestead Exemption: Each state offers a homestead exemption to protect a homeowner’s equity in their primary residence. In Illinois, the exemption is $15,000 for a single person and $30,000 for a married couple. This means that the first $15,000 or $30,000 from the foreclosure sale will go back to the debtor. You will get nothing out of foreclosing on a home if the debtor’s equity is less than the exemption.

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