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.

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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.

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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.

A recent U.S. Supreme Court ruling established that creditors can be held in civil contempt for violating a bankruptcy discharge order unless there is “fair ground of doubt” as to the violation. A chapter 7 bankruptcy discharge will clear a debtor from having to repay most of their debts incurred before filing for bankruptcy. A discharge does not apply to certain debts, such as student loans or debts incurred due to fraud. Otherwise, a creditor is not allowed to ask a debtor to repay debts from before the discharge order and could be punished for knowingly violating the order. While not a landmark Supreme Court decision, lower courts will likely cite the ruling during disputes between debtors and creditors after a bankruptcy discharge.

Case Details

Taggart v. Lorenzen is an Oregon case involving a business investor who had received a bankruptcy discharge to protect him from repaying his creditors. Litigation continued over the ownership of the debtor’s business interests, and the court ordered the debtor to pay the creditors’ legal fees at the end of the case. The debtor filed for an order of contempt, claiming that the creditors violated the discharge order by trying to collect legal fees. This case became a larger argument about what constitutes a creditor being in civil contempt of a discharge order:

• The bankruptcy court found the creditors in contempt based on a strict liability standard, which holds that creditors cannot take action after a discharge order without court approval; but
• An appellate court overturned that ruling and used a subjective standard that creditors are not in contempt as long as they have a good-faith belief that their actions do not violate the discharge order, even if that belief is unreasonable.

The Supreme Court vacated the appellate court ruling, rejecting both sides’ arguments in favor of what it believes to be a more reasonable objective standard. Creditors must have an objective reason to believe that they are allowed to take collection action against a debtor after a discharge order, but requiring creditors to clear all actions with a court is unreasonable.

Repossession is often the last resort for auto lenders when dealing with debtors who are behind on their loan payments. You are more likely to retrieve full value on the loan if the debtor continues to make payments than if you repossess the vehicle and resell it. There is also the hassle of notifying the debtor of your intention to repossess and hiring someone to tow the vehicle for you. However, the process can be simpler if the debtor voluntarily turns the vehicle over for repossession. In most cases, the debtor will be the one to suggest voluntary repossession.

How It Works

The result of voluntary repossession is the same as involuntary repossession. You will regain possession of the vehicle and sell it to recuperate the money owed on the loan. The debtor will be liable for any deficiency between what you receive in the sale and what remains from the loan. The difference is that the debtor agrees to surrender the vehicle and will deliver it to you at a time and place of your choosing. The debtor’s compliance means that you will not be fighting over whether you have the right to repossess the vehicle or using a towing service to retrieve the vehicle.

Why Voluntary Repossession?

The debtor still has much to lose by surrendering the vehicle to you. They are losing possession of the vehicle and defaulting on the loan, which will hurt their credit. However, they may prefer voluntary repossession if they believe repossession will be unavoidable:

When you receive a court judgment against a debtor, you are looking for any of the debtor’s available money or assets that you can claim. Retirement accounts can be one of the most lucrative assets that a debtor owns if he or she has had time to contribute to it. However, many retirement accounts are protected from creditors, whether after a successful lawsuit or after the debtor has filed for Chapter 7 bankruptcy. Creditors need to understand what type of retirement account the debtor has to know whether they can try to collect from it.

Federal Laws

Both federal and state laws address which types of retirement accounts are exempt from creditors. Federal law protects debtor retirement plans if they are:

• Qualified retirement plans created under the Employee Retirement Income Security Act; or
• Social Security benefits.

Common ERISA plans include 401K plans, profit-sharing plans, and deferred compensation plans. An anti-alienation clause prevents creditors from collecting from qualified ERISA plans because the clause states that the participants in the plan cannot give away their benefits and outside parties cannot take them away. This prevents the plan administrator from releasing any funds to a creditor. However, creditors may be able to collect the benefits from an ERISA plan once they are distributed to the debtor.

A creditor will usually charge off a delinquent debt if the debtor has gone six months without paying. By charging off the debt, the creditor is classifying it as a bad debt and will typically:

• Write off the debt as an asset on its books;
• Stop sending notices to the debtor; and
• Stop charging interest on the debt.

Efforts to collect the debt will often continue after it is charged off by either hiring a collection agency or selling it to a debt buyer. Many debt collectors would like to charge interest on a charged-off debt, but courts in Illinois have recently ruled against collectors who do so. If you have purchased a charged-off debt, you risk violating the Fair Debt Collection Practices Act if you charge interest on the debt without authorization.

Recent Case

The U.S. District Court for the Northern District of Illinois recently ruled against a debt buyer who added interest on a charged-off debt it had purchased. In Tabiti v. LVNV Funding, LLC, the defendant was the debt buyer who purchased a charged-off debt worth $10,463. The plaintiff was the debtor who claimed that the defendant violated the FDCPA because it did not have the authority to charge interest after it had purchased the charged-off debt. The court found in favor of the plaintiff in a summary judgment, citing two reasons:

As a finance company, you are familiar with the common excuses that clients give when they miss a payment. They may admit to their mistake and say that they forgot or did not have the money to make the payment that month. Other clients may blame your billing process or circumstances that were beyond their control. Rather than tolerate the excuses, you can create a billing and payment process that prevents them. This way, clients can blame only themselves when they miss a payment. Here are four fixes to common excuses for missed payments:

1. Multiple Ways to View the Bill: Clients may claim that they could not find the bill, whether it was losing a mail copy or accidentally deleting an email. This is a flimsy excuse because the client could have asked you for another copy of the bill. There is even less of an excuse if you allow clients to pay bills through an online account. Encourage clients to register on your site, where they can always view their bills and make easy payments.
2. Tech Support: Some clients have little experience using a computer to create accounts and pay bills. A process that seems intuitive to you may be confusing to them. If they complain about not understanding your online system, offer to walk them through the set-up process and explain how they can use their account.
3. Multiple Payment Methods: Allow your clients to pay through your website, by mail, or in person. Some clients may not have a credit card or checking account that they can use for online payments. Other clients may consistently pay on time as long as you do not force them to use one method of payment.
4. Easy Communication: You want your clients to tell you in advance if they will not be able to make a payment. Good customer service will encourage clients to contact you. Have an efficient phone system that allows them to quickly talk to one of your representatives. Reply to emails within 24 hours. Do not give your clients the excuse that you were too difficult to communicate with.

Contact a Chicago Debt Collection Lawyer

The reason a client missed the payment is not as important as knowing when your client will repay you and whether missed payments will continue to be a problem. You may be forced to take legal action if a client cannot or will not meet its debt obligation. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can help you negotiate with clients or take them to court. To schedule a consultation, call 312-704-0771.

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When can a creditor claim a workers’ compensation award from a debtor who has filed for bankruptcy in Illinois? That question is at the heart of a recent case that is heading to the Illinois Supreme Court. In the case of In re Elena Hernandez, the debtor filed for Chapter 7 bankruptcy. Among her debts were more than $100,000 that she owed to healthcare providers for treating a work-related injury. She claimed a bankruptcy exemption for her $31,000 workers’ compensation settlement. The healthcare creditors contested the exemption, stating that it unreasonably undermines their ability to collect on the debt. Both the bankruptcy court and a circuit court agreed with the creditors, but the appellate court saw enough evidence on both sides of the argument to ask Illinois’ highest court to make a definitive ruling.

Workers’ Compensation and Debt

A workers’ compensation claim is meant to cover the actual cost of an employee’s work-related injury, including:

• Healthcare provider expenses;
• Missed pay from time off work; and
• The loss of earning potential due to disability.

Thus, one of the primary purposes of workers’ compensation is to ensure that healthcare providers are paid for their services. Illinois law requires employers to directly pay providers for all undisputed healthcare bills. Employers may dispute whether an employee’s injury qualifies for workers’ compensation or whether a certain treatment was a necessary expense. Creditors can hold a patient liable for payment when the employer disputes a bill.

Debt from medical bills is one of the top causes of people filing for bankruptcy in the U.S. Unlike purchasing a home or vehicle, healthcare is often an urgent need, and patients must immediately decide whether they will go forward with medical treatment. As a healthcare provider, you do not want medical bills to add to your patients’ stress but may need to be aggressive if a patient has gone months without paying. Organizations such as the Healthcare Financial Management Association have guidelines on how to best handle debt collection from patients:

1. Understanding Patients In Advance: A patient may have limited health insurance coverage or no health insurance. You may need to educate patients about the ways that they can obtain health insurance or apply for financial assistance. Be upfront about the cost of the appointment or service and whether you offer a payment plan for patients who cannot pay the bill in a lump sum.
2. Clear Billing: The medical bill that you send to a patient should be easy to read and understand. Highlight the amount that the patient owes and the deadline by which you expect payment. Remind them of any payment plans that you offer and encourage them to contact you immediately if they have any questions or concerns.
3. Communicate with Affiliates: You may work with business affiliates that also need payment for the services that they provided. You can confuse your patients if both you and an affiliate are sending separate bills with different guidelines and expectations. Coordinate with your affiliates so that you are consistent in your billing and debt collection practices. Make sure that your patients are not being billed twice for the same service.
4. Early Intervention: Starting formal debt collection efforts may cause that patient to not use your practice in the future. Before you get to that point, reach out to the patient to ask about the overdue payments. Discuss ways that the patient may be able to afford the medical expenses. If the patient seems unwilling to cooperate, mention without threatening that you have the right to pursue legal enforcement of the debt but would rather settle the issue without resorting to that.

Contact a Chicago Debt Collection Lawyer

A patient may force you to use a debt collection agency or litigation if your attempts to work with him or her are unsuccessful. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can advise you on your options for collecting on unpaid healthcare bills. To schedule a consultation, call 312-704-0771.

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Illinois lawmakers have once again introduced legislation that would change creditor’s debt collection practices. A similar bill from last year failed to make it out of committee, but lawmakers have outlined several goals that they believe will protect debtors:

• Requiring all court summons for a debt collection lawsuit to include a debtor’s “bill of rights”;
• Reducing the time in which a creditor can revive a judgment against a debtor to five years;
• Lowering the annual interest rate on debt judgments less than $25,000 to two percent; and
• Raising the value of the exemptions that debtors can use to protect their assets from creditors.

The proposed change to the homestead exemption stands out because of the sizeable jump. The exemption would increase from $15,000 to $150,000 for an individual homeowner and $30,000 to $200,000 for a couple.

Homestead Exemption

A home is often the most valuable property that a person owns, which makes it important to debtors and creditors. Creditors could recover a large portion of the debt by forcing the debtor to sell the property, but the debtor wants to protect the equity he or she has in the property. Illinois’ homestead exemption allows a debtor to prevent creditors from selling a property as long as the debtor’s equity interest is below $15,000. The equity interest is calculated by subtracting what the debtor owes on the mortgage from the value of the property. Raising the homestead exemption would make it more difficult for creditors to sell a debtor’s home after a judgment lien.

After bankruptcy filers discharge their debts, unsecured creditors may lose the ability to seek or enforce repayment. The debtor can voluntarily repay the creditor in order to keep a property but has no contractual obligation to make continued payments. In some cases, the debtor may choose to reaffirm the debt. The debtor signs a new agreement that requires him or her to repay the debt. As an incentive, the creditor may offer to refinance the debt into terms that are more manageable for the debtor. However, courts will not enforce a reaffirmation agreement unless you met the legal requirements in creating it. You could instead be liable for damages to the debtor if the court rules that the agreement violated the bankruptcy discharge injunction.

Deadline

You must meet two deadlines in order to file a reaffirmation agreement with a debtor:

• The agreement must be filed no later than 60 days after the first meeting of creditors unless the bankruptcy court gives you an extension; and
• The agreement must be filed before the debts are discharged as part of a bankruptcy.

The deadlines mean that you must discuss and complete the reaffirmation agreement while the bankruptcy case is ongoing. Once a debt has been discharged, you cannot create a new agreement that requires payment of the same debt from the same party. Even if the debtor agrees to reaffirm the debt, a court will likely rule that the contract is unenforceable. However, a third party who was not involved in the bankruptcy could agree to take on the debt.