One of the first things business suppliers do when you stop paying them is to stop supplying products, or put you on cash on delivery (COD), which can badly hamper businesses that depend on credit from suppliers. However, there are many businesses
not affected by this type of pressure, such as freight haulers, doctors, lawyers, carpenters, service providers, etc. Their normal mode of operation is to pay for supplies at the time they receive them. If these types of businesses have outstanding debt not being paid, then reasonable phone calls from lenders or suppliers who need their money to stay in business are allowed.
When creditors give up on calling you, the next step is a lawsuit. Suing you is not an abusive collection method. You owe the money to the creditor, and the creditor has the right to go to court to try to collect it from you.
People are often thrown into a panic when they first hear about a lawsuit. Some creditors will describe a lawsuit in such a way as to make people think they will be put in jail. They will say things like, "I'll send the sheriff out with papers."
As noted earlier, you cannot be put in jail for a civil debt. The normal way to serve lawsuit papers is to have a sheriff or other process server deliver them. Sometimes they are simply mailed to you, but many states require notice of a lawsuit to be personally served (given to the person being sued in person). Service by sheriff is a favored threat of creditors since it upsets people, and people fear the vision of having a law officer come to where they work or live and serve papers on them in front of their coworkers or neighbors.
When the papers are served, they often say that you must answer within so many days, usually thirty. You will not get arrested if you do not give the court an answer or go to court. It is only criminal court where you can be arrested for not
appearing in court. Debt collection lawsuits are civil suits. However, if you are not there to argue your case and the other side can show you owe them the money they say you do, the court will usually issue a judgment against you. So, while you are not required to go to court, it is not a bad idea to check with a lawyer to see if you have any defenses against the lawsuit. At the same time, you can get detailed information on what collection actions the creditor can legally take against you after it has obtained its court judgment. The following is a general overview of collection actions that can occur.
Judgment against you
A judgment against you may have very little effect, or it can be a disaster. The collection process after a lawsuit or foreclosure hearing is the danger point for any debtor.
Creditors are allowed to take certain steps to collect a judgment, and now they have a court order on their side. In cases of secured property, the court will direct that the property be turned over to the creditor, if the creditor has not been able to pick it up on its own.
Seizing property and the exemption form
Another step is to have a sheriff take the debtors' other property to collect the judgment. Normally this involves first sending notice to the debtors that they have the right to protect certain assets if they are listed on a form turned in to the court within a limited number of days. Since the form is often a bit complicated, and since ignoring the creditor has worked in the past, some people do not fill out the form. This is a serious mistake. If the form is not filled out, the creditor can seize any property the debtor owns, often including his or her home. A favorite target when the debtor does not fill out this exemption form is the debtor's car. This puts maximum pressure on the debtor as he or she usually needs the car to get to work, and there is a ready market for used cars.
The form normally has different types of property that can be protected. Depending on the state, this protected property area may be sufficiently generous that the creditor cannot seize any property. Should this be the case the debtor is said to be judgment proof.
If your property in a given category is worth more than can be protected, which is often the case for business owners, the creditor can send a sheriff out to pick it up and sell it. At these sales, the property is often sold for far less than it is actually worth. This amount is subtracted from the amount owed and the debtor is still responsible for the remaining debt.
There is another way a judgment can harm a debtor. The judgment becomes a judgment lien against land and homes, which means that when the property is sold, the money owed must be paid to the creditor. Land, other than a person's home, can often be taken at once. (It is harder to make a general statement about a person's home. It may be protected or not depending on the state one lives in.)
Because of this fact, creditors oftentimes do not bother with trying to take personal assets, but instead merely wait for the debtor to sell his or her home. They know that almost all buyers will require any judgment lien to be paid off as part of the purchase of the land or home.
Another legal process that may come into play is foreclosure (forced sale of a home by a lender). It is common for business owners to let home payments slide while they devote all their time and money to keeping the business going. Foreclosure is
threatened more often than it is done because creditors know it will upset the home owner. Creditors do not really want your home if there is a good chance they can get the money owed them in a reasonable, timely way. Creditors, however, will often
be demanding about house payments because they know they have such a powerful weapon to use against you.
The foreclosure process works as follows.
First you are served a notice of a legal hearing. This gives you the chance to offer any legal defense you may have.
Having an illness or other problems is not a legal defense. You should see a lawyer to discuss any defenses you might have in your individual case.
Once the foreclosure hearing has been held, the property is advertised for a foreclosure sale. Since these advertisements are designed to inform as many people as possible about the availability of the property, they can be quite embarrassing.
On the sale day, the property is auctioned off to the highest bidder. This is often done in an obscure part of the local courthouse. After the sale is done, there is often a limited amount of time for an upset bid. At the end of the process, your home is no longer yours and you must move out.
Bankruptcy is a powerful tool to stop a foreclosure. You may not qualify, but rather than lose your home, you should investigate the possibility.