Sometimes it is more costly to collect a debt than the debt itself is worth. If someone owes you money, you must evaluate several aspects of the situation, including: how much you are owed, whether you have a judgment, what finances or assets you know the debtor to have, the debtor’s responsiveness to your questions about the finances and assets of the debtor, and the time you will have to spend attempting to collect.

If you are owed a lot of money, of course this weighs in favor of attempting to collect the debt.

If you already have a judgment, this weighs in favor of attempting to collect the debt. If you do not have a judgment against the debtor, you will have to factor in the legal costs and fees involved in obtaining a judgment, which may or may not weigh in favor of attempting to collect the debt.

If you know the debtor to have finances and assets well above and beyond basic necessities, this will weigh in favor of attempting to collect the debt. If you know the debtor to be completely broke and barely able to afford food, it is unlikely you will be able to obtain any repayment from the debtor no matter what you do.

Steps to Garnish a Bank Account

If you have determined thus far that it is probably beneficial to you to attempt to collect your debt, and you know of a debtor’s bank account where the debtor may have money, you can try to garnish funds from that account. If you already have a judgment against the debtor for the amount owed, the process is relatively simple.

First, if you have a judgment and the debtor has funds at a financial institution, you may serve a Garnishment Summons and Disclosure Form upon the financial institution along with an Important Notice, Instructions, and two copies of an Exemption Form.

• An example of the Garnishment Summons may be found in Minnesota Statute 571.74 or online at https://www.revisor.mn.gov/statutes/?id=571.74.
• Examples of Disclosure Forms may be found in Minnesota Statute 571.75 and online at https://www.revisor.mn.gov/statutes/?id=571.75.
• Examples in Minnesota of the Important Notice, Instructions and Exemption Form may be found in Minnesota Statute 571.912 or online at https://www.revisor.mn.gov/statutes/?id=571.912#stat.571.912.

The financial institution must retain as much of the amount owed as the financial institution has on deposit owing to the debtor, but not more than 110% of your claim.

You must also add the language, “This is an attempt to collect a debt. Any information obtained will be used for that purpose,” pursuant to the Fair Debt Collection Practices Act requirements under section 332.37(12).

You must mail to the debtor a copy of the Garnishment Summons and anything else that you served on the debtor’s bank, within 5 days of service on the bank. You must also serve the debtor with a Notice to Debtor in no less than 14-point font.

• An example Notice to Debtor may be found in Minnesota Statute 571.74 or online at https://www.revisor.mn.gov/statutes/?id=571.74.

The debtor has 14 days to notify the financial institution and the creditor (you) of any claim for exempt property he or she wishes to asset. If the financial institution does not receive any such notification within 14 days, the debtor’s funds at the financial institution remain subject to garnishment. To obtain these funds, execute by direct levy using a Writ of Execution pursuant to Minnesota Statutes chapter 550.

Does someone owe you money? Do you have a judgment from the court, but the debtor still refuses to pay you? Do you know the debtor is working, receiving a wage, but still refuses to even make payments to you?

Consider Wage Garnishment

You need to consider garnishing the wages of the debtor.

The difficult part of debt collection is finding out what a debtor has that you can garnish. If you already know the debtor is employed, and where, you are off to a good start.

There is a simple process to follow in order to garnish a debtor’s wages.

Only a certain percentage, generally, may be garnished. Like most creditors, however, you would probably prefer to be paid slowly over time, than not at all.

Step 1: Notice to Debtor of Your Intent

The first step to garnishing wages is to give notice to the debtor that this is your intent.

You must serve the debtor with a Garnishment Exemption Notice and Notice of Intent to Garnish Earnings upon the debtor at least 10 days before attempting to garnish wages.

You may serve this personally upon the debtor or by mail.

A sample of the requirements in Minnesota for this Notice may be found in Minnesota Statute 571.925 or online at http://www.revisor.mn.gov/statutes/?id=571.925#stat.571.925.

This notice is valid for one year. If you provide this notice, but wait longer than a year to do anything else, you must give notice again before garnishing wages.

Some income of a debtor is exempt from garnishment. There may be disputes between you and the debtor regarding what is exempt from garnishment. If this is the case, the process becomes a bit more complicated. You might need a ruling from a court to resolve the dispute.

Step 2: Summons to the Employer

If there is no dispute, in order to proceed with garnishment, you will need to serve the debtor’s employer with a Garnishment Summons and Disclosure Form and $15.00.

This $15.00 amount may change over the years, so be sure to make sure this amount is current at the time you decide to serve the Garnishment Summons and Disclosure Form.

In Minnesota, an example of a Garnishment Summons may be found in Minnesota Statute 571.74 or online at http://www.revisor.mn.gov/statutes/?id=571.74.

You must also add the language, “This is an attempt to collect a debt. Any information obtained will be used for that purpose,” pursuant to the Fair Debt Collection Practices Act requirements under section 332.37(12).

Step 3: Send Notice and a Copy to the Debtor

You must mail to the debtor a copy of the Garnishment Summons and Earnings Garnishment Disclosure Form that you served on the debtor’s employer, within 5 days of service on the employer.

You must also serve the debtor with a Notice to Debtor in no less than 14-point font.

An example Notice to Debtor may be found in Minnesota Statute 571.74 or online at http://www.revisor.mn.gov/statutes/?id=571.74.

Are you a creditor seeking to collect on a debt? Is the debtor ignoring you?

Sometimes debtors simply ignore creditors and collection agencies completely. They think if they don’t respond, if they hide, there is nothing you can do. Unless they are very, very good at hiding, this is not true.

Obtain the Judgment, Ask for Information

First you must obtain a judgment against the debtor. If the debtor ignores you and the Complaint you serve on him or her, you will probably get a default judgment from the court fairly easily.

Next you must docket the judgment. The court administrator can answer your questions about this simple process.

Ask the court for an order that the debtor must answer a standard Financial Disclosure Form (this may be found on the Minnesota courts website), which has been approved by the Minnesota Supreme Court. Serve the debtor with the court order to complete this form and return it to you. This form asks about all the debtor’s assets and liabilities.

Ask for a Show Cause Hearing

If the debtor ignores the order to complete the Financial Disclosure Form and return it to you, ask the court for a Show Causing hearing, where the debtor will be required to give a good reason for his or her failure to comply.

If the debtor appears at the hearing, the court may sternly order the debtor again to comply, or the court may sanction the debtor with a fine, jail, or both.

If the court orders the debtor again to comply, and the debtor again does not, inform the court. Ask for another show cause hearing. The debtor will not likely get off so lightly a second time.

If the debtor does not appear at the show cause hearing, you may ask for an arrest warrant.

Bench Warrant for the Debtor

If the debtor fails to appear for the show cause hearing, you may request the debtor be arrested. In order to do so, you will need to file an Affidavit in Support of Issuance of Bench Warrant.

In Hennepin County, Minnesota, you can find a form for this at http://www.mncourts.gov/forms/fourth/forms/Civil/Bench%20Warrant%20Affidavit.pdf#search=%22affidavit%20in%20support%20of%20issuance%20of%20bench%20warrant%22.

You will need to fill out the caption at the top. You will also need to fill out the name of the debtor, the date and time of the Show Cause hearing for which the debtor did not appear, the date and time the debtor was served with the Order to Show Cause, and the name of the person for whom you are seeking a warrant (the name of the debtor).

This form will need to be signed and notarized and then filed with the court.

The court will then issue a bench warrant for the debtor.

Are you a creditor trying to make a debtor pay a debt? Do you have a judgment against a debtor but haven’t been able to collect?

The first step is the judgment. The next step is to ask the court to order the debtor to tell you what his or her assets and liabilities are. This, however, can also be a difficult process if the debtor simply ignores orders and requests.

After a court orders a debtor to inform you of his or her assets and liabilities, the debtor will usually only be given 10 days to comply. Check the court’s order to be sure.

What to Do When a Debtor Ignores Your Requests and Court Orders

If the debtor ignores the court’s order to provide you with certain financial information, you may request that the court order the debtor to appear before the court and answer to this allegation.

The court will ask the debtor to give a good reason for his or her failure to obey the court. If the debtor cannot provide a good reason to the court, the debtor may be fined, jailed, or both.

So, how do you get the court to do this? Once the debtor fails to comply with the court’s order to provide you with information, you ask the court for a Show Cause hearing.

Show Cause Hearing

In order to request a show cause hearing, for the debtor’s failure to provide you with complete financial information as ordered by the court, you will need to file an Affidavit in Support of Order to Show Cause with the court. The Minnesota form for this affidavit may be found online at http://www.mncourts.gov/default.aspx?page=513&item=485&itemType=formDetails.

Next you must complete an Order to Show Cause for the judge to sign. For Hennepin County in Minnesota you may find the form for this online at http://www.mncourts.gov/forms/fourth/forms/Civil/Order%20To%20Show%20Cause%20Form.doc. Leave the date of the hearing blank for the court.

Once the court signs the Order to Show Cause and fills in a date for the hearing, you must have the Order to Show Cause served upon the debtor. This service of the Order to Show Cause on the debtor must be done personally, by either:

1. handing the Order to Show Cause directly to the debtor at any location, or
2. leaving it with a person of suitable age and discretion residing at the debtor’s usual place of abode.

There are also restrictions on who may serve this Order.

The person who served the debtor must complete an Affidavit of Personal Service. A form for an Affidavit of Personal Service for Minnesota can be found online at http://www.mncourts.gov/default.aspx?page=513&item=208&itemType=formDetails. This document must be completed and notarized.

You will then need to file the a copy of the Order to Show Cause and the Affidavit of Personal Service with the court.

First, as a creditor attempting to collect a debt from a nonpaying debtor, you must obtain a judgment from a court that the debtor owes you this money. Next, you must docket the judgment with the court. The court administrator can explain this process.

After obtaining a judgment and docketing the judgment, you will need to find out the debtor’s ability to pay the judgment, or your ability to collect on the judgment. What bank accounts, earnings, or other assets does the debtor have? You may be able to obtain assets of the debtor that are considered nonexempt from garnishment or attachment.

Request for Order of Disclosure

In order to learn the financial status of the debtor and the debtor’s particular assets, you may file a Request for Order of Disclosure motion with the court.

In Minnesota, you may obtain this form online at http://www.mncourts.gov/default.aspx?page=513&item=307&itemType=formDetails.

You will need to fill out the name of the plaintiff (you, the creditor), the name of the defendant (the person who owes you money), and the judicial district and case number in which you obtained and docketed the judgment. You will need to fill out the information about the debtor and the debtor’s address. You will next sign as the judgment creditor and provide your contact information.

By signing this form you affirm that:

1. you won a judgment in the lawsuit against the debtor,
2. the case began in district court and the court administrator docketed the judgment more than 30 days ago, or the case began in conciliation court and the court administrator docketed the judgment,
3. the debtor has not paid you all money owed to you, and
4. you have not agreed with the debtor to some other way to settle the debt.

Financial Disclosure Form

When filing this form, you will need to send a copy of the Minnesota Supreme Court approved Financial Disclosure Form. This form can also be found online at http://www.mncourts.gov/default.aspx?page=513&item=961&itemType=formDetails.

This is the form that the court will order the debtor to complete and return to you, informing you of the particulars of the debtor’s assets and liabilities. This form will also tell you which assets of the debtor’s the debtor is going to claim as exempt from this process.

It is important that you know the address of the debtor in submitting these forms to the court. The court will mail a copy of the Financial Disclosure Form to the debtor and order the debtor to complete it and return it to you. The court will notify you if it receives its mailing returned undeliverable. The court cannot enforce an order against a debtor if the debtor cannot be informed of the order.

At the time of this writing there was also a $5.00 filing fee for this request in Hennepin County, Minnesota. This fee may change over time.  It is likely a minimal fee in other courthouses as well.

If you want to garnish disposable earnings, indebtedness, money, or property of a debtor, you must first obtain a judgment for a certain amount against the debtor.

There are exceptions where garnishment will be allowed prior to obtaining a judgment, but these circumstances are rare and most allowable circumstances require some type of misconduct by the debtor in an effort to defraud creditors or other inability to obtain a judgment.

To begin, you must obtain a judgment and docket the judgment. This may be a simple process obtained through default of the debtor, or it could turn into a long, drawn-out lawsuit. You may have some idea what the debtor will do if you know the debtor personally, but you will never know for sure until it happens.

Obtain a Judgment

The first step toward collecting a debt owed to you by another is obtaining a judgment against that person for the amount you are seeking. A “judgment” is a final decision by a court.

Once you have a judgment from a court for a certain amount owed, you can begin the process of collecting that amount.

Docket the Judgment

You must docket the judgment. The court administrator or clerk’s office for the court in which you received the judgment should be able to tell you what is needed to docket the judgment.

A “judgment docket” is a list of judicial orders of a particular court, recorded by the court’s clerk, and available for inspection by the public.

The judgment docket provides the ability for interested parties to learn of the existence of the judgment. Recording a judgment in a judgment docket is considered official notice to all parties of the existence of the judgment.

Note

At any time the debtor satisfies, or pays the judgment, you are obviously no longer permitted to seek collection of that amount – you have already collected. If you agree with the debtor to settle the case in some other way, you also are not permitted to seek collection in violation of that agreement.

The Next Steps

After obtaining a judgment, you must learn what assets the debtor has, and then you may attempt to garnish it.

There is some property that you may not, by law, attach to. It is called unattachable property.

• For example, you may not attach to any indebtedness owed to the debtor upon which the debtor’s rights have a contingency.
• Another example of unattachable property is any indebtedness owed to a debtor when the debtor is a bank or credit union.
• Yet another example of unattachable property is indebtedness or money owed to a debtor with a total value of under ten dollars.
• Also, property classified as exempt under Minnesota or federal law is unattachable.

Bankruptcy is a process by which assets may be liquidated to repay debts or debts may be reorganized and a payment plan set forth in order to repay debts over a period of time. There may or may not be discharge of debts in order to assist the debtor to get a better handle on finances as well.

The Bankruptcy Case

When a debtor files a chapter 7 bankruptcy case, the debtor is seeking liquidation of any nonexempt assets in order to repay some of the debt owed to creditors. A debtor may not always receive a discharge of remaining debts. Not all debts are dischargeable. In addition, creditors and the trustee have an option of objecting to discharge or to other actions in the case or positions taken by the debtor.

In a chapter 12 or 13 bankruptcy case filed by a debtor, the creditor generally does not have an option of objecting to a discharge if the debtor has made all required payments under the payment plan. However, the creditor will have an option of objecting to the confirmation, or acceptance by the court, of the repayment plan itself. Once the plan is confirmed by the court and payments are made, creditors have little room to object to discharge.

In any bankruptcy case filed by a debtor, however, discharge may be denied if the debtor does not follow other requirements of the court and the bankruptcy laws, such as attending a course on management of finances or if the debtor received a discharge under a previous bankruptcy case within a certain period of time.

The Federal Bankruptcy Courts

Each of the 94 federal judicial districts handles bankruptcy matters, and in almost all districts, bankruptcy cases are filed in the bankruptcy court. Bankruptcy cases cannot be filed in state court.

Litigation in the bankruptcy court is conducted in much the same way that civil cases are handled in the district court. There may be discovery, pretrial proceedings, settlement efforts, and a trial. After the ultimate determinations made in the bankruptcy court, there is also a process in place for filing appeals.

Bankruptcy Appellate Panels are 3-judge panels authorized to hear appeals of bankruptcy court decisions. These panels are a unit of the federal courts of appeals.

Bankruptcy Appellate Panels (BAPs) were established under the Bankruptcy Reform Acts of 1978 and 1994. 28 U.S.C. §158 sets forth jurisdiction for appeals of bankruptcy decisions and authorizes the establishment of BAPs upon the order of the circuit judicial councils. BAP judges continue to serve as active bankruptcy judges in addition to their duties on the appellate panel.

Appeals from dispositive orders of bankruptcy judges may be taken to the district court or the BAP (if one has been established and the district has chosen to participate), with further appeal as of right to the court of appeals for the circuit. In accordance with requirements of federal statutes and procedural rules, parties may elect to file an appeal of a bankruptcy court decision with the BAP or with the district court.

The Servicemembers’ Civil Relief Act (“SCRA”) is found at 50 U.S.C. app. §§ 501 et seq.

The purpose of the SCRA is strengthen and expedite national defense by giving servicemembers certain protections in civil actions.

By providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect servicemembers during their military service, the SCRA enables servicemembers to focus their energy on the defense of the United States.

Among other things, the SCRA allows for forbearance and reduced interest on certain obligations incurred prior to military service, and it restricts default judgments against servicemembers and rental evictions of servicemembers and all their dependents.

Who is Protected by the SCRA?

The SCRA applies to all members of the United States military on active duty, and to U.S. citizens serving in the military of United States allies in the prosecution of a war or military action.

The provisions of the SCRA generally end when a servicemember is discharged from active duty or within 90 days of discharge, or when the servicemember dies.

Portions of the SCRA also apply to reservists and inductees who have received orders but not yet reported to active duty or induction into the military service.

Bankruptcy Effects on Servicemembers

Bankruptcy cases and proceedings may also affect members of the service. It is important for servicemembers to know the rights they have while in the service. Many of these rights implicate the financial obligations of servicemembers, and it is also important for servicemembers to understand their rights related to bankruptcy proceedings while in service.

Additionally, people who are obligated under the same contracts as a servicemember or who are secondarily liable on an obligation of the servicemember may be granted similar protections by a court as the servicemember would receive.

The Federal Rules of Civil Procedure and Federal Rules of Bankruptcy Procedure refer to the SCRA as well. Adversary bankruptcy cases and proceedings are covered by the SCRA.

Bankruptcy default judgment forms provide guidance about the SCRA requirements as well. Form 261 A refers to the requirement that a plaintiff seeking a default judgment against a defendant must state whether the defendant is in the military, or that the plaintiff does not know whether the defendant is in the military. A defendant in the military will not automatically be found to be in default in the same manner as a non-military individual due to the concern for constraints on the servicemember’s ability to respond and object to the plaintiff’s request.

The purpose of bankruptcy is to provide relief from debts that will not and cannot possibly be repaid. The idea is to give a person or company a fresh start. One way that bankruptcy procedures help to give a person or company a fresh start is through discharge of existing debt. Discharge of debt essentially means elimination of debt.

Debts that May Not be Discharged

Not all debt may be discharged. Generally speaking, credit card debt may be discharged. However, tax debt, student loans from the government, and legally required child support obligations may not be discharged.

Benefit of Discharge

There is more than one benefit to discharge. The obvious benefit is that you no longer have to pay a discharged debt. The less obvious but related benefit to discharge is that your creditors will be informed that they may no longer ask you to pay this debt through any means of communication. Thus, the relentless calls and threats of lawsuits must cease from creditors of discharged debts.

Types of Bankruptcies

There are multiple ways to file bankruptcy, under multiple chapters of the United States Bankruptcy Code. Each chapter allows a different type of result. The actual type of discharge of debt, and the amount of the discharge of debt will be different, depending upon which chapter of Bankruptcy Code governs the particular bankruptcy filing.

The main types of bankruptcies filed are:

• Chapter 7, often referred to as liquidation bankruptcy

• Chapter 11, often called reorganization bankruptcy

• Chapter 12, for family farmers and family fishermen

• Chapter 13, often called the wage earner’s plan

Timing of Discharge

The timing of the discharge varies, depending on the chapter under which the case is filed.

In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.

In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan.

Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing.

The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.

A bankruptcy case normally begins by the debtor filing a petition with the bankruptcy court. A petition may be filed by an individual, by a husband and wife together, or by a corporation or other entity.

The debtor is also required to file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed. The filing of the petition automatically prevents, or “stays,” debt collection actions against the debtor and the debtor’s property. As long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment.

Notice to the Creditors

Creditors receive notice from the clerk of court that the debtor has filed a bankruptcy petition.

Some bankruptcy cases are filed to allow a debtor to reorganize and establish a plan to repay creditors, while other cases involve liquidation of the debtor’s property. In many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor’s estate to pay creditors. As a result, in these cases there are few issues or disputes, and the debtor is normally granted a “discharge” of most debts without objection.

Automatic Discharge and Notice of Discharge

An automatic discharge may occur if there are no objections from creditors regarding the discharge of the debtor’s debts.

The bankruptcy clerk of court sends a copy of the order of discharge to all the creditors. The order will not inform the creditors which debts are not being discharged. Instead, the order informs the creditors that there are debts owed to them that have been discharged and that they are prohibited from attempting to collect those debts.

A debtor who ignores this prohibition may be held in contempt of court for violating a court orders. The creditors are warned of this possibility when they are informed that they are no longer permitted to attempt to collect discharged debts.

If the clerk of the bankruptcy court makes an error and fails to send a creditor a copy of the order discharging debts, the order is still valid, and the debts are still discharged.

Objection to Discharge

On the other hand, a debtor may object to the discharge of debt by filing a complaint in the bankruptcy court. The bankruptcy trustee is also permitted to object to the discharge of all or some debt. Objections must be filed within certain time limits. If there is a trial on the issue of whether the debtor’s debts may be discharged, it is up to the person objecting to the discharge to prove to the court the legal reason why the court should not allow discharge.