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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.

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Be Careful When Creating Intercreditor AgreementsWhen a debtor borrows money from multiple creditors, an intercreditor agreement can be helpful in determining the rights of each creditor. The primary purpose of the agreement is to establish which creditor receives priority in case the borrower defaults on its debts. The higher-priority lender is called the senior creditor, and the other lender is called the junior creditor. In the event of default, the agreement may state that the senior creditor must be repaid in full before the junior creditor can take action on the debt. However, the agreement can also include provisions that will protect the junior creditor in case the senior creditor takes action that impairs the junior creditor's ability to collect on its debt. Depending on the severity of the action, a court can decide to strip the senior creditor of its priority claim on the debt.

Impairment

An intercreditor agreement is based on the junior creditor knowing how much the senior creditor must be repaid before the junior creditor can file a claim on the defaulted debt. Following the agreement, a senior creditor may act on its own to increase the borrower’s debt obligation by:

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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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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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