The first thing that people worry about not being able to pay a debt is landing in jail but this is not true except in the case of child support where you have the ability to pay but you don’t. In addition to this, a creditor can’t just get access to your bank account, take back his money, or directly grab your tax refunds. According to the rulebook, the only way a creditor can get his money back from you is to sue you and win the judgment from the court.
But this rule is not that simple as there are many complications in this process and the one rule that you should be aware of is the creditor can never sue first if the debt has been taken against any form of collateral. To know more on how you can stop creditors from taking money and other things, check out Alleviate Financial debt help services.
Whether you are in debt or not, it is always essential to know your financial and legal position when it comes to debt and this is what we are going to discuss in this blog post.
A secured creditor is any type of creditor to whom you have pledged any type of collateral in the exchange for the loan, purchase, or line of credit. The collateral in this can be a business property like equipment or inventory or it can your own property like a boat, car, house, or even jewelry. Like instead of deciding to sell your jewelry online you can use it as collateral to get a loan.
There are also many types of involuntary secured creditors who have filed a legal claim against your property since they have won a judgment against you. In both cases, if you fail to pay the debt then the creditor is legally allowed to have complete possession of the property or the property can be sold to recover the debt.
An unsecured creditor is the one to whom not even a single collateral has been pledged against the loan, lines of credit, or purchase. The most common examples of unsecured debts are credit card charges and even the price your business owes for furnishing, supplies, inventory, and other office-related items.
How can a creditor collect a judgment?
The one thing that you have to understand here is collecting a judgment is always more challenging than trying to win it. If your creditor has gone to court and won a judgment against the debt you owe to the creditor then according to the papers, the creditor is allowed to take any form of money available in your bank account or available in the form of bank profits.
Even if you are the sole partner or the sole proprietorship, the creditor has the authority to take away your wages or take money directly from your personal bank account. But before taking the income or the money from the bank account, the creditor first needs to locate it and only then the court can order the sheriff to take it for the creditor.
Writ of garnishment is the most common collection method used by a creditor for the collection of the payment. In this method, a sheriff is allowed to garnish 25% of your wages to pay the pending debt.
In the case of a self-employed business owner
But you should also know that if you are a self-employed business owner and don’t have any type of side-job then taking away your wages will be quite difficult since you are not going to have any type of paycheck.
But at the same time, the wages of your spouse can be garnished for paying your own business debts and this is applicable if you are living in a community property state.
The most effective collection technique
The best collection technique is when the sheriff comes to your office premises and just takes any money that he finds there whether it is in the cash register or the on your person.
In addition to this, a sheriff can be given the authority to take away business equipment, tools, or even vehicles for paying the debts. But this happens only when the item that you owe is worth more than the amount of debt. Besides, the creditor can go to the court and get permission from the court to ask your customers and suppliers to pay him directly the money that they owe to you.
But you don’t need to worry about these methods of collection used by a creditor since in most cases, creditors don’t go to this length for collecting the debt as most just attach the ‘judgment of lien’ to any real estate or to any asset that is owned by the company. The creditor then can use this lien for collecting the debt without any issue.