Creditors and debtors enter into a contractual agreement. The creditor provides money to the debtor and the debtor agrees to repay the loan according to the terms set forth in the contract. There are different types of debt, including secured and unsecured debt. The options available to a creditor when a debtor will not pay are going to vary depending upon the type of debt.
Both creditors and debtors need to understand what is permitted, and not permitted, when a creditor is trying to collect a debt. Consumer protection laws limit the actions of creditors in some cases; however, the legal system also makes it possible for creditors to pursue claims against non-paying debtors. The San Diego business lawyers at Sepahi Law Group, APC have a comprehensive understanding of debt collection rules and can provide assistance. Call today to schedule a consultation and learn more.
What a Creditor Can Do To Collect a Debt
If a loan is a secured loan, this means that there is collateral pledged to guarantee the debtor will repay the money borrowed. Mortgages and car loans are two of the most common examples of secured loans. The home and the vehicle, respectively, serve as collateral. The creditor has an ownership interest in the car and home for as long as the debtor owes money on the car loan or mortgage. In the event that the debtor does not pay back the money owed, the lender can repossess the vehicle or foreclose on the home. The lender can sell the car or house to get the money to repay the debt. After the debt and fees are paid, any outstanding money from the sale is returned to the debtor.
Collecting on a secured debt is generally easier than on an unsecured loan because it is simply a matter of the creditor taking the collateral. However, problems can arise if the collateral is not enough to repay the entire loan balance. When this happens, the creditor may be able to try to collect additional funds from the debtor under certain circumstances.
If a debt is unsecured, a creditor still has options to try to collect a debt. There is no property or asset guaranteeing the loan in this case, so the creditor can’t simply take the debtor’s property and sell it. Instead, the creditor can try a number of different tactics to try to get the debtor to pay. Typically, the creditor will begin by making collection calls to the debtor and by posting negative information on the debtor’s credit report due to the late payments. The phone calls cannot be early in the morning or late at night and creditors cannot harass debtors because of consumer protection laws.
If collection calls don’t work or a creditor wants to be more aggressive when trying to collect a debt, the creditor can go to court and get a judgment against a debtor who has defaulted. The debtor will be ordered by the court to pay. If the debtor doesn’t pay, the creditor can go back to court and seek an order to garnish the debtor’s wages or put a lien on the debtor’s house to satisfy the unpaid judgment.
The actions taken by creditors can have a serious impact on a debtor’s financial stability. It is very important to understand legal options available when steps are being taken to collect a debt. Contact Sepahi Law Group, APC for more information on the options a creditor has available when a debtor doesn’t pay.