What Creditors Can and Can't Do to Collect

Debt collection used to be much simpler for creditors than it is today. Historically, failure to pay debt was punishable by imprisonment, the stocks, and in some areas even death. Debtor's prisons continued to exist until some decades after the American revolution. Some creditors wish these punishments were still legal, especially if the debtor is particularly dishonest or obnoxious. But the bottom line is, the laws today are more humane for debtors, so creditors need to be more educated in order to understand their rights.

When a debtor fails to pay, the ultimate goal of a creditor is to get money from the Debtor or property that can be sold for money. There are many possible strategies to accomplish this, but at the root of all these strategies is understanding what the law will and will not do to allow a creditor to get the debtor's property by force.

Secured versus unsecured creditors

There are two major types of debts -- secured and unsecured. A secured debt is one where the creditor is holding property as collateral (either physically or through legal documents). All other debts are unsecured.

The question of whether a creditor is secured or unsecured is important to determine its rights out of court, in court, and in bankruptcy. In many instances, it is worth the effort for an unsecured creditor to negotiate with a debtor to become a secured creditor by getting some collateral from the debtor before a lawsuit or during a lawsuit.

What the creditor can do without going to court

Without going to court, there is very little that unsecured creditors can do other than continually ask the debtor to pay and threaten to go to court (this is sometimes effective). The law limits the creditors in how much they can harass, annoy, and embarrass the debtor, so it is often wise for a creditor to get legal advice in all of their collection efforts outside of court.

Secured creditors have a few more options. If the secured property is personal property (anything other than houses or lands), the creditor can repossess the collateral and sell it, as long as this is done without "breach of the peace," and the sale is done in the manner prescribed by law. If the secured property is real property (houses or lands), the creditor can record their documents, clouding title. There are also some instances in which a secured creditor with the right documents can sell real property without court action.

What the creditor can do in court before getting a judgment

After suing the debtor, there are two phases of the lawsuit -- before judgment and after judgment. The difference between these two phases is important, because in a contested lawsuit, it may take months or in some cases years to get a judgment. There is also a difference between what unsecured creditors can do and what secured creditors can do in each phase.

Unsecured creditors usually have to get a judgment before being able to force the debtor to give up any property. There are some special instances -- such as where the debtor is actively hiding or destroying property, or the debtor is holding some property that clearly belongs to the creditor -- where an unsecured creditor can get an order from the court allowing it to take property early, but it is usually very difficult if possible to get such an order.

Secured creditors can sometimes force the debtor to give up the collateral before judgment. This is significant because personal property collateral can normally be taken outside of court only if it can be done without "breach of the peace." A court order can sometimes give a secured creditor rights that go beyond what they could do outside of court, even before judgment.

What the creditor can do in court after getting a judgment

After judgment, the creditor has the right to the assistance of the court in taking and selling the Debtor's non-exempt property. The most common are (1) supplemental proceedings, (2) writs of garnishment, and (3) writs of execution.

Supplemental proceedings are proceedings to force the debtor to divulge the nature and location of his or her property. This is most frequently done by ordering the debtor to appear at a hearing. Unless the creditor knows enough about the debtor's property, the creditor normally uses supplemental proceedings to find out.

Writs of garnishment and execution are used to take the debtor's property. The primary difference is that a writ of execution is for property that is in the debtor's possession (such as property kept in the debtor's residence) and a writ of garnishment is for property that is in possession of someone other than the debtor who owes the property to the debtor (most usually employers or banks).

Creditors usually garnishments over executions, because garnishments are cleaner and simpler. The writ of execution requires the sheriff to take possession of the property, publish a notice of sale in the newspaper, and sell it, whereas the writ of garnishment simply orders the person holding the property to hand it over.

What property the creditor can take in a garnishment or execution

Generally, a creditor can take every piece of property that a debtor owns or has a right to. However, state law makes certain property "exempt." If the debtor objects properly, exempt property cannot be taken in an execution, garnishment, or any other legal process. In the State of Utah, there are exemptions up to a certain dollar amount for homes, cars, a portion of wages, certain furniture and appliances, sentimental items, animals, books, musical instruments, and other property.

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