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A Creditor’s Right to Collect: Know the Law and Protect Your Assets

There is a certain amount of trust that is required in order to lend anything of value to another person and this is no less true in the relationship between a creditor and debtor. The creditor, when lending money to a debtor, enters into an agreement trusting that the debtor will live up to the terms of the contract between them. Along the same vein, the debtor enters into the agreement trusting that the creditor will provide him or her with that which is needed, whether it be money or a physical object. When that trust is broken, however, many creditors may not be aware that they are entitled to legal remedies in order to help them recoup some if not all of what they lost in the broken deal. In California, there is a process for this recovery, and if it is followed, a creditor may not be left holding the tab or merely trying to mitigate losses.

Do Not Panic: Follow the Law

Laws are designed to help provide an equitable outcome for those who know how to follow them. Many statutes can be utilized as a “how-to” guide with the correct interpretation and application. Avoiding any impulsive reactions to a debtor’s breach of contract, either by their failure to pay or filing for bankruptcy, can help a creditor use the law to its maximum advantage.  On the other hand, rash decisions in the event of a breach can land the creditor in costly legal trouble if they engage in behavior that runs afoul of state and federal consumer protection laws. 

For example, both the federal Fair Debt Collection Practices Act and the California Fair Debt Collection Practices Act contain provisions that are designed to prevent a creditor from using certain methods to collect a debt. It does not matter under either law that the debt is legally owed to the creditor, if the creditor or creditor’s agent engages in conduct that is deemed to be deceptive, unfair or abusive, it may be penalized. Creditors in California have additional reason for concern as the federal limitations on what is considered a “debt collector” do not apply.  California’s law requires not only collection agencies, but also original creditors to comply with its provisions.

The Rules and Rewards

Depending on what type of debt is being recovered, there is a statute of limitations period within which a creditor must bring a collection action or recovery may be time barred. For example, with regard to written contracts or open accounts, the creditor must bring an action within four years. However, for debts pursuant to an unwritten contract (i.e. verbal contracts) the creditor only has two years to enforce its right to collect.

A creditor in California has the right to garnish a debtor’s wages in order to recover monies owed pursuant to a broken contract.  For most types of debt, this is done via a lawsuit to obtain a judgment against the debtor.  Once a judgment is obtained, a creditor may obtain a wage garnishment order that will allow them to immediately collect a portion of each paycheck received by the debtor until the debt is paid.


If you have found yourself in a situation where you are a creditor and are owed money, contact the law office of Garcia & Gurney. Our attorneys have experience with California and federal debt collection laws and will work hard to help you recover what you are owed.

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