Debtors, or people who owe money, have certain legal rights with regard to being informed, being protected from aggressive collection tactics, and protection from unlawful harassment. Creditors and institutions that provide loans also have legal rights. Lending law, unfortunately, is not proactive. While lenders do have specific protections under state and federal law, they have to be pursued in court. They don’t automatically apply to stop or force an expected borrower behavior.
Creditor rights in Nevada include:
- The right to collection,
- The right to sue for recovery,
- The right enforce a court order in a collection judgment, and
- The right to assign debt to a third party, i.e. a collection agency or similar.
In many loan agreements, borrowers agree that a lender can enforce the contract through collection efforts. However, this term agreement doesn’t provide the lender carte blanc approval for any kind of collection behavior. When a loan needs to be collected, whether it be by the original lender or an assigned third party, efforts are regulated under the federal Fair Debt Collection Practices Act. This federal law specifies detailed practices of how collections can be exercised, including avoiding abuse and harassment activities. For example, when collection communications are sent through the mail, they can’t disclose the communication content on the outside of the letter or envelope. When calling a borrower’s employer or contacts, the lender also can’t discuss the details and instead must simply state the matter is important business.
Creditors can also seek a resolution via the court system and a civil action lawsuit. This allows the lender to go after other assets of the borrower to pay off the outstanding loan. Assets can include property, bank accounts, retirement accounts, tax refunds, valuable personal property such as jewelry and similar. However, if a borrower files bankruptcy, the creditor’s right can be trumped by the federal court’s review of the bankruptcy filing if all the targeted assets and claims are included in the filing.
Only when the borrower reaffirms the debt after the fact can the lender go after the borrower post-bankruptcy for an old loan cleared by the court. Alternatively, if the borrower doesn’t include the loan in his filing, it can still be collected upon. As a result, it’s very important for creditors to pay attention to bankruptcy filing notices they receive as well as the filings themselves.
Creditors also have a right to be heard on their claims in federal bankruptcy court, and various meetings occur to allow this notice. Those creditors with secured debt, i.e. loans connected to collateral such as homes and cars, tend to be given first preference by the bankruptcy court if bankruptcy is approved and the court liquidates the filer’s assets. This liquidation helps pay off some debts and secured debts get preference. Unsecured lenders, however, often lose the entire loan in bankruptcy since hardly any funds are left after secured loans are taken care of. Typical lenders affected include credit card companies, consumer loan lenders, and store retail lines of credit.
One particular tweak specific to Nevada has to do with what a third party can recover from an assigned debt, specifically second mortgages. After 2011 state law was changed that limited lender recovery to only what was paid for an assigned loan. So, if a third party bought a loan for 50 cents on the dollar for a balance of $20,000, then the new lender can only recover a maximum of $10,000. This change is likely to make third parties think twice about buying loans for collection profits.
Again, creditors in Nevada have to use the legal system to exercise certain rights. Protections for creditors don’t automatically take effect in the state. Further, secondary lenders or assignees can end up with significant restrictions if they don’t pay attention to details. To navigate these risks and potential problems, it’s important to consult with a creditor rights attorney to maximize the best potential for defaulted loan collections.