Businesses and creditors should always do their due diligence when providing credit to consumers. The best way for businesses and creditors to ensure that a debtor pays them in full, and that both sides are happy with the transaction, is to obtain as much information as possible about the debtor. Important areas to research include the debtor’s assets and liabilities, the payment history of the debtor with other creditors, and the consumer’s business or employment history.
Sometimes, however, this is not enough and a debtor is unable to make payment. To be able to do such things as garnish wages and bank accounts, or place liens on property, a creditor must first go to court and receive a judgment against the debtor. Once the judgment is in place, creditors have several options. If you are a creditor dealing with a debtor who has not been making payments, a Kansas City collection attorney can advise you what you can do to collect money owed. Below are a few collection options.
This is the most common method that creditors use to obtain money owed to them. Creditors request that a Court issue a wage garnishment to a debtor’s employer which results in the employer taking out a certain percentage of the employee’s paycheck until the debt is gone.
Some states do not allow for wage garnishment but Missouri and Kansas do allow the procedure. Missouri law states that a creditor can garnish a debtor’s wages according to whichever of the following three options is the least amount:
- 25% of the debtor’s wages
- 10% of the debtor’s wages, if the creditor is the head of a family and is a Missouri resident
- The amount that the debtor’s weekly earnings exceeds 30 times the federal minimum hourly wage
Creditors cannot garnish certain sources of income, such as Social Security benefits, pensions, and retirement funds.
Other Collection Options
- Levy bank accounts. By levying a debtor’s bank accounts, creditors are able to take the money in that account and use it pay off the debt owed to them.
- Judgment Lien. A judgment lien can become a claim on a piece of property owned by the debtor in the county where the judgment was issued. Creditors can obtain a lien on a creditor’s house or other property , for example. If the debtor then sells or refinances his or her house, the creditor will typically receive a portion of the proceeds from the transaction to pay off the debtor’s debt.
What Happens if the Debtor Files for Bankruptcy?
In the event a debtor files for bankruptcy, a creditor’s rights depend on the type of bankruptcy and the type of claim the creditor has in the matter. In a Chapter 7 liquidation bankruptcy, secured creditors will still have rights in the property that serves as security. A secured creditor is one who has an interest in the property of the debtor. For example, a bank that provides a mortgage to a debtor has a secured interest in the debtor’s house. If the debtor cannot pay back his or debt, the secured creditor can sell the house and use those proceeds to pay the debt.
In a Chapter 11 bankruptcy or Chapter 13 repayment bankruptcy, creditors (whether it is secured or unsecured) can play a role in the repayment plan that the debtor creates. The creditors may then enforce the repayment plan if the debtor does not adhere to it.
Contact a Kansas City collection lawyer at The Sader Law Firm to learn more about what options you have when dealing with debtors.