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IL debt attorneyNo creditor wants to deal with debtor delinquency, but it is an unfortunate reality of doing business. For banks, credit card companies, and other creditors who are facing debtor delinquency, there are steps that can be taken to mitigate the situation. By taking action at the first sign of debtor delinquency, including when payments are made late, creditors can work with debtors to find solutions that will ensure that debts can be repaid, and they can take steps to protect their interests and minimize potential losses.

Responding to Signs of Delinquency

When a creditor sees indicators that a debtor may be struggling to make payments, they can take multiple steps to address the issue, avoid future delinquency, and ensure that they can recover what is owed. These steps include:

  • Communicate with the debtor. It is important for a creditor to open the lines of communication with the debtor as soon as possible. In some cases, delinquency may have been the result of an honest mistake or misunderstanding, and a simple conversation can help resolve the issue. By communicating with the debtor, a creditor can discuss the delinquent debt and come up with a plan to repay it. Additionally, regular communication will help build trust between the creditor and the debtor, which is important in maintaining a good working relationship.
  • Explore repayment options. There are a number of different options for repayment that creditors can explore with debtors. These options include installment payments, lump sum payments, or even negotiating a lower balance owed. It is important to evaluate each option carefully and choose one that will protect the rights of the creditor while ensuring that the debtor can make affordable ongoing payments.
  • Send a demand letter. If attempts to establish communication are unsuccessful, the next step is to send a formal notice that states the amount owed, the grace period for payment, and any late fees or penalties that may apply. A demand letter will also give the debtor a deadline for payment, and it will detail what will happen if they do not comply. After sending the demand letter, the creditor should give the debtor a reasonable amount of time to respond before taking further action.
  • Utilize debt collection agencies or attorneys. If a debtor fails to respond to communications or is unwilling to work with a creditor to find solutions, the creditor may need to take steps to collect the debt. In these situations, it is a good idea for a creditor to consider using the services of a debt collection agency or attorney. These professionals have experience collecting delinquent debts, and they may be able to get results in situations where a creditor has been unsuccessful.
  • Consider charging off the debt. In some cases, it may be more beneficial for a creditor to charge off the debt as opposed to continuing to try to collect on it. This is typically only done as a last resort after all other options have been exhausted. When a debt is charged off, it will be written off as bad debt when filing taxes, and this can provide some financial relief for a creditor.

Contact a Chicago Debt Collection Lawyer

No creditor wants to deal with debtor delinquency, but it is an unfortunate reality of doing business, and it is important to take proactive steps to address the issue if it does occur. At Walinski & Associates, P.C., our Cook County creditors' rights attorneys provide representation for creditors who are seeking to address delinquency and collect debts. We can ensure that creditors take the correct steps to resolve issues proactively while protecting their financial interests. To set up a consultation, call us today at 312-704-0771.

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IL debt collection lawyerCreditors need to be able to collect debts that are owed to them, and there are a number of options available in situations where debtors fail to make payments as required. However, there may be some situations where a debtor may be judgment proof or collection proof, which will affect a creditor's ability to recover the amount owed. By understanding the criteria that must be met for a debtor to be considered judgment proof, creditors can determine their best options for collecting debts.

Factors That Determine Whether a Debtor Is Judgment Proof

The income a debtor earns and the assets they own will determine whether they are judgment-proof. Generally, if a person does not earn enough to make payments toward their debts while also meeting their ongoing needs, and they do not have any non-exempt assets that may be seized and liquidated, they will be collection proof.

Wage garnishment limits may be considered when determining whether a debtor has disposable income that may be used to pay debts. Federal law states that the maximum amount that can be garnished is 25 percent of a person's or the amount they earn that is above 30 times the federal minimum wage. If a person earns a weekly after-tax income of $217.50 or less, none of their wages may be garnished. Also, only certain types of income are eligible for garnishment, and income earned through Social Security, unemployment benefits, other public benefits, or child support cannot be garnished.

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IL debt collection lawyerA creditor's business model is reliant on its ability to receive payments from debtors. When debtors fail to make payments as required, creditors will need to determine the most financially beneficial methods for collecting what is owed. If a debtor has defaulted on a loan, a creditor may pursue a number of different debt collection actions. However, there may be some situations where agreeing to loan modifications with the debtor will allow ongoing payments to resume, and a creditor may be able to avoid the financial losses and complications related to collecting debts.

Benefits and Drawbacks of Different Debt Collection Methods

Following a default, creditors may have a number of different options for collecting debts, including:

  • Using a debt collection agency - Sending a debt to collections may allow a creditor to receive payments, but this can take time as debt collectors attempt to contact debtors and set up payment arrangements. A debt may also be sold to a collection agency or another company, although this will often result in a loss.
  • Foreclosure - If a debtor has defaulted on a home mortgage, a creditor may be able to take possession of the home and sell it through an auction. This may allow a creditor to be repaid for a significant portion of the loan, but it can be a lengthy and complicated process.
  • Repossession - A debtor's failure to make payments on an auto loan or other types of loans may allow a creditor to take possession of property and sell it. This may allow a creditor to recover some of the loan amount, but it can be difficult to sell the property for its full value, especially if depreciation has occurred.
  • Pursuing a legal judgment - A creditor may pursue litigation against a debtor, and a civil court may allow for multiple methods of collecting what is owed, such as wage garnishment, liens on property, or seizing a debtor's bank account. However, this process will involve legal fees and other expenses, and if a debtor files for bankruptcy, the ability to pursue a judgment may no longer be possible.

Options for Loan Modifications

To avoid the losses that may be associated with collecting debts, creditors may allow for modifications to a debtor's loan. These modifications may include:

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"WhatOriginally 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.

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IL debt collection lawyerCreditors have a variety of options for collecting debts owed to them by debtors. However, these efforts may become more difficult if a debtor files for bankruptcy. A debtor may be able to discharge certain types of debts by completing the bankruptcy process. However, assets seized during a Chapter 7 bankruptcy may be liquidated to repay some of the debts owed, or a debtor may make payments toward their debts through a Chapter 13 bankruptcy repayment plan. To ensure that they can receive repayment during the bankruptcy process, a creditor will need to demonstrate that they have a valid claim against the debtor.

Filing a Proof of Claim

Creditors can show that they are owed money by a debtor by submitting a proof of claim form. Depending on the type of claim, a creditor may be prioritized when receiving payments from the debtor during the bankruptcy process, or they may only be able to receive payments after higher-priority debts have been paid. To submit a proof of claim, a creditor must file Form 410 with the bankruptcy court where the case is being heard. This form will include the following information:

  • The name of the current creditor, as well as any other names the creditor has used to contact or communicate with the debtor.
  • Contact information for the creditor detailing where informational notices and monetary payments should be sent.
  • Whether the current creditor has acquired the debt from another party.
  • The last four digits of the debtor’s account number or another number or code used by the creditor to identify the debtor.
  • The full amount of the claim. If the claim includes interest, fees, or other charges, the creditor must submit a statement itemizing these charges.
  • The basis of the claim, including whether it is for purchases on credit, products or services provided to the debtor, monetary loans, or claims against a debtor on the basis of personal injury or wrongful death. Documents supporting the claim must be submitted, although information that is protected by the debtor’s right to privacy, such as medical information, may be redacted.
  • Whether the claim is secured or unsecured. If the claim is secured by a lien, the creditor must specify the type of property, the value of the collateral, the amount of the claim that is secured, the amount that is needed to resolve a default, and the interest rate on the loan.
  • Whether the claim is a priority claim. The creditor must specify whether a claim is entitled to priority consideration because it is a domestic support obligation, a deposit of up to $3,350 toward the purchase or lease of property for the debtor’s personal use, wages or salaries of up to $15,150 earned from the debtor within 180 days before the debtor filed for bankruptcy, contributions by the debtor toward an employee benefit plan, taxes owed by the debtor, or another applicable priority debt.

Creditors must file a proof of claim within 70 days after the date the debtor filed a petition for bankruptcy. Failure to file the proper form and provide the required information may result in the creditor not receiving payments during the bankruptcy process, and the creditor may also be required to pay reasonable attorney’s fees or other expenses incurred by the debtor due to these issues.

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IL debt attorneyCreditors often need to deal with situations where debtors fail to pay debts that are owed. This can be a significant concern for mortgage lenders who need to protect their interests in property used to secure loans. Debtors who are unable to make mortgage payments may take steps to sell a home. However, there are many situations where a home may be underwater, and the value of the property may be less than the amount the debtor owes to the creditor. In these cases, homeowners may seek to complete a short sale. They will usually need to receive approval from their lender to do so. Creditors will need to determine how to respond to short sale requests as they take steps to protect their financial interests and minimize their losses.

Response and Approval of Short Sales

When a debtor requests a short sale, they will typically seek to sell the home at the current market value, and they will ask their mortgage lender to forgive any deficiency. That is, if the home sells for less than what is owed on the loan, the seller will not attempt to collect the remaining balance from the debtor. While it may seem more financially beneficial for a lender to pursue a foreclosure, the expenses and complications involved in this process may prevent the lender from recovering a significant amount of what is owed. A short sale may be a simpler and easier way to recoup as much of the balance of the loan as possible.

A seller who requests a short sale will typically need to demonstrate that they have experienced financial hardship that has affected their ability to meet their financial obligations. Hardship may include the loss of a job that has affected a person’s income, injuries or illnesses that have led to large medical bills, disabilities that have affected a person’s ability to work, or other extraordinary expenses or financial issues. After a short sale is requested, a lender may evaluate the debtor’s situation to determine whether they qualify, and they may also receive a broker price opinion (BPO) of the market value of the property to ensure that the sale price will be appropriate. Other creditors may also need to approve the short sale, including second mortgagees, home equity line of credit lenders, or homeowner’s associations that have a lien against a home due to unpaid fees.

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IL debt lawyerFor creditors, the ability to collect debts from debtors is crucial. Creditors loan money to debtors with the expectation that these amounts will be repaid, and when debtors fail to make payments as required, creditors will need to take action to protect their rights and financial interests. However, creditors are required to follow certain procedures during the debt collection process, and federal and state laws address the types of actions they are allowed to take and the requirements they must meet. Under the Fair Debt Collection Practices Act (FDCPA), creditors are required to provide debt collection validation notices in certain situations. Understanding the requirements that apply in these cases can ensure that a creditor will be able to avoid any actions that may affect their ability to collect the debts owed to them.

Validation Notice Requirements for Debt Collectors

Debt collectors may include personnel working directly for creditors, collection agencies, or debt buyers. When a debt collector first contacts a debtor, they are required to provide certain information in writing. This information is known as a debt collection validation notice. This notice must include:

  • A statement informing the debtor that the communication being sent to them is from a debt collector.
  • The debt collector’s contact information, including their name and mailing address.
  • The name of the creditor that is attempting to collect debts. More than one creditor may be included in a notice.
  • The debtor’s account number, if applicable.
  • Details about the debt, including the total amount owed, different charges such as interest and fees, and any applicable payments and credits. An “itemization date” must be provided showing when these charges or credits were assessed.
  • Information about the debtor’s rights to dispute the debt and the procedures they will need to follow to do so.
  • A “tear-off” form that a debtor may use to dispute the debt.

A debt collection validation notice may be sent through the mail or through email or other forms of electronic communication. If a notice including all of the above information is not provided at the time the debt collector initially contacts the debtor, a complete debt collection validation notice must be sent to the debtor within five days of the initial contact.

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IL debt lawyerThere are many situations where creditors will need to take action to address the nonpayment of debts. For mortgage lenders, these situations often lead to foreclosure, which can be a complicated and expensive process. However, there may be other options that will allow a lender to take possession of a property, including negotiating an arrangement in which a homeowner will turn over the deed to the home as a way to avoid foreclosure. By understanding when a deed in lieu of foreclosure may be advantageous, a lender can make sure they are taking the correct steps to protect their financial interests.

Benefits and Drawbacks of a Deed in Lieu of Foreclosure

Debtors may have multiple options for addressing delinquent mortgage payments. A mortgage lender may be able to negotiate loan modifications with a homeowner that will allow them to maintain ownership of the home and continue making affordable payments. If continued ownership of the home will not be possible, a debtor may seek a short sale in which the home will be sold for less than the amount owed on the mortgage. However, the best solution may be an agreement in which the debtor will voluntarily turn over the deed to the home to the lender. This may consist of a “cash for keys” arrangement in which the lender will pay a certain amount, and the debtor will vacate the home by a certain date. In some cases, the lender may even agree to lease the property to the debtor on a temporary or long-term basis.

A deed in lieu of foreclosure can often be a beneficial arrangement that will allow a lender to protect its financial interests while avoiding the legal complications of a foreclosure. The lender can quickly take possession of the property without the need to have the debtor removed from the home. Since a deed in lieu agreement will usually stipulate that a property must be in good condition, this may prevent the debtor from damaging the home or taking any actions that would reduce the value of the property.

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IL debt collection lawyerCreditors often need to address situations where debtors default on loans. For auto lenders, these situations require a timely response, since a vehicle used as collateral for a loan may be moved, concealed, or damaged by a debtor, and a creditor will want to recover the collateral quickly to protect its financial interests. When repossessing a vehicle, a creditor may use the replevin process, and they will need to follow specific procedures and ensure they are complying with their legal requirements.

Pursuing a Replevin Action

In some cases, creditors may be able to complete a repossession by asking a debtor to voluntarily turn over a vehicle, or they may take possession of a car that is in a public location. However, if a repossession would involve a “breach of peace,” a creditor may need to use replevin. For example, if a vehicle is locked inside a person’s garage, a creditor would not be able to enter the location and take possession of the vehicle without first receiving authorization to do so.

A creditor can begin the replevin process by filing a complaint in court. This complaint will describe the property that is being repossessed and state that the creditor has the right to take possession of a vehicle that has been wrongfully detained or concealed by the debtor. The debtor must be provided with written notice of the complaint at least five days before the date of a court hearing that will address the replevin request. However, this notice requirement may be waived if the creditor provides evidence that the debtor is likely to conceal, damage, destroy, or transfer ownership of the vehicle or remove it from the state.

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b2ap3_thumbnail_shutterstock_1981093034.jpgWhen debtors fail to repay the debts they owe, creditors have a number of options for collecting these debts. If a creditor is able to secure a judgment against a debtor, they may then take action to pursue repayment of the debt. One of the best ways of doing so is through wage garnishment. By having a certain amount deducted from the debtor’s wages on an ongoing basis, a creditor will receive regular payments toward the amount that is owed. However, creditors will need to understand the limits that apply in these cases, and they will need to calculate the maximum amount that may be garnished from a person’s wages.

Wage Garnishment Under the CCPA

Federal laws detail the amounts that creditors may be able to receive from debtors through a wage garnishment order. These limits are specified in Title III of the Consumer Credit Protection Act (CCPA). This law states that deductions may be taken from a debtor’s disposable earnings, which is their income after all legally required deductions have been taken, including federal and state income taxes, Social Security taxes, and any retirement contributions that are required by law.

Wages can only be garnished if an employee earns at least 30 times the federal minimum wage. Currently, the minimum wage is $7.25 per hour, so only the amount more than 30 times this amount ($217.50) can be garnished each week. If a person makes between $217.50 and $290, the amount above $217.50 can be garnished. If a person makes more than $290, up to 25 percent of their wages may be garnished. 

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Six Reasons to Object to a Chapter 13 Bankruptcy PlanOriginally published: January 25, 2018 -- Updated: April 25, 2022

UPDATE: In addition to understanding the situations where it may be possible to object to the confirmation of a Chapter 13 repayment plan, creditors will need to know the procedures that will need to be followed in these cases. If valid objections are made, a debtor may be required to file an amended plan, and in some cases, a bankruptcy case may be dismissed altogether. 

Generally, creditors must make objections to a repayment plan at least seven days before the date of the confirmation hearing where the court will make a decision on whether to approve the proposed plan. Oral objections may be made at the first meeting of creditors (the 341 hearing), or written objections may be filed with the court. If no objections are made within the required time limits, the plan will be considered to have been filed in good faith, and it will usually be approved.

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illinois creditors rights lawyerWhen a debtor files for bankruptcy, the person’s creditors will be understandably concerned about how this may affect their ability to recover the amounts owed to them. While the bankruptcy process will usually allow creditors to receive some of what is owed, there are a variety of issues that may result in creditors receiving less than they should. Preferential payments made by debtors can be a significant issue in these cases, and improper actions by debtors may result in some creditors being treated unfairly. If a creditor believes that a debtor has made preferential payments, they will want to determine how they can address this issue and ensure that these payments will be recovered so that assets seized during bankruptcy will be properly distributed to all creditors.

Elements of Preferential Payments

When filing for bankruptcy, debtors are prohibited from giving preferential treatment to one creditor over other types of debts they owe. Preferential payments made to a creditor prior to when a debtor filed for bankruptcy may be “avoided” by the bankruptcy trustee in their case. Creditors may request that the trustee pursue a “clawback” action to recover preferential payments that were made and ensure that all of a debtor’s assets will be properly distributed during the bankruptcy process.

A payment or transfer to a creditor may be considered preferential if it satisfies all of the following elements:

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chicago creditors rights lawyersFor creditors, recovering money owed by debtors is a primary concern. There are a variety of issues that can affect a creditor’s ability to receive what is owed, especially in cases where debtors file for bankruptcy. Preferential payments to creditors are one issue that may arise in these cases. If a creditor has received payments from a debtor before the debtor filed for bankruptcy, the creditor may be required to turn over some or all of these payments. In these situations, creditors will need to understand their options for defending against “clawback” actions.

Understanding Preferential Payments

When filing for bankruptcy, debtors are not allowed to provide preferential treatment to one or more creditors. A payment made to a creditor may be considered a preferential payment if it was made within 90 days before the debtor filed for bankruptcy and while the debtor was insolvent. These payments must be made toward “antecedent” debts that had existed previously, and they must have allowed a creditor to receive a higher payment than what would have been made to them in a Chapter 7 bankruptcy. Since preferential payments are illegal, a bankruptcy trustee may seek to recover some or all of the amount that was paid, or other creditors may pursue clawback actions to ensure that all creditors will be treated fairly during the bankruptcy process.

Potential Defenses Against Clawback Actions

The U.S. Bankruptcy Code details a number of exceptions to the rules regarding preferential payments, and a creditor may be able to defend against the recovery of these payments by demonstrating that the payments they received were legitimate. Some of the most common defenses against clawbacks include:

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IL business lawyerWhen a debtor files for bankruptcy, this can put creditors in a difficult position. The discharge of a person’s debts will result in creditors not being paid what they are owed. Even if a debtor pursues a Chapter 13 bankruptcy, they will likely only pay off a portion of what they owe, and since certain debts are given priority in these cases, some creditors may be unable to recover a significant percentage of the debts owed to them. However, there are some cases where creditors may be able to request the dismissal of a bankruptcy case, which will allow them to resume collection activities and hold a debtor responsible for the amount they owe.

Reasons for the Dismissal of a Bankruptcy Case

In many cases, courts will dismiss bankruptcy cases because debtors fail to meet all of their legal requirements. Creditors may be able to pursue a dismissal in situations such as:

  • The debtor failed to file the proper forms and documents - Multiple legal forms must be filed throughout the bankruptcy process, and other information must be submitted within the proper deadlines. If a debtor does not submit a complete list of creditors, fails to file tax returns or submit the tax returns they have filed to the bankruptcy trustee, or does not pay the required filing fees, their case may be dismissed.
  • The debtor did not meet the qualifications for Chapter 7 bankruptcy - To receive a discharge of debts through Chapter 7, a debtor must pass a means test showing that their income is below the median income level in their area or that they do not have sufficient disposable income to repay a significant portion of their debts. If a creditor can show that a debtor is unable to pass the means test, they may ask for the court to dismiss the debtor’s Chapter 7 case.
  • The debtor failed to complete credit counseling - Debtors must complete required educational courses prior to filing for bankruptcy and prior to receiving a discharge of their debts. Creditors may ask for a case to be dismissed if a debtor does not submit the proper certificates at the right times showing that these courses have been completed.
  • The debtor did not make the required payments in a Chapter 13 repayment plan - In a Chapter 13 bankruptcy case, a repayment plan will be created in which a debtor will make monthly payments over a period of three to five years. Even one missed payment may allow a creditor to request that the bankruptcy case be dismissed, which will allow them to take action to collect the debts that are owed to them.
  • The debtor committed bankruptcy fraud - Debtors may purposely falsify information about their income or assets or otherwise attempt to receive an illegitimate discharge without meeting the proper qualifications. Serial bankruptcy filers may also abuse the bankruptcy system by seeking a discharge of their debts multiple times after they have failed to be financially responsible. Creditors may be able to provide evidence that a debtor has purposely provided incorrect information or otherwise violated the law, allowing for a case to be dismissed so that the creditor may seek repayment for the debts that are owed.

Contact Our Chicago Bankruptcy Dismissal Attorneys

Walinski & Associates, P.C. provides legal help and representation for creditors in bankruptcy cases. We work to help our clients determine when a dismissal may be available while ensuring that they take the correct actions when collecting debts. Contact our Chicago, IL creditors’ rights lawyers at 312-704-0771 for assistance with these matters.

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IL debt attorneyCreditors take on risk when they loan money to debtors, and they may use a variety of methods to protect their interests and ensure that they will receive the payments owed. In cases where debtors do not have sufficient credit history or where a creditor believes that a person may not be able to repay their debts, a co-signer may provide a guarantee that the amount owed will be paid. In cases where the primary debtor defaults on a loan or files for bankruptcy, creditors will need to understand their options for collecting the debt from the co-signer.

When Is a Co-Signer Liable for a Debt?

Generally, creditors are able to collect debts from either the primary borrower or a co-signer. However, they will need to meet the requirements of the laws in their state when collecting from a co-signer. In Illinois, debtors cannot take collection actions against a co-signer unless they notify the co-signer that the primary debtor has defaulted on the loan. This notice must be sent to the co-signer through first-class mail, and a creditor must give the co-signer 15 days after the date the notice was sent to pay the amount owed or make arrangements to do so. If a co-signer does not respond to the notice or fails to take steps to pay what is owed, a creditor may take a number of actions, including notifying credit agencies, contacting the co-signer directly to seek payment or initiating a civil case to collect a money judgment.

A creditor’s ability to collect debts from a co-signer may be affected by a bankruptcy petition filed by the primary debtor. After a debtor files for bankruptcy, the creditor will be prevented from taking collection actions by an automatic stay. If the debtor files for Chapter 7 bankruptcy, a creditor may take steps to collect debts from a co-signer if the case is dismissed or if the primary debtor receives a discharge of their debts. If the debtor files for Chapter 13 bankruptcy, a codebtor stay will remain in effect preventing a creditor from taking collection actions during the primary debtor’s repayment plan. However, if a Chapter 13 case is dismissed or converted to Chapter 7, a creditor may be able to collect debts from a co-signer. A creditor may also be able to file a lift stay motion asking the court to allow them to pursue repayment from a co-signer.

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Il creditor lawyerCreditors 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.

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IL debt lawyerThere are a variety of ways that creditors may be able to address delinquent debts. While pursuing foreclosures or repossessions may be the best option in many cases, creditors may be able to mitigate their losses and ensure that debtors will be able to make ongoing payments by negotiating loan modifications. However, in some cases, these modifications may be classified as troubled debt restructurings (TDRs), and they may need to be reported to the appropriate regulatory agencies. By understanding when loan modifications are considered to be TDRs, creditors can ensure that they are in compliance with all applicable laws and regulations.

What Is a TDR?

Creditors may work with debtors to make multiple types of loan modifications that are meant to help a debtor afford ongoing payments and prevent the default of a loan. A loan modification may be considered a troubled debt restructuring if a borrower has experienced financial hardship and a lender makes concessions that typically would not be made in other situations. While defaulting on one or more payments may be an indication of financial hardship for a debtor, other financial issues that may affect a person’s ability to make payments may also be considered, such as the loss of a job. Concessions that a lender may make may include:

  • A permanent reduction of the loan’s interest rate
  • Forgiveness of some of the principal of the loan
  • A reduction in the amount of interest that has accrued on the loan
  • Extension of the term of a loan at an interest rate that is below the current market rate

Modifications that are considered to be TDRs may need to be reported as nonaccrual assets, and they may need to be considered when estimating a creditor’s Allowance for Loan and Lease Losses (ALLL). In some cases, these loans may need to be charged off.

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Illinois Suspends Vehicle Repossession by Auto Lenders

Originally published: May 31, 2020 -- Updated: December 28, 2021

UPDATE: While Governor Pritzker’s executive order had placed a halt on vehicle repossessions, this restriction expired on August 22, 2020. For more than a year, auto lenders and other creditors have been able to engage in asset recovery methods and repossess property in cases where debtors have defaulted on loan payments. However, as the COVID-19 pandemic continues to affect people, some creditors may be hesitant to move forward with repossessions, and they may be looking to determine whether other alternatives are available.

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IL debt attorneyWhen 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.

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IL debt lawyerA creditor’s ability to collect debts that are owed will be affected by a debtor’s bankruptcy filing. After a debtor files a bankruptcy petition, the creditor will be subject to an automatic stay that will prevent them from taking any collection actions. However, there are some situations where creditors may be able to file a lift stay motion asking the court to allow them to take action to protect their financial interests. By working with an attorney who has experience in matters involving debt collection, a creditor can make sure they will be able to recover as much of what is owed as possible.

Relief From the Automatic Stay

In general, a creditor may be able to lift the automatic stay if they can show that they will suffer immediate and irreparable losses due to their inability to collect debts. The court may allow the automatic stay to be lifted in multiple situations, including:

Lack of equity in property secured by collateral - In a secured debt such as a home mortgage or auto loan, the property purchased through the loan will serve as collateral. If the value of the property is less than what the debtor owes on the loan, the debtor will not have enough equity in the property to repay what is owed. In these cases, a creditor may be able to have the automatic stay lifted so that they can proceed with a mortgage foreclosure or the repossession of property. Even if a lift stay motion is not granted, a creditor may proceed with repossession if a debtor does not take steps to redeem or reaffirm a secured loan within 30 days after filing for bankruptcy.

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