Will Your Debtor's Secured Loan Stand in Your Way of Collection?


Did you know that a secured loan may make collections of a judgment hard? Consider the scenario: you have been slighted or suffered damage from a business or individual and in spite of your willingness to work things out, you were unable to arrive at a mutually acceptable resolution. Eventually you decided to take the matter to court where you presented your grievance, offered your proof, and then allowed the judge - and sometimes also the jury - to come to a determination. Things went in your favour and the judge entered a judgment against the individual or business and with this piece of paper in hand you feel sure that your loss will now be adequately compensated.

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With the signed judgment in hand you approach the business or individual only to be shrugged off once more. You contact the court but are told that while entering the judgment is the judge's dominion, collecting on it is yours. While it is true that you could go ahead and turn over your judgment to a collection agency to have them do the dirty work, the reality of this step indicates that you will only be recompensed with pennies on the dollar. Thus, you may try to go it alone, but you will soon find out that the secured loans of your debtor may stand in the way of judgment collection.

Take for example the car the individual may drive. You know that a Honda has a great resale value, but if your debtor got the car with a secured loan, you are second in line. Furthermore, even if the secured loan is paid off, you will still not be able to touch it unless the equity in the car is more than $2,000. Furthermore, if the car has been used to secure another loan - even if this a loan between friends or businesses - then you are once again only second or perhaps third in line and will not be able to take the car at all.

Your next step will be to garnish the debtor's wages. This is usually a great idea to get the money you are owed, since nobody will quit a job simply to avoid a judgment - after all, the money is needed to pay for everyday expenses. Yet did you know that sometimes even pay checks are treated like secured loans? For example, if the wages are already being garnished for child support or for tax arrears, you will most likely have to take a number and wait until these obligations are paid off. This may take decades! Furthermore, if your debtor's income comes from social security, a pension, or even unemployment, you will not be able to touch it.

Going into your debtor's business to seize equipment can also backfire, especially when it is used as the object of a secured loan which in turn finances the equipment. Furthermore, if the business owner sought financing or has negotiated a sales deal, the equipment is oftentimes included in the financial dealings, and akin a piece of property pledged to secure a loan, you will not be able to use it to recoup your losses. Thus, the age old wisdom of thinking through how to collect prior to suing still holds true today.


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