One of the many ways creditors can collect on delinquent accounts is by obtaining a judgment against the debtor. The creditor will typically hire a law firm to sue the delinquent account holder, and in virtually every case, a court will grant a judgment in the creditor’s favor. Because Minnesota law allows service by mail and default judgments are issued frequently, the process of getting the judgment is relatively easy.
Once the creditor has a judgment, the creditor will utilize the judgment to recover the funds owed by the debtor. Prior to obtaining a judgment, the creditor was limited to collecting via phone calls and mail. Those collection efforts, while often upsetting to the debtor , do not allow the creditor to collect unless the debtor voluntarily agrees to make payment arrangements. However, once the creditor has been granted a judgment, the creditor can force the debtor to make involuntary payments. Creditors typically use the following methods to collect on a judgment:
Once the creditor has the initial judgment, the most common next step is to get a garnishment order. Once this is granted by the court, the judgment creditor will be able to force the debtor’s payroll to deduct up to 25% of the debtor’s net pay and give it to the creditor until the judgment is satisfied in full. The debtor will be garnished in intervals with occasional breaks in the garnishment.
There are some limitations to this method. Not all sources of income can be garnished. A creditor cannot for example garnish social security or certain types of pensions. When the debtor is given notice of the pending garnishment, he or she will also receive a notice of exemption to be filled out and returned to the judgment creditor. Typically if a debtor is receiving state aide a creditor will not be able to garnish wages or levy bank accounts even from nonexempt sources. For example, if an individual is working but is also receiving food stamps, the creditor will not be able to garnish the individual’s wages even though the wages are not from a nonexempt source. An individual will need to fill out an exemption form in order to prevent the garnishment. Additionally, if the debtor is self-employed or otherwise receives income through channels other than payroll, a garnishment will be of little use.
2. Bank Levies
A creditor may also utilize bank levies. Once the court grants a levy order, the judgment creditor is able to freeze the debtor’s checking or savings account and force the bank to turn over the funds to the creditor. The creditor can take a lump sum of money up to the amount of the judgment. If the funds in a debtor’s account can be shown to be exclusively from an exempt source such as those mentioned above, then the debtor may fill out an exemption form and the funds will be returned to the debtor. Also if the funds in the account were not the sole property of the debtor, the debtor may request a hearing to have some portion of the funds refunded to the co-owner of the funds.
A judgment creditor can also seize property to satisfy the debt. The creditor can have a sheriff seize any of the debtor’s property that is not exempt under state law.
A secured creditor is able to repossess any assets secured by the loan without acquiring a judgment. This is most often the case with items such as vehicles (repossession) and real estate (foreclosure). A creditor can also seize other items such as furniture, jewelry, and electronics that were purchased on credit if a purchase money security agreement is in place. Many creditors such as Best Buy or Goodman Jewelers place a purchase money security clause into most of their contracts. If proceeds from the sale of the seized property are insufficient to cover the amount owed on the delinquent loan, the creditor may still collect on the deficiency balance. The creditor can pursue a judgment for this deficiency balance and then will able to use garnishments and bank levies to collect the remainder of what is owed.