Collections FAQ’s


These materials are for informational purposes only. They should not be construed as legal advice. This information is not intended to replace the assistance of an attorney in any particular situation. It is not intended to, and does not, create an attorney-client relationship.


Non-Judicial Remedies


What methods are available for collecting debts out of court?

Creditors may make an initial demand for payment by sending a letter to the debtor asking the debtor to make payment. When debtors do not respond to letters, creditors may transfer delinquent accounts to a professional debt collector. The odds of collection are pretty good at an early stage but drop dramatically with the age of the account. The longer a delinquent account is held by the creditor, the lower its chances of being collected at all. The Fair Debt Collection Practices Act restricts the tactics debt collectors may use including limiting the manner of contacting the debtor, restricting contact with third parties and prohibiting deceptive practices.


Where collateral is used to guarantee a loan, such as a car loan, a default on the loan may give the creditor the right to repossess the automobile. There are some limitations on this, which include the requirement that no breach of the peace may occur as a result of repossession efforts.


Can a creditor collect interest on an unpaid claim?

A creditor can collect interest on a debt if there is an agreement beforehand, whether it is a credit application, a sales or purchase contract. If there is no agreement about interest, Idaho law allows interest at a rate of 12% on money due by express contract, money after the same becomes due, money lent, money received to the use of another and retained beyond a reasonable time without the owner’s consent, express or implied, money due on the settlement of mutual accounts from the date the balance is ascertained and money due on open accounts after three (3) months from the date of the last item. If a creditor receives a court judgment, Idaho courts allow post judgment interest. Court costs are also recoverable and added to the amount of the final judgment.


For a business debt, how do you determine what parties are actually responsible for the debt?

When the debtor is a business entity, it is critical that you identify the parties legally liable for the debt. Knowing all potential parties beyond the primary debtor is extremely important in collecting a debt when the primary obligor has no reachable non-exempt assets after obtaining a judgment. Identification of the responsible party or parties is first determined by the type of business entity of the debtor organization. Identifying the debtor as a proprietorship, partnership, limited partnership, limited liability partnership, corporation or limited liability company is the first step in finding out all the responsible parties on a debt.


Secured Transactions


What is a secured transaction?

A secured transaction is when a creditor is given a right to or lien on the debtor’s property to guarantee payment of the debt. A security interest arises when in exchange for a loan a borrower agrees, in a security agreement, that the lender (the secured party) may take specified collateral owned by the borrower if he or she should default on the loan. The security interest must then be “perfected” by filing a property prepared VCC-1 Form with the Idaho Secretary of State. A secured creditor has priority over an unsecured creditor in debt collection efforts against the property securing the debt. A security interest also provides the secured party with the assurance that if the debtor should go bankrupt he or she may be able to recover up to the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors.


What is a lien?

Some creditors have special rights to collect debts in the form of liens. Liens may come up in various ways including judgment liens obtained as a result of court proceedings. Creditors commonly seek to create a lien on a debtor's property through a judicial process of lien creation, by obtaining a judgment from the court. Once a judgment lien has been created Idaho law governs how the lien is executed against the debtor's property.


A debtor may provide a creditor with a lien on personal property in order to obtain a loan form the creditor, such as a car loan. When taxes are not paid, the government will have a lien. A mechanic who works on real property will have a mechanics lien whereby the mechanic may retain the property until payment is made for the work.


The lien may give the creditor priority over other creditors attempting to collect from the same debtor. A lien on property may give the creditor the right to foreclose by selling the debtor’s property to pay off the debt.


How do I go about filing and enforcing a mechanics or materialman’s lien on real property?

If you have delivered materials to or performed work on real property, you may have a right to file a lien against the property in an effort to ensure that you get paid for the materials or work. The lien must meet statutory requirements, and the lien must be verified. It must be filed in the county records within 90 days of the last materials supplied or work performed, and a copy must be delivered or mailed by certified mail to the owner within five (5) days of filing the lien. A suit to enforce the lien must be filed within six months of the filing of the lien or it will be deemed to have expired. The lien claimant is entitled to recover attorney fees for preparing and filing the lien as well as enforcing it.


Types of Creditors


Are there different types of creditors?

There are creditors who have a lien against a piece of property. The property or proceeds from its sale must be used to satisfy the debt to the creditor holding the lien before it can be used to satisfy debts to other creditors. A lien may arise from agreement between then parties or as a result of court proceedings. There are creditors who have a priority interest established by statute. For example, debts owed to the Federal Government have a priority interest and must be paid before other debts. Finally, there are creditors who do not have a lien against the debtor’s property, nor do they have a priority interest.


Judicial Remedies


What issues should a creditor consider when deciding whether or not to pursue a judgment?

The creditor needs to consider the expenses involved with pursuing a judgment. Expenses include attorney’s fees, court costs and in some cases third party services for investigators, consultants and experts. Further, the creditor should consider the potential expense of defending a counterclaim. Another issue to be considered in deciding whether or not to pursue a judgment is the likelihood of a recovery from the debtor once you obtain your judgment. Whether or not the debtor is solvent is obviously an important factor in determining the likelihood of a successful collection after judgment. However, sometimes it is very difficult to assess the debtor's true financial picture when the collection problem first materializes. Finally, a creditor must always consider the risk of losing regardless of the how valid his claim may be.


What remedies might be available once a creditor commences a court proceeding?

There are several remedies possible once a creditor has filed a lawsuit and prior to receiving a final judgment.


Attachment is a court order permitting the creditor to seize the debtor’s property. A creditor may utilize this remedy when it is likely that the debtor’s assets will not be around when a judgment is obtained. Attachment is restricted to limited circumstances such as when a debtor is about to dispose of the property, when the claim is based on fraud or where a debtor cannot be served with the complaint. A hearing is required and order of attachment directed to the sheriff.


A writ of possession allows a creditor to recover possession of personal property when the creditor has title to the property or a right of possession specified by contract. A writ of possession will not be ordered by the court prior to final judgment unless the creditor posts a bond in an amount determined by the court. If the remedies described above are not successful, a court judgment must be obtained. This may be obtained after a jury trial or by default if the debtor does not contest the case. If a judgment is ordered, the judgment must then be enforced.


If a case goes to trial, what does a creditor have to prove?

A large majority of cases settle before they ever go to trial. For those cases that do go to trial, specific issues of proof will vary from case to case depending on the issues of the case and the transaction. There are some basic matters that must be proved including the following:



Mortgage Foreclosure


What about the remedy of mortgage or lien foreclosure?

A foreclosure is where the creditor collects its lien by forcing a sale of the debtor’s real property. The creditor receives the amount of the proceeds from the sale equal to the unpaid debt plus expenses incurred in collecting the debt. Any other creditors there may be would receive their share of the proceeds and any remaining proceeds go to the debtor.

Priority is the order in which creditors receive proceeds from the foreclosure sale. The lien held by the bank that provided a first mortgage to purchase the home is usually the first in line having priority in the sale proceeds. If the foreclosure is a result of a creditor enforcing a judgment, that creditor may still be in line behind the first mortgage holder in receiving proceeds from the forced sale.


In Idaho, deeds of trust may be foreclosed by a non-judicial trustee’s sale; foreclosure of a mortgage requires a court proceeding.


Enforcement of Judgments


How can a judgment be enforced?

A judgment can be enforced by taking the debtor’s property in an amount equal to the total debt. Initially, the judgment creditor must obtain a Writ of Execution, which typically contains an order directing the local Sheriff or other official to enforce the judgment. Creditors usually use a sheriff or other official to actually seize the property. The sheriff takes the property by what is referred to as a levy. An example of a levy would be the recordation of a lien on real property. A levy can also be the actual physical seizure of the personal property. Property that may be subject to a levy could include money in a bank account, personal property owned by the debtor, a vehicle owned by the debtor, real property owned by the debtor, etc.


A judgment can be enforced by public sale of the debtor’s property. In order to do so, a court order must be obtained specifying the property to be seized and sold. Idaho law places some limits on this remedy, including a $50,000 homestead exemption on the equity in the debtor’s home.


The remedy of garnishment is a claim on the property of a third party owing a debt to the principal debtor. For example, a creditor may apply for and obtain an Order for Wage Garnishment ordering the debtor’s employer to pay a portion of the debtor’s wages to the creditor. There are limitations on the amounts which may be garnished from wages under both federal and Idaho law.


If a judgment is received in one state, is it enforceable in another state?

When a judgment debtor moves his assets to another state, the judgment can be filed with the court in the state where the assets are currently held. It then becomes a lien against all real estate owned by the debtor in the new state. In addition, the creditor can take whatever action is necessary and authorized under the new state’s laws to enforce the judgment. The authority to execute the judgment in another state is based on provisions of the Uniform Enforcement of Foreign Judgments Act.


Creditor Remedies in Bankruptcy


How should a creditor proceed if a debtor files bankruptcy?

When an individual files bankruptcy, the automatic stay protects the debtor from all forms of collections so the first thing to do is cease any collection efforts. When you receive the notice of bankruptcy, you should file a proof of claim form promptly. The notice will indicate the deadline to do so. This form must be filed to preserve your right to share in the distribution from the bankruptcy estate.


What remedies does a secured creditor have in a bankruptcy case?

If a creditor's claim is supported by a lien, the lien survives bankruptcy as a claim on the property to which it attached before bankruptcy, unless a judge avoided the lien during the bankruptcy. A secured creditor can ask the court for relief from the automatic stay in order to proceed with efforts to collect the collateral on which the debt is secured. For example, a secured creditor may want relief from the stay to foreclose on real estate or repossess a car. One seeking relief from the stay must show the bankruptcy judge, after a hearing, that there is cause for the granting of relief. This might include showing that the property is not insured or that the debtor has no equity in the property and that the property is not needed for a reorganization. The court may grant relief at the initial hearing or set an evidentiary hearing to make a final decision.


What remedies does a non-secured creditor have in a bankruptcy case?

The bankruptcy discharge granted to a debtor prevents a creditor with a dischargeable claim from pursuing the debtor anytime in the future with respect to that claim.


Some kinds of claims may be non-dischargeable so the creditor does not have to take any action to protect the claim. Examples are child support, student loans, criminal restitution, and judgments arising from drunk driving.


The non-secured creditor may file an adversary proceeding requesting the court to find that the debt be determined to be non-dischargeable under the Bankruptcy Code. The proceeding should be filed for non-support claims arising from divorce or if a creditor claims the debt arose from the debtor’s fraud or dishonesty. The creditor must file a complaint within 60 days of the date set for the first meeting of the creditors. Non-discharge actions generally favor the discharge of the debt except perhaps debts arising from divorce. However, if the court finds that the debt is dischargeable it may require the creditor to pay the debtor the costs, including reasonable attorney fees, of the complaint, if it was not substantially justified.