A business cannot stay solvent unless it receives timely payment for its goods and services. Ohio law provides for creditor’s rights litigation so that businesses can seek payment for what is owed to them. Debtors also have legal rights, though.
Businesses, generally through their attorneys or a collection agency, have several legal avenues. However, they must first pursue these rights in court.
If successful in their litigation, creditors obtain a judgment from the court. This is a judicial order granting the judgment-creditor with the right to obtain a garnishment on the debtor’s wage, a levy on their bank accounts and a lien on their property.
The state also recognizes judgments from other states if these are filed in an Ohio court. In a divorce, one spouse is usually not responsible for debt accrued by their spouse, except for medical debt.
Garnishment of wages
This is the most commonly used method to enforce judgments in Ohio. A garnishment requires the debtor’s employer to deduct a specified part of their wages from each paycheck and forward these wages to the creditor.
Ohio law allows the creditor to seek garnishment if it knows where the debtor works. The debtor must receive a 10-day notice of the garnishment, which is limited to 25% of their net pay.
Debtors, however, also possess legal rights. Instead of garnishment, they may seek an agreement for debt scheduling through a budget and debt counseling service. This allows regular and timely payment of income to the service who will pay off the creditors until the debt is resolved.
Bank account levy
Ohio law allows a creditor to take money from a debtor’s bank accounts to pay off the judgment. This creditor process applies to a levy, attachment, garnishment, lien notice or similar process. The state exempts $424 from account garnishment.
The payment order must be served on the debtor’s bank. If the bank receives this order, the balance in the authorized bank account is considered as being reduced by the payment order amount to the extent it did not receive payment of the order unless the creditor process was served so that the bank had a reasonable opportunity to act before it accepted the payment order.
Ohio law allows a lien, also known as an encumbrance or claim, on the debtor’s property. A creditor who obtains a judgment and places a lien on the debtor’s home is entitled to the proceeds of any sale or refinancing of the home to pay off the judgment. When the judgment is greater than the amount of the debtor’s home equity, the lien may stop the debtor from selling or refinancing until the debtor pays the judgment off.
Ohio has time periods, known as statutes of limitations, that govern the filing of creditor actions. The statute of limitations clock usually starts when a debtor misses their first payment.
While Ohio has time periods that are considered beneficial to creditors, there are no clear standards for credit card accounts. Some local courts use the six-year time restriction for filing actions contained in the state’s open account statute of limitations. Other courts rely on the 15-year restriction in the state’s open contracts rule. The four-year restriction in the open sales installment act is used by other courts. The state bar association has also argued that the statute of limitations is six years.
An Ohio court judgment remains in effect for five years but, upon expiration, may be revived within 10 years. The time for recovering a deficiency balance for a mortgage foreclosure is two years. For a promissory note, the restriction is six years after the due or an accelerated due date.
Where there is no interest rate in the parties’ contract, Ohio courts will rely on the legal interest rates. There are caps on the interest that accrues on contracts and judgments. The interest rate used for late state tax payments would apply to judgments if the parties did not place the rate in their contracts.
Businesses may lose money owed to them if they fail to follow legal procedures and meet deadlines. An attorney can help guide them through the federal and state laws governing debt collection.