What are Creditor’s Rights?

When a debtor fails to pay his or her debts, the creditors who are owed money have the right to collect what is owed to them under creditor’s rights law. When a debtor doesn't pay what they owe, due to bankruptcy or for any other reason, the creditors have a legitimate right to take some collection action and take steps to recover monies paid out and not paid back. The creditor has the right to hire an attorney that specializes in lawsuits against debtors. Initially most creditors try to contact their debtors through notices asking for payment and then hire a collection agency to try to collect the debt through both letters and phone calls.

Collection agencies work under the laws laid by the Fair Debt Collection Practices Act (FDCPA). They must follow the specific laws inscribed in FDCPA and prohibit deceptive practices. Under the FDCPA the collection agencies have the right to make repeated calls and send demand letters for payments to debtors. The letters covered in envelopes must not mention a collection agency and the collectors making the phone calls can only discuss the debt with the debtor. If a third party answersthe phone the collector cannot reveal any information about the debt.

Creditors have the right to approach the court and file a case against a debtor. The creditors also have specific bankruptcy creditor’s rights. Once a judgment is obtained, the creditor can enforce the judgment by claiming enough of the debtor's property to cover the debt, usually with the assistance of the local sheriff. The sheriff may actually seize the property or will record the creditor’s lien against the property. For example in a case of real estate, the sheriff can arrange for sale of the property, the proceeds of which are used to satisfy the debt.

There are also other processes available which depends whether the debt is secured or unsecured. Mainly, secured debt always involves property, whereas unsecured debt doesn’t. In secured debts the borrowers pledges some assets as collateral to secure it. For instance, if a car loan agreement is secured and the debtor fails to make the payments, the lender can take back the car to cover any missed lease payments remaining on the debt. While an unsecured debt is not collateralised by a lien on specific assets.

If the quoted tactics are not successful to recover debts, the creditors have the right to initiate an involuntary bankruptcy proceeding. If the court accepts the petition, the debtor may be required to liquidate their assets to pay off its debts or may be able to file a reorganization plan that sorts out how theirdebts will be paid.