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Confusion When Collecting from Divorced CouplesA couple going through a divorce must divide their debts as well as their assets. Each spouse takes responsibility for paying off a portion of the marital debt, such as a:

  • Mortgage;
  • Credit card balance;
  • Personal loan; or
  • Medical bill.

Divorcees may mistakenly believe that they are not liable for the debts that their former spouse assumed. As a creditor, you are not bound by the terms of a divorce agreement and have the right to pursue repayment of the debt from either spouse after the divorce.

Loan Contract vs. Divorce Agreement

You can give a clear explanation to a debtor who argues that the debt belongs to his or her former spouse:

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Collecting Debts from Unpaid Federal Employees During Government ShutdownThe federal government shutdown has affected hundreds of thousands of federal government employees who are either being furloughed or forced to work without pay. The employees have already missed paychecks and will continue to miss them as long as the shutdown continues. Without the pay, some employees may not make their regular debt payments. Creditors must decide how aggressive they want to be in collecting debts from federal employees while the shutdown is ongoing.

Working with Debtors

Several federal agencies have asked creditors to be lenient with federal employees who owe debts. Following previous government shutdowns, many federal employees have received back pay for what they should have earned during the shutdown. Assuming that the current shutdown ends soon, the employees could have enough money to make up for missed debt payments. Some creditors may modify their agreements with debtors, extending the length of time that the debtor has to repay the loan in exchange for increased interest or other fees. Though there is risk involved, creditors who show patience towards federal employees may still be able to receive the money owed to them while maintaining a good relationship with the debtors.

Taking Action

The current government shutdown is already the longest on record, and there is no certain sign of it ending soon. Creditors can be patient after one missed payment, but multiple missed payments mean that the debtor may be in default of the debt. When deciding how aggressive to be with a debtor, a creditor should consider whether the debtor:

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Debt Buyers Less Restricted than Collection AgenciesDebt buyers and debt collection agencies may operate similarly, but there is an important difference between them. A creditor hires a debt collection agency to pursue debtors on its behalf. A debt buyer purchases the debt from the creditor, making it the new creditor. Still, governments often put debt buyers in the same category as collection agencies. Illinois law states that debt buyers are subject to the terms, conditions, and requirements of the Collection Agency Act, except in four instances:

  1. Surety Bonds: Debt buyers are not required to purchase and maintain surety bonds. Collection agencies must have surety bonds through an insurance company as guarantors for its clients. The bond will compensate the creditor if the collection agency fails to return the money it has collected. A debt buyer does not have client obligations.
  2. Trust Account: Debt buyers are not required to put the money they collect into a separate bank account, called a trust account. Collection agencies must hold the payments they receive in these accounts because the money is ultimately going to the creditors that hired them. Unlike collection agencies, debt buyers are not holding the debts for another party because they own the debts they are collecting.
  3. Lawsuit Requirements: A collection agency cannot consult an attorney about filing a lawsuit against a debtor without first notifying the creditor it is working for. The creditor has five days after receiving the notice to respond and deny permission to consult an attorney. As both the creditor and debt collector, a debt buyer does not need permission to file a lawsuit against a debtor.
  4. Assignment for Collection: The collection agency and creditor must create an assignment for collection contract, giving the agency the right to collect the debt in its own name. Once again, a debt buyer does not work for a client, meaning that it already has the authority to collect the debt.

Debt Buyer’s Rights

Debt buyers can profit from paying low prices to purchase old debts that creditors may have stopped pursuing. Even if the debtor does not repay the full value of the debt, the debt buyer may still receive several times the value of what it paid for the debt. Debt buyers also have the same right as creditors to take a noncompliant debtor to court. A Chicago debt collection attorney at Walinski & Associates, P.C., can help you legally enforce repayment by debtors. To schedule a consultation, call 312-704-0771.

Source:

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Weighing Whether to Accept a Short SaleThe Chicago area leads the nation in homeowners who are underwater on their mortgages, according to a recent study. Home values in the area have not recovered as much from the 2008 housing market crash as other metropolitan areas. Underwater homes are problematic for creditors trying to collect from mortgagees because:

  • Mortgagees may walk away from their homes and their mortgage payments because they have no home equity; and
  • Mortgagers may not recuperate the value of the mortgage in a sale if the home’s value is worth less than what the mortgagee owed.

Your mortgagee may ask for you to accept a short sale if he or she cannot afford payments and is underwater on the home. You should be skeptical about approving a short sale because you are forgiving the mortgagee’s debt after allowing him or her to sell the home for less than the value of what he or she owes. However, foreclosure or the mortgagee abandoning the home can also be costly. When a mortgagee suggests a short sale, you should weigh several factors before making a decision:

  1. The Cost of a Foreclosure: Foreclosure often takes longer than a short sale and involves more legal fees. There is also no guarantee how much money you will receive in the foreclosure if the property value is low and the mortgagee is incapable of paying the deficiency.
  2. Property Condition: The mortgagee has an incentive to maintain the home during a short sale to make it attractive to potential buyers. A property can fall into disrepair if the mortgagee abandons the home or knows that he or she will lose it to foreclosure. You will need to pay for repairs and upkeep on the home before you sell it again.
  3. Asking Price: You should assess the value of the home and determine whether the mortgagee is requesting enough money in the short sale. You can reject the sale if you believe you could receive more money by selling the property after foreclosure.
  4. Mortgagee’s Finances: You should accept a short sale only if you are satisfied that the mortgagee cannot afford the mortgage payments. The mortgagee may have multiple debts, limited assets, and a diminished income. However, the mortgagee should not use the short sale to get out of a debt that he or she is capable of paying.

Mortgage Options

In most cases, foreclosure is the best way to recuperate the money owed to you on a mortgage. You can receive a deficiency judgment against the mortgagee if the sale price of the home is less than what was owed to you. A Chicago debt collection attorney at Walinski & Associates, P.C., can advise you on how to use foreclosure in your case. To schedule a consultation, call 312-704-0771.

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Posted on in Debt Collection

Collecting Debt from a Close FriendYou likely will not need to file a lawsuit against a friend who keeps forgetting to pay back the $20 he or she owes you. Refusing to repay $20,000 is a different matter. Some people do not lend money to friends or family because they want to avoid an awkward situation where they have to pressure these people to repay them. However, it can be difficult to say no to a friend who is having a hard time paying for basic living expenses or needs financial assistance to start a business. You will decide whether to hold your friend accountable for the debt, but you should know that you have the same debt collection options as other creditors.

Written vs. Oral Contract

Illinois law enforces both written and verbal contracts, but a written contract is more concrete evidence in court. It is prudent to write down an agreement for a sizeable loan, even if you trust the person. With the written agreement, you can:

  • Prove that your friend agreed to repay the loan;
  • Set a deadline for repayment; and
  • Establish what action you will take if your friend does not repay the loan.

A court will likely uphold an oral loan agreement, as long as you can show that you gave the money and your friend benefited from the money. However, an oral agreement has a five-year statute of limitations in Illinois, as opposed to a 10-year statute of limitations for written agreements.

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Serial Bankruptcy Filers Held Accountable in CourtOne of the advantages that debtors gain by filing for bankruptcy is putting a stop on debt collection and property repossession efforts by creditors. By using bankruptcy, debtors often pay less than what they actually owe and discharge their remaining debts afterward. Some debtors abuse the process by being serial bankruptcy filers. Bankruptcy laws require filers to waiting a certain number of years before they can discharge their debt again. Serial filers try to continuously delay creditors’ debt collection actions by repeatedly filing for bankruptcy without ever completing a case. Debtors who attempt to defraud creditors through serial bankruptcy can face criminal charges.

Recent Example

In the case of United States v. Williams, the defendant was convicted on five counts of bankruptcy fraud for using repeated bankruptcy filings to prevent debt collection efforts by her condominium association. The defendant had fallen behind on payments to several creditors, including fees she owed to the condominium association. As part of the scheme to avoid debt collectors, the defendant would:

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Illinois Considering Five Changes to Debt Collection LawsA group of Illinois State Representatives has introduced a package of bills that are meant to increase debtor protection against creditors. The bills are all stalled at the committee level, putting their future in doubt. However, that is unlikely to stop the legislators from continuing to push these bills or from creating similar bills in the future if the current bills die. The laws would reduce a creditor’s ability to collect on outstanding debts by shortening the window of opportunity to enforce a debt judgment, reducing interest rates on debts, and providing greater protections for debtor assets.

Proposed Changes

The legislators have presented five bills that would amend Illinois’ Code of Civil Procedure, including:

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Debt Collection Tips for Small Business OwnersAs a small business owner, you likely do not think of yourself as a creditor. However, that is the role you have taken when you allow customers to repay you over time for products or services provided. Collecting debt sometimes requires being more forceful with debtors than you are comfortable with. Because you deal with your customers personally, it may be awkward to hold them accountable for unpaid debts. You can minimize confrontation during debt collection by acting quickly and being thorough.

Crafting an Agreement

You should always finalize any borrowing or repayment plan with a customer by having them sign a written contract. Verbal agreements are difficult to enforce if your customer does not pay you back. A contract should explain:

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Law Protects Servicemembers During Vehicle RepossessionBefore repossessing a vehicle, an auto lender must confirm whether the owner is a U.S. military member on active duty. The Servicemembers Civil Relief Act includes a section protecting active servicemembers who default on their auto loans. The auto lender must obtain a court order to repossess the vehicle. The order may include forms of financial relief not normally given to vehicle owners. Failing to comply with the SCRA can be a criminal offense.

Qualifications

The SCRA applies to people who are away from home while serving as:

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Nuances of Business to Business Debt CollectionBusinesses are some of the most lucrative clients for finance companies because they need loans to purchase goods or equipment. A well-timed loan can help a business eventually turn a profit and lead to long-term relationships with financiers that benefit both sides. However, businesses are also liable to default on their debts, which may be substantial depending on how much they needed to purchase. Finance companies must use their best judgment in determining how aggressive they should be with business clients.

Personal Communication

Hiring a debt collection agency or taking a commercial debtor to court may sour the relationship between a finance company and a business. Before taking those steps, the creditor can try to settle the debt on a more personal level by:

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Being Thorough with Citation to Discover AssetsAfter a judge rules that a debtor must repay a creditor, the two parties will often find themselves back in court as part of the debt collection process. The creditor has several tools at its disposal, such as wage garnishment and seizing collateral property. However, the process must start with determining what resources the debtor has available. In Illinois, a creditor can file a Citation to Discover Assets, which compels the debtor to appear in court and answer questions under oath. With this opportunity, it is important for the creditor to ask questions that will help it uncover the debtor’s true asset values.

Leading Up to Court Appearance

The process starts with filing the Citation to Discover Assets with the local court and serving notice to the debtor. As part of the notice, the creditor can request that the debtor prepares specified financial documents for the hearing. Illinois law requires creditors to include an Income and Asset Form as part of the citation. Debtors must respond to a series of written questions meant to determine:

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Convenience Fees Not Allowed Without Consent in Debt AgreementDebtors have multiple payment methods they can use to transfer money when repaying debts. Some forms of payment incur additional convenience fees, such as when debtors use credit cards or money orders. Creditors have at times formed agreements with the third-party vendors to share these convenience fees. However, they should examine state laws and their contracts with debtors before entering such agreements. Creditors and debt collectors are often prohibited by law from collecting convenience fees and may be punished for doing so.

Federal and State Law

The Fair Debt Collection Practices Act states that a debt collector cannot institute a fee that increases the amount a debtor owes unless:

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The Risks in Working with Debt Settlement CompaniesWhen debtors are worried about their ability to repay their creditors, they become susceptible to people who offer quick fixes. Some debt settlement companies are taking advantage of this by advertising misleading debt relief claims to debtors, such as:

  • Being able to eliminate debts in months without bankruptcy;
  • Stopping calls from debt collectors;
  • Relieving their debts without affecting their credit ratings; and
  • Allowing them to continue the same lifestyle with no consequence.

Debt settlement companies tout their services as a win for all parties. The debtor relieves his or her debt, and the creditor receives some compensation for the debt. As a creditor, you know the downside of working with debt settlement companies. They ask debtors to send payments to them instead of you, delaying your reimbursement by years. Once the company has accumulated enough of the debtor’s money, it will come to you with a lower settlement offer than what you may have been able to negotiate directly with the debtor. However, the debtor may have more to lose than you from using a debt settlement company. You can help yourself and your debtors by explaining the drawbacks to them:

  1. A debt settlement company cannot stop you from contacting them about their outstanding debts. Instead, you are more likely to contact them because they have stopped making any payments.
  2. You are not obligated to work with a debt settlement company. Some companies regularly make unacceptable settlement offers or are generally disreputable.
  3. The debt settlement company’s plan will increase their debts. A debtor may need to stop paying you for years in order to save enough money to make a settlement offer. During that time, you are likely to add interest to what is owed.
  4. They may pay more using a debt settlement company than if they had negotiated directly with you. Besides the company’s fees, there is a tax obligation. The IRS considers any debt that you forgive to be taxable income for the debtor.
  5. Nothing is stopping you from suing them for their outstanding debts. If the court rules in your favor, you may use tools such as asset seizure and wage garnishment to collect your debt.
  6. The debt settlement process will hurt their credit ratings. Intentionally missing debt payments will affect how future creditors will view them.

Reaching an Agreement

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Bank of America Stuck in Debt Collection Dispute with ClientIllinois trial and appellate courts have been going back and forth on a debt collection case between Bank of America and a small business owner. Bank of America is suing the former owner of All About Drapes for the remaining value of an unpaid loan, plus interest and legal fees. The business owner counters that he was induced into signing the loan agreement because the bank falsely claimed that his previous line of credit was expiring. The trial court has twice ruled in favor of Bank of America in a summary judgment, but the appellate court overturned that decision each time.

Case Details

The business owner had originally created an open-ended line of credit with LaSalle Bank. He would borrow money to help him through the winter months — when his business was slow —  and paid the bank back at a two percent interest rate. Bank of America purchased LaSalle Bank in 2008, and the business owner began seeing an August 2009 maturity date on his bills. The owner explained to multiple employees at the bank that his line of credit did not have a maturity date. The bank insisted that:

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New Regulations Target Payday Loan IndustryThe Consumer Financial Protection Bureau has created new regulations meant to protect borrows against risky short-term and long-term loans with balloon payments. Commonly known as payday loans and vehicle title loans, these types of loans are usually issued in storefronts and online to consumers who need immediate cash and have difficulty obtaining a traditional loan. The CFPB claims that creditors who issue these loans use unfair and abusive practices by giving loans that they know consumers will be unable to repay and being overly obtrusive in their collection methods. With the new regulations, the CFPB hopes to make the payday loan industry adhere to some of the standards established in other credit industries.

Which Loans Are Affected

The CFPB says that the rules will apply to two types of loans:

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Successor Liability Can Hold Companies Accountable for DebtsA company that has extensive debts has many means by which it can attempt to avoid its creditors. One such way is when a second company purchases the debtor company and its assets. The debtor company often no longer has its own assets that its creditors can claim. Creditors may instead seek compensation from the second company that purchased the debtor company. However, Illinois law presumes that a buyer is not responsible for the debts and liabilities of the company it purchases. Business owners may try to abuse the law by essentially continuing to run a company under another name, while dodging creditors. Fortunately, Illinois courts allow creditors to claim successor liability in order to collect debts from successor companies. The creditor must prove one of four established exceptions that transfer debt liability to a successor company.

Expressed or Implied Transfer of Debt

Successor liability claims are most simple to prove when the successor company has a written or verbal agreement to assume the debts of the company it purchased. However, the successor company can also expressly state that it is not liable for the previous company’s debts. In some cases, the purchasing agreement does not mention debt liability. Creditors can examine the agreement to determine if there is an implied assumption of the debt. A court may interpret the assumption of a contract or obligation from the previous company to imply the assumption of other liabilities.

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Guarding Against Electronic Fraud During Debt CollectionCreditors are increasingly utilizing Automated Clearing House networks as part of their payment systems during debt collection. Electronic payments are more than convenient for debtors – they have become expected. However, the impersonal nature of online transactions makes it susceptible to fraud. Cyber criminals are attacking both creditors and debtors, with the goal of accessing private accounts and syphoning money to themselves. Creditors must take action to protect themselves and their customers from online fraud or risk losing substantial amounts of money.

How Fraud Happens?

All online businesses and consumers are vulnerable to phishing scams and malware attacks. Cyber criminals use these techniques to steal identities and access financial accounts. Because of the urgency involved with paying debts, criminals target creditors and debtors:

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U.S. Supreme Court Rules in Favor of Creditors Making Stale ClaimsThe creditor industry scored a victory in May when the U.S. Supreme Court ruled that creditors are not violating the Fair Debt Collection Practices Act when they file a stale claim during a debtor’s chapter 13 bankruptcy proceedings. The 5-3 decision overturned a lower court ruling that such claims were unfair and deceptive. The decision removes some of the burden on creditors for determining when the statute of limitations for claiming a debt has expired, and protects them from debtor lawsuits that claim they violated the FDCPA.

Stale Claims

Creditors may have an unlimited time to attempt to collect a debt, but there is a limited time period during which they can use court action. When a creditor attempts to use legal action to collect on a debt that has passed that deadline, it is known as a stale claim. The statute of limitations varies by state, and creditors with debtors in multiple states may find it difficult to keep track of the different deadlines. In Illinois, the deadlines for court action are:

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Utilizing Mortgage Foreclosure to Collect DebtFor mortgage lenders, property foreclosure is a complex yet effective method of retrieving debt when borrowers fail to make mortgage payments. A successful foreclosure can allow the creditor to sell the property and recover a large share of the borrower’s debt. In Illinois, all foreclosures must go through a court. A judicial foreclosure allows legal protections for both sides but can draw out the process. A creditor must follow a set of legal procedures in order for a court to approve the foreclosure.

When to Foreclose

If you are a mortgage lender, you may start considering foreclosure when a borrower misses a scheduled mortgage payment. However, you must give the borrower amble opportunities to pay the mortgage before you can request foreclosure in court:

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How Bankruptcy Affects Debt CollectionBankruptcy is one of a debtor’s most powerful tools to avoid paying off debt owed to a creditor. If granted bankruptcy, debtors may be able to absolve themselves from responsibility for some of their debts. When a debtor files for bankruptcy, the court can place an automatic stay on the creditor’s debt collection efforts until it decides on the bankruptcy case. Creditors can object to the automatic stay or the bankruptcy claim. Creditors have two types of bankruptcy they most often deal with, each having a different effect on their ability to collect debts.

Chapter 7

Chapter 7 bankruptcy is considered favorable for debtors who do not own many high-value assets. In order to qualify for this form of bankruptcy, the debtor:

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