One of the most frustrating issues a creditor faces is when a customer stops paying their bills and their past due balance begins to accumulate despite the creditor’s attempts at collecting. That frustration can rise even more if the customer files for bankruptcy. When a person files for bankruptcy, the courts issue an injunction, referred to as an automatic stay, that halts all debt collection activity. Creditors who face this situation should speak to a Chicago debt collection attorney to find out what rights they have when it comes to collecting what the customer owes them.  

Bankruptcy Options

When an individual files for personal bankruptcy, they usually have two options, Chapter 7 or Chapter 13. A Chapter 7 bankruptcy is often recommended for people who do not own a home since it involves selling off any property the person has in order to pay off debts, although there are some exemptions to what type of property can be sold. It is often referred to as liquidation bankruptcy.

Chapter 13 bankruptcy provides bankruptcy filers the opportunity to restructure their debt, allowing them to keep their home and other property. It is usually the choice for people who have secured assets (home, vehicles, etc.). The court approves a repayment plan that allows the person to repay their debt over a period of three to five years. Once the repayment period is complete, any remaining debt is charged off.

At one time or another, most businesses will find themselves dealing with a client or customer who – for whatever reason – refuses to pay a bill. No matter what attempts the business makes to collect what is due them, the debtor still will not pay. There are several options a company has at this point, including hiring a collection company or retaining the services of a debt collection attorney.

Given the state and federal laws that have been put in place to protect debtors, it is important for creditors to make the right choice when turning to a third party for assistance.

What Is the Difference Between a Debt Collection Attorney and a Collection Agency?

When deciding which is the best choice, a business needs to determine how far they are willing to go to collect the debt. Is this debt something your company will pursue in civil litigation, if necessary? Although both a collections attorney and a collection agency have the same end goal, there are several critical differences to be aware of on their ability to reach that goal.

We have all heard the saying “money is not everything” at some point in our lives. While the phrase is a classic adage for a reason, there are situations in which money is, in fact, the most important thing. It is not uncommon for people to borrow money for a variety of purposes, such as purchasing a home or buying a vehicle. However, when they do not follow their promise to repay that money, they can find themselves in trouble. As a creditor, you have the right to take action against anyone who does not abide by the terms of your repayment agreement. In some cases, this may lead to filing a lawsuit against the debtor. If you are successful, you can then have a judgment entered against your debtor, providing you with several options for collecting the money owed to you.

Citations to Discover

In most cases, the first step taken to recover payment is filing a citation to discover, which is a tool that allows creditors to uncover, freeze, and recover assets from a debtor. A citation to discover creates a continuing lien or freeze on all of the debtor’s eligible property, preventing them from using or disposing of the assets. The main benefit of the citation to discover is that it can uncover all of the assets a debtor has. You will determine which assets you can and cannot focus on recovering to satisfy the amount owed to you.

When you file a citation to discover, you must also serve your debtor with these forms. However, you cannot personally do so -- you must use the county sheriff or you must hire a private process server to deliver the forms. Once the forms have been delivered, your debtor will be required to appear in court. If they do not appear, the judge may find them in contempt of court. If they do appear, you will be permitted to ask the debtor questions about his or her income, property, and other assets. You can ask the debtor if they will agree to a payment plan for their debt owed. If they do not agree to the payment plan, you can ask the judge to award you certain assets from the debtor’s estate to satisfy the judgment. 

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:

The COVID-19 pandemic has affected the world in horrific ways. Many people are still experiencing financial difficulties because of the pandemic. Various types of businesses across the country were shut down for months at the height of the pandemic, leaving millions of people without a job and without income. Now, a year later, the economy is slowly starting to pick back up, but many people are still struggling financially and missing payments on debts they owe. As a lender, not receiving payments can also be financially burdensome, forcing you to take action. In many cases, a lender will send an individual’s debt to a collection agency. However, sending a debt to collections is a big decision to make that could greatly affect the borrower and have an impact on the amount you receive. How do you know if sending a debt to collections is the right call?

Reasons to Consider Debt Collection

Before you decide to send a debt to collections to attempt to receive the money you are owed, there are several things that you should consider. Here are a few factors that may indicate that it is time to use a collection agency:

• It has been more than 90 days since your debtor’s payment was due. You cannot just immediately refer a borrower to a collection agency if their payment is late. Many people make late payments, but they do so consistently. However, when a payment is more than 90 days late, this should raise red flags, especially if the borrower typically pays on time.

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This past year has been difficult for many people because of the ongoing COVID-19 crisis. Across the country, people and businesses alike have had trouble making ends meet, with many comparing this situation to the Great Recession in the late 2000s. According to the American Bankers Association (ABA), consumer credit delinquencies rose at the end of 2020, despite those numbers decreasing in the prior two quarters. All 11 loan categories saw an increase in the number of delinquent accounts, with home equity and mobile home loans seeing the largest increase. Nobody likes a late-paying customer, but there are ways banks can help keep the number of your delinquent accounts to a minimum. 

Be Proactive With Your Customers

The best way to deal with delinquent customers is to try to prevent them from becoming past-due. You can do this by implementing a number of practices, like email communications, notices through the mail, or phone calls. Giving your customers multiple reminders about upcoming payments may help prevent their accounts from going delinquent.

Clear Communication Goes a Long Way

Try to prevent any confusion about how much your customer owes on their account. You should take a second look at how you invoice and bill your customers. Make sure your invoices are not too cluttered or confusing. The focus of the invoice should be on the payment amount that is due, the date it is due, and what types of payment you accept. You can also use your invoices as a way to restate your payment policy and ensure debtors understand late payment penalties. 

Those who always pay off their credit card balances at the end of every month and pay all of their other debts on time may never come into contact with a debt collection agency. A debt collection agency is a separate company that many lenders and creditors use to facilitate the retrieval of unpaid debts from consumers. Most of the time, hiring a debt collection agency is used as a last resort, after a creditor has already tried and failed several times to recover the payments themselves. A debt collector can be a good choice for some lenders and finance companies, but there are federal rules and regulations that they are subject to. Before hiring a debt collection agency, you should be aware of the limitations they have.

Rules for Debt Collection Agencies

Debt collection agencies will typically try various methods to retrieve past-due debt, including calling the debtor, mailing delinquent notices to the debtor’s address, and even visiting the debtor’s residence in extreme circumstances. The Federal Trade Commission (FTC) is the governing body that oversees the practices of debt collection agencies to ensure everyone is in compliance with the Fair Debt Collection Practices Act (FDCPA). According to the FDCPA, forbidden actions by debt collection agencies include:

• Harassing debtors about their debt: This means a debt collection agency cannot do certain things that a person might find harassing or abusive. Things such as threatening violence toward the debtor or their property, using obscene language when talking with the debtor, or repeatedly calling after a debtor has requested calls to stop all qualify as harassing behaviors.

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For many people, one of the fairly attractive parts of filing for bankruptcy is the automatic stay that takes place when they file a bankruptcy petition. This automatic stay will require creditors to cease all collection activity while the bankruptcy case is ongoing. This means that you, as a creditor, can no longer contact the debtor in any way or have another agency or individual contact them on your behalf for purposes of collecting debt. The discharge of debt through bankruptcy typically results in some sort of financial loss, which can put stress on any business. If your debtor has filed for bankruptcy, there are certain cases in which you can file for a motion to lift the automatic stay with the bankruptcy court, which would allow you to continue collection practices.

What You Should Include in Your Motion

To lift the automatic stay during a bankruptcy case, you must file a motion to do so. This motion must contain certain information for the court to consider before it will make its decision. Before you file your motion to lift the stay, you should be sure it includes:

• A clear and concise statement that sets forth all of the alleged facts that are grounds for relief specific to the case.

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Whether you are from a bank, a credit union, an auto lender, an equipment lender, a truck lender, or another financial institution that might be involved in bankruptcies or other debt collection activities, you might find that sometimes you need more assistance with judgment enforcement. Simply having a judge declare that money or other assets are owed to you or whoever you represent might not be enough to repossess or recover the assets from the debtor. For instance, the debtor might be ignoring your phone calls and letters or the debtor might be hiding the assets you are trying to repossess. Whatever the case may be, using the full power of the law at your disposal is a good idea to recover what the courts determine is yours. That is when you should call upon a professional judgment enforcement attorney to learn what they can do for you. 

4 Ways a Judgment Enforcement Attorney Can Assist You

Among the many ways a judgment enforcement attorney can help you with your court-enforced debt collection case are:

As someone from a credit union, bank, or other financial institution, among other organizations, who deal with debt collection activities every day, sooner or later, you will have to deal with Bitcoin and other cryptocurrencies, if you have not already and whether you want to or not. This is because, over the last several years, cryptocurrency has made tremendous strides in the following ways:

• Multibillion-dollar investors from leading companies have been investing in cryptocurrencies like Bitcoin to get ahead of the trend, increasing its value and popularity amongst investors.

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You might not be aware of it, but one of President Biden’s campaign promises was to make credit reporting fairer and more accurate so that everyone across the country, no matter their race or socioeconomic status, can have more equal and much better opportunities to access credit cards, loans, mortgages, and other financial offerings. As a representative from an auto lender, equipment lender, truck lender, credit union, bank, or other financial institution, you might want to learn more about the possibilities that the Biden Administration is open to with regards to credit reporting reform. Here are some new ideas that you might see over the next four years. Keep them in mind during your dealings with debt collection activities, including bankruptcies. 

3 Potential Changes to Credit Reporting That You Should Know About

While there are many reforms the Biden Administration might consider in the future for credit scoring and reporting, these are some of the more substantial changes currently under consideration:

As a financial professional, be it as a representative from a credit union, bank, auto lender, truck lender, equipment lender, or other financial institution, it is important to work with an attorney who acts as an official litigator. Together, you might think you have everything taken care of when it comes time to investigate the finances of a debtor you suspect might be committing fraud or other wrongdoing. However, with regards to any number of debt collection activities, including such complicated legal processes as bankruptcy, you could also benefit from the assistance of a forensic accountant. 

What Does a Forensic Accountant Do?

Most of the time people assume an accountant does your taxes and that is about it, but as with most fields, there are plenty of subsets. Forensic accountants study the numbers and figures in financial and legal documents, intensively reviewing them to find discrepancies within the recordkeeping as to draw conclusions about potential wrongdoing. They can also confirm if certain errors were made, or support arguments to the contrary. 

Joseph R. Biden, Jr. was inaugurated as the 46th President of the United States of America on January 20, 2021. With barely enough time to celebrate this major achievement, he rushed to work and signed off on several executive orders and actions on his first day in office. One such executive order included extensions on the moratorium for mortgage foreclosures and rental evictions. Here are the details on this latest executive order, particularly helpful if you are a mortgage lender or servicer attempting to collect on the homeowners’ debts.

Extensions on Mortgage Foreclosure Moratoriums and Forbearance

President Biden issued several executive orders dealing with a wide variety of topics, including climate change, student loan debt, COVID-19 relief and regulations, and immigration. Of particular interest to mortgage lenders is the moratorium extension; request for even further extensions in the future; and updates to the newest forbearance guidelines. With regards to the moratorium, the new order mandates that:

When it comes to wage garnishment, if you are tasked with collecting debt on behalf of a bank, credit union, or finance company, seizing funds from a debtor’s paycheck through garnishment or wage deductions is often a last-resort strategy for you to use in recouping your organization’s funds. With that being said, if you are faced with the need to garnish a debtor’s paycheck or other earnings, you should know just what types of funds or income can be garnished in Illinois. 

What Can Be Garnished

In general, according to Title III of the Consumer Credit Protection Act (CCPA), a person’s earnings can be garnished to collect on debts. Per the CCPA, earnings is defined as:

While the mortgage, rent, and income protections provided for in last spring’s original Coronavirus Aid, Relief, and Economic Security (CARES) Act have long since been exhausted, many states, including Illinois, have continued to offer their own executive orders and legislation to assist residents during this unprecedented time. In addition, many mortgage companies have developed their own programs for homeowners to help them avoid foreclosure, at least for the time being. However, that is not to say if you are looking to eventually collect on the debts owed from these properties that might be in preforeclosure, you should not be prepared to take action. Foreclosure debt collection will be inevitable post-pandemic, despite the latest COVID relief package being signed into law. In that sense, you, as a mortgage lender or servicer who deals with foreclosures, must remain focused on your job, collecting and documenting everything necessary to make the preforeclosure and foreclosure processes go smoothly whenever the time comes.

Advice to Mortgage Lenders When Prepping for Foreclosure During the Pandemic 

With the vaccines only starting to be administered and with the latest COVID-19 economic relief bill signed into law nine months after the CARES Act, you cannot expect things to get back to normal immediately. Therefore, the negative impact of COVID-19 on the economy, including housing, will persist far into 2021. Due to this, you need to be prepared for continual increases in foreclosures, including from residents of normally good standing with your mortgage lending or servicing company. To better prepare for an influx of foreclosures in the new year, consider the following tips:

Bankruptcy is a complex process for any financial institution, but for credit unions, in particular, there are some special issues to take into consideration when proceeding with your debt collection efforts. Unlike many banks, auto lenders, truck lenders, equipment lenders, or other financial institutions, credit unions face additional challenges in their recovery efforts due to the nature of their organizations. Here are some tips for how to manage member bankruptcies or other debt collection needs if you work for a credit union.

3 Keys to Successful Credit Union Debt Collection 

While there are many ways you can pursue debt collection successfully, recouping as much of the lost funds as possible, that are similar to banks and other related institutions, there are certain approaches that credit unions should keep in mind when pursuing collection efforts against one of their members, such as the following:

It is common during the holidays, especially during Black Friday, for consumers to purchase more than they can actually afford; in fact, some of these shoppers are already struggling financially but believe the holiday gives them a great opportunity to max out their credit cards and take out loans for exorbitant holiday gift-giving before they eventually file for bankruptcy. There are ways to contest such holiday bankruptcy fraud, but this year might not be the same due to the pandemic. 

How COVID-19 Will Change Black Friday 

Numerous retailers are struggling financially as a result of the pandemic due in large part to early stay-at-home orders for all non-essential workers and businesses as well as the economic recession itself. Fortunately, those companies with strong e-commerce skills have been able to offer their products online. The pandemic will change Black Friday in this way—it will further accelerate the trend of people avoiding the in-store rush and simply shopping online instead. 

If you work for a bank, credit union, auto lender, truck lender, equipment lender, or other finance company, you are familiar with the way some debtors might refuse to pay their monthly payment for their debt secured by collateral. In those cases, repossession of the collateral is necessary, but sometimes the debtor will hide the car, boat, or other collateral to prevent repossession. If that is the case for you and your organization, consider the actions you can take to recover the property, including legal actions.

When Repossession Fails 

Repossession companies are legally permitted to do many things in their pursuit of reclaiming property for creditors, but one thing they cannot do is “breach the peace,” which means they cannot commit crimes like breaking into a property or intimidating creditors in order to retrieve the collateral. This is one of the reasons creditors should be very mindful and discerning when choosing a repossession partner. 

With many reports claiming that the COVID-19 pandemic could continue well into 2021—and some reports even suggesting that it could last into 2022—the economic impact is likely to remain substantial and adverse. Illinois alone approximately has more than a 20 percent unemployment rate since the start of the pandemic. All this job loss and financial strife means more foreclosures, mortgage loan modifications, workouts, and other adjustments to mortgages are bound to occur, at least eventually. With echoes of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law this past March still being felt today, mortgage lenders and mortgage servicers might be considering their responsibilities at this time in offering new—or extending prior—COVID-19 forbearance plans for their borrowers. Here is an overview for your reference. 

Mortgage Lender Responsibilities Per the CARES Act, Then and Now

Provided the mortgage being serviced is federally backed, mortgage lenders and servicers are required by law at this time to offer the following forbearance policies to eligible homeowners:

• The CARES Act enables forbearance of mortgage payments for up to six months in which interest accrues and the payments are only postponed.
• The lenders have the right to extend the forbearance another six months for a total of one year of a forbearance in mortgage payments due to the COVID-19 pandemic.
• During these forbearances, servicers cannot charge fees or interest beyond what would have been provided for with the homeowners’ usual monthly on-time mortgage payments.
• An important new interpretation of the CARES Act from federal regulators confirms that servicers cannot require repayment of the missed mortgage payments in one lump sum at the end of the forbearance.
• When the forbearance period ends, the lender will work with the homeowner to devise a loan modification, workout, or other plan that will allow them to pay back the missed payments over time.

Why Expanding COVID-19 Forbearance Policies Might Be a Good Idea

According to the U.S. House Committee on Financial Services, nearly 70% of all homeowners have federally-backed loans that qualify for these forbearance policies, which means you as a lender technically are not required by law to offer it to all your borrowers. However, despite this, you might want to consider the expansion of your COVID-19 forbearance policy to all homeowners and not just those with federally backed loans. Reasons to do this include:

As the economic repercussions of the COVID-19 pandemic persist across both Illinois and the entire nation, consumers have been looking for new ways to fund their daily expenses from paycheck-to-paycheck. Enter the cash-advance app, clever applications on their smartphones that link to their bank accounts and offer small cash advances each pay period provided the user meets certain requirements. Among them are such apps as Earnin, Dave, Branch, and Brigit, with countless others cropping up every day on your smartphone’s digital marketplaces. With these apps becoming more and more popular, many financiers and finance companies funding such major joint “fintech” ventures might be wondering how they can ensure appropriate debt collection. Overall, though, that might be the least of their worries at this point. Here are a few reasons why.  

Regulatory Issues

While to many consumers, these cash-advance apps might seem like a brave new world of brand-new trending apps that could really save them from some tough times, many financial experts argue that these apps are really payday lenders disguised as newfangled technology. The reason? Because many of them collect “optional” tips on every payday advance, many of which amount to interest rates comparable to standard (and high) payday-loan rates. In many cases, these apps are offered in states where payday loans of certain high interest rates are outlawed, or payday loans are entirely against the law. Such regulations have already taken their toll on the app Earnin, which was forced to disable the “tip” option a year ago in New York.  

How Cash Advance Apps Attract Borrowers and Ensure Repayment

These apps stay afloat for four primary reasons: