Federal and state laws protect both creditors and debtors. Creditors need to familiarize themselves with debtor protections that may make it difficult to recover an unpaid debt.
Once a debt becomes delinquent, it can be difficult and expensive to recover it. Taking steps to protect your rights before extending credit may improve your chances of recovery.
Debtor protections that make recovery more difficult
Ohio law prevents creditors from seizing certain types of assets in an attempt to collect a debt:
- Up to a $125,000 interest in one parcel of real property that the debtor or debtor’s dependant lives in
- Up to $3,225 for a motor vehicle
- Debtor’s interest in endowment insurance, annuities or contracts of life
- Contributions to an individual retirement account
- Certain types of insurance proceeds
These are just a few of the many categories of assets that may receive legal protection.
Strategies for protecting creditor rights before extending credit
Because some debtors may not own enough unprotected assets to satisfy a debt, creditors may wish to secure alternative forms of payment before extending credit. The creditor may require the person seeking credit to provide collateral in the form of valuable property that the creditor may seize if the debtor fails to repay the debt under the terms of the contract. Additionally, creditors may require one or more additional individuals to guarantee the debt should the borrower fail to pay.
Ohio laws entitle creditors to attempt to collect debts, as long as they adhere to consumer protection laws. However, creditors who fail to implement contingency plans before extending credit may have difficulty collecting unpaid debts.