What Methods Can Creditors Legally Use to Collect Debts?
Once a court has entered a judgment against a debtor, a creditor will have more options for collecting the debt than they would otherwise. Most often, a creditor will seek to collect the debt from the debtor’s income, bank accounts, and personal property. States make certain assets exempt from collections efforts, however, even if the creditor has received a judgment. Debtors are entitled to retain income and property that are vital to the necessities of life, such as food, clothing, and shelter.
Wage Garnishments
Also known as a wage attachment, a wage garnishment is the process of collecting a debt from the paycheck of a debtor who is currently employed. The employer can subtract a certain percentage of the paycheck and send it to the creditor without the employee receiving the money. A creditor is limited to receiving one-quarter of your net earnings, which are calculated as your earnings without taxes, unemployment insurance, and other required deductions. If you are not earning much more than 30 times the federal minimum wage each week, the creditor may be limited to the amount of your wages that exceeds that amount.
There are some deviations from these rules in both directions. Your state may require a creditor to take a lower percentage of your wages than what federal law allows. On the other hand, if you owe a child support debt, you may lose half of your wages or more to garnishment. You may face even more serious trouble if you owe income tax debt, since the IRS can take almost all of your earnings to repay this debt.
The creditor will receive a writ from the court that allows it to collect a percentage of your wages. The sheriff will tell your employer about the wage garnishment, and the employer will tell you about it. You can object to a wage garnishment at a hearing.
Property Liens
A creditor can put a lien on your real estate in the county where it received the judgment. This happens automatically in some states, while the other states require the creditor to record the judgment. This process can be complicated, and you may be able to get rid of a lien if the creditor failed to follow the process properly. Liens may last for varying amounts of time, depending on the state where you live, but they are generally less than a decade. Before you can sell or refinance your home, you will need to pay off the creditor to clear title.
If the property is not exempt, a creditor may choose to execute on a lien, which involves seizing the real estate and selling it to pay off the debt. This does not always happen, however, especially if the real estate has little value or is subject to other liens that have priority.
In some situations, a creditor may put a lien on your personal property as well. Assets that may be subject to a lien usually consist of property that has a title document, such as a vehicle. Similar to real estate, you would need to clear the lien before selling the car.
Levies and Assignments
A creditor can use a property levy against personal property, such as funds in a bank account, with the assistance of a sheriff or other officer. If the creditor gets a writ of execution, the sheriff can seize the property or order the entity holding the asset to give it to them. If the property does not consist of cash, the sheriff can auction the property and give the proceeds to the creditor.
Meanwhile, an assignment gives a creditor access to assets of a debtor that cannot be seized through a property levy. Examples might include annuities, life insurance, or tax refunds that are projected but have not yet been realized.
Contempt Orders
Another strategy involves a creditor getting an order from a court that requires a debtor to make payments on a debt according to a schedule. Violating this order can result in a finding of contempt in some states. In theory, this could expose a debtor to the risks of fines and even jail time, but warrants arising from these orders are rarely enforced.
