As the holder of an unsecured debt (that is, a debt which is not secured by a mortgage on real estate or a security interest in personal property), how does a creditor proceed with collecting its debt in the event that its borrower ceases payment? The first step is to determine what, if any, notice is required to the borrower under the contract existing between the creditor and borrower. After demand is made, the borrower usually has a set amount of time in which to either reinstate or pay off the debt. If the borrower is non-responsive to the payment demand, the creditor may then sue the borrower for the unpaid debt. The borrower must respond to the creditor’s complaint within a certain timeframe after service. If no response is filed, the creditor will be able to obtain a default judgment.
Once the judgment is acquired, it acts as a lien against all real estate owned by the borrower in the county where the judgment is entered. The creditor then has —if the borrower still doesn’t pay — a number of methods to ensure repayment. The judgment lien means that if the borrower’s property is sold, proceeds of the sale (if there are proceeds; i.e. the property is not “underwater” on equity) must be applied against the creditor’s debt. The borrower’s property cannot be sold free and clear of all liens until the creditor’s lien is paid off, which means that the lien both makes it more difficult to sell the property (since the owner’s interest is not free and clear) and also makes it more difficult to profit from the property’s sale. The creditor can take a “sit and wait” approach until the borrower tries to sell the property. If this strategy is taken, the creditor must revive its judgment lien every five years to maintain its priority.
Another option for the creditor is to execute on the judgment against personal assets of the borrower. While wages cannot be garnished in Pennsylvania (except for certain types of debts such as a debt for a domestic support obligation), other personal property such as a bank account in the borrower’s name, may be attached. What this means is that any money existing in the bank account as of the date of garnishment (excluding the Pennsylvania statutory exemption and the garnishee bank’s administrative fees) will become available to the creditor for satisfaction of its judgment.
If you are a creditor who needs assistance with collecting a debt, the law offices of Unruh Turner Burke & Frees may be able to assist you with your claim.