What Can My Creditors Do ?
The short answer is, “A LOT!” It depends on what type of creditors you have.
There are three primary types of creditors: secured creditors, unsecured creditors, and priority claims.
Secured creditors are usually lenders who have loaned you money to buy a “big ticket” item like a car or a house. They have a lien against your property and if you don’t pay them, they can take that property from you. For example, if the bank lends you the money to buy a car and you are unable to make the loan payments, the bank can repossess your car. They don’t have to let you know they are coming. They just haul it off.The bank will then take the vehicle to a dealer’s auction and sell it. If they don’t get enough money to satisfy the loan, and they usually don’t, then they will pursue you for the deficiency balance. The same thing can happen with a house, but the lender has to go through a lengthy forclosure process. Obviously with a house, the bank can’t just show up one day and drive off with it like thay can with an automobile.
Many people voluntarily surrender vehicles, thinking that will be then end of it. Well, generally, it’s not. Once the vehicle is sold at auction, the bank usually does not receive enough money to satisfy the loan. The remaining debt, the deficiency, is now classified as an unsecured debt and the bank can sue for that money, obtain a judgment and seize other assets. Other than automobile loan deficiencies, other examples of unsecured debts are credit cards, personal loans, and medical bills. These are the most common type of debts that people have trouble with. Creditors try to collect unsecured debts through threats, intimidation, destroying your credit, and finally suing for the money. The good news is, these types of debts are the easiest for us to reduce or eliminate.
When creditors sue you and obtain a judgment, they then have a very powerful tool to take property from you. If you are employed in Maryland, they can even garnish your wages. If you are employed and paid in Pennsylvania, creditors cannot garnish your wages except for landlords, taxing authorities, domestic relations, and student loans. However, with a judgment, the creditor can freeze your bank account, seize the money, and cause all of your outstanding checks to bounce. They can even have a sheriff sale on your furniture, car, or other personal property. If you own real estate, a judgment will automatically become a lien on your property.
I have people coming to my office all the time saying, “What can the creditors do to me? I don’t have anything.” If they sue you and get a judgment, they virtually destroy your credit and you may not have much, but if the creditor enforces the judgment, you will have less.
Student loans are a special type of unsecured debt. They can be collected by collection agencies through their normal methods, but they have additional tools as well. They can garnish wages and seize tax refunds. Even in a bankruptcy, student loans are very difficult to reduce or eliminate. However, individuals who are permanently disabled can often eliminate student loans through bankruptcy.
The last category of debt are what are referred to as priority claims. These debts generally include taxes, restitution, alimony, and child support. These debts, as a rule, cannot be eliminated, even in a bankruptcy. An exception exists for personal income taxes. If the government has not filed a tax lien and if the taxes are more than three years old, personal income taxes owed the federal, state, or local governments can be eliminated in a bankruptcy. If the government has filed a tax lien, the amount of the tax liability can often be reduced in a Chapter 13 Bankruptcy.
The various governmental units have very broad powers for collecting tax liabilities. Wage garnishment and property seizures are commonly used. If we can’t help you your tax issues, we can refer you to someone who can.