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What Duties Do Creditors Owe Borrowers?

On Behalf of | Oct 11, 2021 | Bankruptcy

Most people will borrow money at some point in their lives, whether to purchase a car or a home, to fund higher education, or for other reasons. A borrower is expected to pay back the money they owe, pay interest, and adhere to payment deadlines.

As a creditor, it is crucial to understand what duties you owe to those who have borrowed from you. Knowing your rights and understanding what duties you have can put you in a more secure position when dealing with them, especially if you have to take actions like loan collections, workouts, participations, foreclosure, or others.

Creditors and Borrowers, the Basics

A creditor is a person or entity that extends credit or money to an individual. A borrower is a person who accepts that money or credit. Sometimes a borrower is also referred to as a debtor. Often terms are laid out in writing. The borrower becomes responsible for paying back the money to the creditor, sometimes with interest.

When a borrower fails to live up to the terms of the agreement, such as failing to pay back the creditor, the creditor can take action to secure the money in different ways. A creditor may be able to collect the borrower’s property, take the borrower to court, or make a claim against the borrower’s estate if the borrow has passed away.

Some of the most common types of creditors include:

  • Personal creditors– Family members or friends
  • Real creditors– Financial institutions such as banks or credit card companies
  • Secured creditors– Those who provide loans through the use of collateral or a specific asset
  • Unsecured creditors– Those who provide loans without the use of collateral

Duties to Borrowers

A borrower has the duty to pay back the loan amount and any incurred interest according to the terms of the loan. In this situation, it can feel like the creditor has all the power. If a borrower is unable to pay the debt, it can be turned over to collections for nonpayment.

Collections is a process where a creditor sells a debt to a third-party company. That company typically pays less than what the person owes for the debt and then will attempt to collect the money from them directly. However, there are federal laws that protect borrowers.

The Fair Debt Collection Practices Act is a federal law that outlines how creditors can contact people, and how they must be treated. Under the act, collectors cannot contact a borrower between the hours of 9 p.m. and 8 a.m., and they are not allowed to contact them while they are at work. They are legally allowed to use phone calls, texts, emails, and letters to reach a borrower.

These collectors are also prohibited from using obscene language when talking to a borrower. They are also not allowed to threaten people with physical harm or injury, and they cannot threaten jail time. Debt collectors must not lie about the debt that is owed and they cannot lie about what may happen to an individual if they don’t pay their debt.

Borrowers and creditors alike should also be aware that modifications can always be made to the terms of their agreement. However, modifications need to be clearly communicated.

Contact a Council Bluffs Creditor’s Rights Lawyer Now

Our experienced Council Bluffs creditor’s rights attorneys have extensive experience helping entities like yours collect debt in court, through liens or lawsuits, or through involuntary bankruptcy proceedings. We regularly advise our clients on matters both routine and complex.

Protect your rights by turning to an experienced attorney for help. Call us at 712-309-3738 or reach out to us online for a thorough case evaluation today.

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