Collections are the procedures utilized by a creditor to obtain money that is owed by a debtor. Often, it refers to the process of collecting money after the parties have already been to court, although this is not always the case.
If the parties have already been to court and one side has received a judgment, that document can be filed with different courts and it will become a lien against any real estate owned by the judgment debtor. As a lien, it will also collect interest at the statutory rate (10% per annum) in Maryland. (For many years the statutory rate was well below the prevailing rates of interest and inflation, but recently it has been the other way around. No banks are paying 10% interest on deposits or CDs. The interest on judgments is good.) If the property is sold, the title company will have to pay off the lien before a new owner can take over the property and have clean title.
Many times a judgment creditor will not know where the assets of the debtor are located. For these situations, the law provides for discovery in aid of execution. This is a deposition where the debtor is called in to answer questions under oath with a court reporter recording his or her answers. Usually, the discovering attorney will require the debtor to bring with him certain documents. Typically, this will include pay stubs (to see where he works), bank statements (to see where his money is kept), tax returns (to see all sources of income), utility bills (to see whose name they are in), car titles (perhaps to attach them), and other financial documents.
There are restrictions on how aggressive a party can be in collecting a debt. Federal law prohibits contacting neighbors and friends, calling at odd hours (early or late), threatening and abusive behavior, and for a debt collector to fail to disclose his or her purpose.
If assets are discovered, then the law will often allow a creditor to seize them. For example, if a debtor has a bank account then the creditor can ask the court to issue a garnishment of the account. The court will order the bank to freeze the account and disclose how much money is being held on deposit. Once this is done, the debtor may have the option to unlock the account if a certain threshold is not met. In Maryland, the first $7000 in a bank is exempt from execution or garnishment. However, any amounts over this amount can be seized and paid to the creditor. Likewise, if a debtor is employed at a job, the creditor can seek a wage garnishment from the court. This is an order directed to the employer directing him or her to withhold a certain amount of money from each paycheck to help pay off the judgment. Again, there are limits to how much of a person’s paycheck can be garnished under both state and federal law.
Collecting on a debt can be time-consuming and frustrating, but in the end if the money is there the law will allow a creditor to obtain it.