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

Should You Offer Loan Modification?

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

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

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

The number of people who have recently become jobless in the U.S. may cause an increase in people who default on their debts. Creditors have several methods of handling a defaulted debt, such as debt collection practices, modifying the debt agreement, or taking the debtor to court. A debtor may try to clear their debts by filing for bankruptcy. Bankruptcy can prevent unsecured creditors from collecting their remaining debt if the bankruptcy filer is allowed to discharge their debts. If your debtor has filed for bankruptcy, there are several steps you must take to have a chance at still receiving the money you are owed:

1. Honor the Automatic Stay for Now: A bankruptcy notice includes an automatic stay on all debt collection activity. You may have a reason to contest the stay or the bankruptcy, but your immediate reaction should be to stop communicating with the debtor or trying to repossess properties. You can be penalized for knowingly violating the automatic stay.
2. Promptly File Your Proof of Claim: In order to receive a portion of the bankruptcy assets, you must file a proof of claim that states what the debtor owes you. The bankruptcy notice should give a deadline by which you need to file your proof of claim. It is imperative that you do not miss that deadline.
3. Take a Closer Look at the Bankruptcy Case: You need to study the details in the bankruptcy claim before the first meeting of creditors. The debtor could be trying to abuse the bankruptcy process by underreporting their debt to you or hiding assets that could be used to repay creditors. You will have the chance to bring up any discrepancies to the bankruptcy trustee during the meeting.
4. Consider a Request to Lift the Automatic Stay: You can continue debt collection efforts during the bankruptcy by petitioning to lift the automatic stay, but the bankruptcy court is unlikely to grant your request if the debt does not involve a secured property. You can argue that you should be allowed to continue foreclosure on a home or repossession of a vehicle if the debtor does not have enough equity in the property to cover the remaining value of the loan.

Contact a Chicago Creditor’s Rights Lawyer

Whether you are repaid at the end of bankruptcy depends on the type of bankruptcy being filed and your priority as a creditor. In Chapter 7 bankruptcy liquidation, secured creditors and priority unsecured creditors are paid before general unsecured creditors. In Chapter 13 bankruptcy, unsecured creditors have a better chance of receiving some money during the repayment plan. An Illinois creditor’s rights attorney at Dimand Walinski Law Offices, P.C., can explain what you are likely to receive from a bankruptcy case. To schedule a consultation, call 312-704-0771.

Source:

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

Government Action

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

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

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

During the Great Recession, so-called “zombie homes” were a common problem for mortgage lenders. Zombie foreclosure is a way of describing a situation where a home is abandoned after the occupants received a foreclosure notice. The number of zombie foreclosures has decreased since the height of the housing market crash. A recent report on foreclosures during the fourth quarter of 2019 found that 3.1 percent were zombie foreclosures, which is down 5.8 percent from the first quarter of 2014. Illinois had the fourth-most zombie foreclosures in the U.S. with 943, which is 4.7 percent of its foreclosures. Abandoned homes are still a problem that can decrease the resale value of the property.

How Zombie Foreclosure Occurs and Why It Is a Problem

When a homeowner receives their initial foreclosure notice, they may decide to abandon the property instead of contesting the foreclosure process. They may believe that they have no hope of paying back the mortgage and that they are better off leaving before the foreclosure is completed. This causes a major problem for mortgage lenders because an unoccupied property will fall into disrepair. In some cases, the previous occupants may have left the home in bad shape.

A zombie home will decrease in value, even if the lender works to maintain its appearance. The lender cannot sell the home until the foreclosure is finished because it is still in the previous occupant’s name. A zombie home will also decrease the property values of other homes in the neighborhood, some of which the lender may be trying to sell.

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

Third-Party Discovery

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

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

Business owners are often receptive to creative ways that they can secure loans from financing companies. Invoice factoring, also known as accounts receivable factoring, is an alternative form of funding that has grown in popularity. Factoring is a collateral-backed loan, with the collateral being the business’s unpaid customer invoices. The lender purchases the invoices and receives payments from the borrower’s customers in order to be reimbursed for the loan. While there are benefits to using factoring to create a loan agreement, creditors should also understand the risks that may be involved.

Benefits

Factoring gives creditors more flexibility when working with a business client that does not have a strong credit history. From the borrower’s perspective, they are quickly turning their invoices into cash that they can use for immediate expenses. From the lender’s perspective, they are purchasing current customer invoices and could be repaid for the loan in a matter of months, depending on when the invoices are due. If the process goes smoothly, the creditor will have created a successful business relationship with a client that may not have qualified for a loan otherwise.

Risks

There is potential for a factoring loan agreement to go wrong, leaving the borrower unable to repay the loan. Most of the risks stem from the fact that the lender must collect money from the borrower’s customers, who may not cooperate for several reasons:

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

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

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

Common creditors such as banks will usually explore various means of collecting debts before they choose litigation. Filing a lawsuit for every debt collection dispute would be costly and hurt their relationship with potentially valuable clients. There are many cases that banks can resolve internally by working with the debtor. However, an inefficient debt collection process may ultimately be a waste of resources because of its low success rate. Adjusting your debt collection strategy may help you more effectively recover outstanding debts and understand when litigation is necessary:

1. Collect and Verify Client Information: It is difficult to start your debt collection process if you cannot find the client. When entering the debt agreement, you should ask the client for personal information, such as their address, phone number, place of work, driver’s license, social security number, and personal references. If you are unable to reach the client with this information, check with government agencies and other third parties to see if your information is out-of-date.
2. Be Proactive and Clear in Communication: Do not give your clients a reason to claim that they were unaware that they owed the debt. Send a message after the first time they miss a payment and follow up if they continue to not pay. Try to contact them in multiple ways until you get a response. Be specific about what they owe, when it is due, the consequences of not paying and how they can pay you.
3. Establish Phases of the Collection Process: Debt collection starts with soft inquiries about the unpaid debt but will become more aggressive the longer that the client does not pay. You need guidelines that will determine when you reach a new phase of the debt collection process, such as sending a final notice or using litigation. You can measure phases by the amount of money owed, the duration of the case, and the client’s response.
4. Use Different Approaches Depending on the Client: Automated debt collection messages may work fine with basic clients, but your most valuable clients need a more personalized touch. You need someone to contact them directly to figure out why they are late on the payment and to find ways that you can solve the issue while preserving your business relationship.

Contact a Chicago Debt Collection Attorney

Banks lend money to a variety of consumer and business clients, which can make collecting debts more complicated. You need an experienced Illinois debt collection lawyer at Dimand Walinski Law Offices, P.C., who can advise you on how to approach your most difficult and important cases. To schedule a consultation, call 312-704-0771.

Source:

The average U.S. consumer takes on more than $1,000 in debt each December – much of it related to holiday shopping and put on credit cards. When it comes time to repay those debts, some consumers struggle to keep up with minimum payments and eventually default on their debts. Debtors who qualify for bankruptcy can put unsecured creditors such as credit card companies in a difficult position because the debtor may be able to discharge all or part of their credit card debt at the end of the bankruptcy. Creditors can stop or limit the bankruptcy process if they can show that the debtor is trying to commit fraud.

Amassing Debt

One way that bankruptcy fraud can occur is when the filer takes on debt that they never intended to repay. For instance, a debtor who intends to file for bankruptcy may use a credit card to purchase gifts for the holidays because they believe that they can discharge the debt later. The credit card company may suspect the debtor’s intention and can file a claim of fraud with the bankruptcy court. If the claim is proven, the court may order that the fraudulent debt is ineligible for discharge or dismiss the case.

Presumption of Fraud

It can be difficult for a creditor to prove that the debtor is committing bankruptcy fraud by including debts that they did not intend to repay. Unless the debtor confesses their intentions, the creditor will rely on circumstantial evidence from which the court can reasonably conclude that the debtor intended to commit fraud. For instance, there may be records of the debtor inquiring about bankruptcy or meeting with an attorney before taking on the debt. U.S. bankruptcy law presumes that some financial transactions by a bankruptcy filer are fraudulent and ineligible for discharge, including:

When you receive a favorable judgment against a debtor in a lawsuit, you will have a variety of sources from which you can retrieve the debt owed to you. Many people hold a majority of their money in bank accounts, and you can use non-wage garnishment to access that money if the debtor has not been using it to repay you. When you receive a garnishment order from the court, the debtor or other interested parties have an opportunity to contest the order and protect that money. In some cases, a person who shares the account with the debtor may try to block your garnishment order.

Non-Wage Garnishment

First, let us review the rules of non-wage garnishment during debt collection. Non-wage garnishment is a court order to withdraw money from sources other than the debtor’s pay from work. Bank accounts and physical assets are the most common sources for non-wage garnishment and can potentially be more valuable than the debtor’s wages. However, there are restrictions on non-wage garnishment:

• The debtor has several exemptions to protect assets, including a $4,000 wild card exemption that can be used on any asset.
• Illinois law exempts money awarded to the debtor through a personal injury or workers’ compensation case.
• Illinois also exempts money in retirement and life insurance plans, unless the creditor can prove that the debtor created these accounts in bad faith in order to protect the money from garnishment.

Joint Accounts

The co-owner of a debtor’s bank account can stop a creditor from garnishing money from the account if a majority of the money came from them and not the debtor. The creditor bears the initial burden of proving that the account belongs to the debtor and should be eligible for garnishment. After the creditor proves this, the joint account holder is the one who must prove through deposit slips and receipts that they are the source of the majority of the money. Joint accounts are typically held between spouses or business partners, who in some cases may have debts that are not shared between each other.

As a secured creditor, there may come a point in the debt collection process when you decide that you are best served by repossessing the collateral property. Auto lenders commonly deal with repossessing vehicles when the debtor defaults on their loan and shows no intention of working with the lender to catch up on the missed payments. However, debtors may not cooperate when you try to repossess their vehicle, whether they actively deny your repossession efforts or try to hide the vehicle from you. In these situations, you can force compliance by requesting a replevin or detinue from the court.

What Are Replevin and Detinue?

Replevin and detinue are similar legal actions that can help you recover a property held by a debtor. The main differences are:

• Replevin allows police to seize property and return it to the creditor and is more generally used when a defendant wrongfully took a property.
• Detinue orders the defendant to surrender the property to the creditor because they are wrongfully withholding it.

With replevin, you may be able to seize the property after the defendant has been given a five-day notice. With detinue, you often must wait until the end of the case to retrieve the property. With both actions, you must be able to clearly identify the property and prove that you have a superior claim to ownership, which for auto lenders would be proving that the defendant has defaulted on their loan agreement. Along with retrieving the property, you may be able to collect damages from the defendant if there was a cost that was related to them withholding the property. If the property cannot be found, the court will order the defendant to pay you the monetary value of the property.

When a debtor files for bankruptcy protection, the court will put an automatic stay on collecting the debt. This means that creditors must stop contacting the debtor with collection notices or attempting to repossess collateral properties until the bankruptcy is completed or the stay is otherwise lifted. Violating the stay is a serious offense that may result in court fines or the debtor filing a lawsuit against you. The severity of the penalty depends on whether you knowingly violated the stay and whether you continued to violate it after being told to stop.

Violation Examples

Once it is confirmed that you received notice of the debtor’s bankruptcy filing, you are expected to comply with the automatic stay. This means you are not allowed to:

• Send letters to the debtor demanding repayment
• Call the debtor about the debt
• Garnish their wages or other monetary assets
• Repossess properties without the permission of the court

Intentionally ignoring the automatic stay is a violation of the Fair Debt Collection Practices Act and may lead to sanctions that cost you thousands of dollars. The bankruptcy trustee will be your contact during the process.

The primary reason that creditors do not want debtors to file for bankruptcy is the possibility of discharging the debt. At the end of a Chapter 7 bankruptcy case, the court will discharge most of the remaining debts that were not paid from the sale of nonexempt assets. Secured creditors can repossess the collateral property but cannot collect on the loan balance without a reaffirmation agreement. Debts to unsecured creditors may be completely wiped out. Creditors can attempt to deny the discharge of their debts by using an adversary proceeding against the bankruptcy filer. They must prove that the debtor is attempting to defraud them through bankruptcy. There are several reasons why a court may agree to deny the discharge of debts:

1. Lying During Bankruptcy: A debtor may abuse the bankruptcy process in order to discharge debts that they are capable of paying. A court may deny the discharge of all debts if the debtor lied or withheld information with the intent to defraud the creditors and manipulate the system.
2. Lying on the Loan Application: A debtor may have entered a loan agreement under false pretenses, such as misrepresenting their income in order to qualify for the loan. The debt is ineligible for discharge because the debtor was attempting to defraud the creditor by incurring debts that they knew they could not repay.
3. Racking Up Last-Minute Debts: A debtor who intends to file for bankruptcy may think they are being sneaky by making several purchases with their credit card immediately before they file. The court will assume that these debts are nondischargeable if the debtor used a single creditor to purchase at least $725 worth of luxury items within 90 days of filing for bankruptcy. A similar rule exists for cash advances on a credit card. In both instances, the debtor is adding to their debt under the assumption that it will be discharged.
4. Transferring Nondischargeable Debts: There are certain debts that cannot be discharged through bankruptcy, such as child support, spousal maintenance, unpaid taxes, and student loans. The debtor may think they can work around this by using a credit card to pay a large portion of these debts and then discharging the credit card debt during bankruptcy. Courts do not allow bankruptcy filers to clear their nondischargeable debts by transferring them to a form of debt that is dischargeable.

Contact a Chicago Creditor’s Rights Lawyer

You have only 60 days after the meeting of creditors to object to a discharge of your debt through bankruptcy. A Chicago creditor’s rights attorney at Dimand Walinski Law Offices, P.C., can explain your options for responding to a bankruptcy filing. To schedule a consultation, call 312-704-0771.

Source:

Lending to a commercial borrower has the potential to be more lucrative to a creditor than lending to a consumer borrower. The average consumer borrower will take out one major loan during their lifetime – a home mortgage. A successful business may continue to take out loans as it expands its operations, creating a long-term business relationship with the lender. There are risks when lending to a commercial borrower if the business struggles. Creditors know they must evaluate the likelihood that a business will be able to repay them before entering a loan agreement. They may need to adjust their evaluation if the commercial debtor falls behind on its loan payments.

Creditor Options

When a commercial debtor misses a payment, the one thing you cannot afford to do as a creditor is to ignore it. You should respond to the first missed payment by contacting the debtor to determine the reason for the missed payment. If the missed payments continue for several months, you have a difficult decision to make. You can:

• Use debt collection practices;
• File a lawsuit for lack of payment;
• Foreclose on a property related to the loan;
• Restructure the loan agreement to make repayment manageable; or
• Offer forbearance to give the debtor time to avoid foreclosure.

Risk Evaluation

There can be benefits for both sides when modifying your loan agreement with a commercial debtor, even if you are losing some money on the original agreement. If the business is able to rebound and repay you, they may reward your assistance by continuing to borrow from you in the future. There is also the risk that modifying the loan will not prevent the business from defaulting on the loan, costing you more than if you had sought full repayment earlier. Identifying the differences between a good and bad risk depends on the circumstances, such as:

A person looking to create a loan agreement may need a cosigner if the creditor is uncertain whether the borrower will be able to continue making payments until the loan is repaid. As a creditor, a cosigner may allow you to take a chance on a potential client by mitigating some of the risks. If the borrower defaults on their debt, you have another party that you can order to repay the loan. However, the cosigner will want to avoid paying you if they can get out of it. You must understand the rights of creditors and cosigners and the circumstances under which the cosigner is liable for the debt.

When Can You Collect from a Cosigner?

According to Illinois law, creditors are not allowed to take collection action against a cosigner until:

• The primary debtor has defaulted on or is delinquent on the debt;
• The creditor has notified the cosigner of this via first-class mail; and
• The cosigner has had 15 days to repay the debt in full or make arrangements for repayment.

The cosigner may try to delay full repayment by asking for forbearance to catch up on payments or to refinance the loan for the primary debtor. You must assess whether it is worthwhile to delay the collection process or allow the debtor to modify the repayment plan. The debtor may lack the financial resources to continue the loan payments on their own, making collection from the cosigner inevitable.

Wage garnishment is one of the most direct tools that creditors use to collect from noncompliant debtors. A creditor can submit a garnishment order after it has filed a lawsuit against the debtor and received a money judgment from the court. Employers are required to comply with a garnishment order and can be fined if they do not withdraw the exact amount ordered or if they retaliate against the debtor for the garnishment. However, wage garnishment has limitations that can sometimes prevent a creditor from collecting the necessary money from the debtor. Here are three facts about wage garnishment that creditors should know:

1. Cap on Withdrawals: There are federal and state protections against wage garnishment to prevent creditors from taking all of a debtor’s wages. First, garnishment must come from the debtor’s disposable earnings, which is the debtor’s wage after deducting expenses such as Social Security and pension contributions. Commercial creditors in Illinois are not allowed to garnish a wage unless the debtor makes more than 45 times either the state or federal minimum wage – whichever is higher. With Illinois currently having a higher minimum wage, debtors must earn more than $371.25 per week. If the debtor is eligible, commercial creditors can take the amount that the wage exceeds $371.25 per week or 15 percent of the debtor’s wage – whichever is lower.
2. Employees Only: Wage garnishment applies only to debtors who are employed and receive a W-2 form from their employer. Freelance workers, independent contractors, and self-employed workers do not qualify for wage garnishment. However, the owner of a corporation does qualify for wage garnishment if they pay themselves through the company. If wage garnishment is not allowed, the creditor can request non-wage garnishment instead. This order allows it to seize the debtor's other assets, such as bank accounts and personal properties.
3. Order of Priority: A debtor may own several debts other than commercial debts. Some of these debts take priority over commercial debts, such as child support, federal income taxes, state levies, bankruptcy payments, and defaulted student loans. These collectors are allowed to garnish more from wages than the state’s limits on commercial creditors, but there may still be a limited amount of money left after these debts are paid.

Contact a Chicago Debt Collection Lawyer

If wage garnishment is not an efficient means of collecting a debt, there are other tools you can use. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can explain your options after winning your lawsuit against your debtor. Call 312-704-0771 to schedule an appointment.

Source:

When creating a loan agreement in Illinois, there is a big difference between personal loans and commercial loans. Individuals or spouses take out personal loans in order to pay for family or household expenses – the most common example being home mortgages. Commercial loans are credit agreements made with business owners for the purpose of starting or expanding a business. In Illinois, commercial loans are more favorable to lenders than personal loans because of the Illinois Credit Agreements Act. Thus, making sure to classify a loan as a credit agreement could save you from a lengthy legal battle.

Commercial Loan Rules

The Illinois Credit Agreements Act states that a credit agreement or any revisions to an agreement is valid only if the agreement is in writing and signed by both parties. The law defines credit agreements as not including credit cards or loans for personal, household, or family purposes. The lender and the commercial debtor cannot create an agreement by:

• Discussing changes to an existing agreement;
• Reaching an oral agreement; or
• Sending a letter or email with the terms of the oral agreement.

Debtors try to use oral agreements to defend themselves against lenders who are attempting to collect on a loan or to file a claim against a lender that they accuse of violating their agreement. With credit agreements in Illinois, commercial debtors have no claim or defense based on oral agreements.

Older homeowners can use a reverse mortgage as a source of income or credit. While borrowers qualify for regular mortgages based on their income, a reverse mortgage is based on the borrower’s equity in their home. People age 62 and older are eligible to take out a reverse mortgage on their principal residence as long as they own it outright or have enough equity in it. The mortgage balance is not due until a qualifying event occurs. If the borrower or their heirs do not repay the mortgage, the lender may foreclose on the property.

When Can a Reverse Mortgage Become Due?

According to Illinois’ Reverse Mortgage Act, there are five ways that the balance on a reverse mortgage can become due:

• The borrower or last remaining tenant dies;
• The property is sold;
• The borrowers no longer use the property as their principal residence;
• The reverse mortgage contract included a maturity date; or
• The borrowers failed to meet their contractual obligation to maintain the home.

When the borrowers die, their heirs will determine whether to repay the reverse mortgage, sell the home or allow a foreclosure. The borrowers may leave or sell the home if it does not meet their needs in old age. However, a lender may foreclose on a borrower’s home while the borrower still lives there if the borrower cannot pay property taxes and home insurance or maintain the value of the property. Unlike with other foreclosures, lenders often cannot seek deficiency judgments against borrowers of reverse mortgages if the property sells for less than the balance of the mortgage.

When a client is unable to pay a debt, it sometimes makes sense to offer to modify the loan. Though you may lose some money after the modification, it would be less of a loss than if the client filed for bankruptcy and discharged the debt. The modification may also allow you to maintain your relationship with the client. Two forms of modification are debt consolidation and debt restructuring. Though they have some similarities, they are each best suited for certain debtor situations.

Debt Consolidation

With debt consolidation, the debtor enters a new loan agreement that pays for multiple, smaller loans over a longer period of time. Debt consolidation can be attractive to the debtor because:

• It simplifies payments of multiple loans into one payment;
• The interest rate on the new loan can be lower than the smaller loans; and
• The process will likely not hurt the debtor’s credit score.

From the creditor’s perspective, debt consolidation may be preferable to other loan modification options because the debtor is still expected to repay the loan in full. It is an option best suited for clients who are normally in good standing and looking for long-term savings on their debts in exchange for extending the repayment period. It may not help a client who is struggling to make basic payments.

Illinois Gov. J.B. Pritzker is expected to sign a bill that will change the rules for collecting consumer debt after a debt judgment. The bill, which has passed both the Illinois Senate and House of Representatives, would reduce the interest rate charged to outstanding consumer debts. More significantly, the bill would cut by 10 years the amount of time that a creditor has to revive a judgment that has become dormant. Sponsors of the law tout it as a way to protect low-income Illinois consumers from cumbersome debts. Creditors of Illinois debtors may need to work faster to collect on court-ordered debt judgments.

Qualifications

There are two important caveats of the law as it applies to debtors. The changes affect debt judgments only if:

• They involve consumer debts; and
• The debt is $25,000 or less.

Consumer debts are debts accrued by individuals for personal, family, and household expenses. Nonconsumer debts are debts from an organization or business or debts that an individual accrues for purposes other than their personal expenses.