Is this legal???? In regards to repayment of debt

[Seeker 1]

What is the name of your state?Tx

Small trucking business LLC that was loaned money for repairs (balance under 10k). In the contract, the creditor states that they reserve all right to federal income tax returns/credits received
to apply to outstanding balance. Also signed as second leinholder on equipment that is still being financed. Well it looks as though no return will be coming back and the truck will be repo. Rights to tax refund, was this legal in the first place? What can be suggested to do in this case?

Thanks,

Seeker

 

[Zigner]

What is the name of your state?Tx

Small trucking business LLC that was loaned money for repairs (balance under 10k). In the contract, the creditor states that they reserve all right to federal income tax returns/credits received
to apply to outstanding balance. Also signed as second leinholder on equipment that is still being financed. Well it looks as though no return will be coming back and the truck will be repo. Rights to tax refund, was this legal in the first place? What can be suggested to do in this case?

Thanks,

Seeker

The involved party would be wise to have the full contract reviewed by an attorney. That is beyond the scope of this forum.

 

[adjusterjack]

Well it looks as though no return will be coming back and the truck will be repo.

Why is the truck going to be repossessed? Did the borrower stop making the regular payments? Or was it agreed that the entire loan would be paid with the tax refunds? If the latter, that was pretty stupid on the part of the lender.

Rights to tax refund, was this legal in the first place?

Nothing illegal about agreeing to that in the contract.

What can be suggested to do in this case?

Should be obvious that if the lender doesn't get his money, he can sue for it. Is that really what you meant to ask?

 

[Seeker 1]

Why is the truck going to be repossessed? Did the borrower stop making the regular payments? Or was it agreed that the entire loan would be paid with the tax refunds? If the latter, that was pretty stupid on the part of the lender.



Nothing illegal about agreeing to that in the contract.



Should be obvious that if the lender doesn't get his money, he can sue for it. Is that really what you meant to ask?

Business at a loss, repairs were costly and cant afford to pay for Truck. Even considered filing bankruptcy. Whatever coming in from filing taxes would be applied to balance and if not paid in full they are secomd leinholder on the truck. You answered with suing in which i figured more debt

 

[adjusterjack]

The second lien on the truck is pretty much as meaningless as the tax return provision. For the second lienholder to attach the truck, the second lienholder would have to pay off the first lienholder's balance and then sell the truck to recover its own money. Trouble is, financed vehicles are rarely worth more than their first loan balances so that would be a losing proposition on the part of the lender.

You answered with suing in which i figured more debt

How so? The Texas small claims limit is $10,000 so suing in small claims court wouldn't require paying a lawyer and court fees are nominal.

 

[Taxing Matters]

What is the name of your state?Tx
Rights to tax refund, was this legal in the first place?

It was not illegal to put that in the contract, but it was worthless to put it in the contract. A private creditor cannot attach a federal tax refund. So if there was a refund, the IRS would send it to the taxpayer, and once the taxpayer has it and cashes/deposits it, it is cash like any other cash the creditor has. So putting that provision in the contract gets the creditor nothing over simply saying the debtor ought to pay him the cash.

 

[LdiJ]

It was not illegal to put that in the contract, but it was worthless to put it in the contract. A private creditor cannot attach a federal tax refund. So if there was a refund, the IRS would send it to the taxpayer, and once the taxpayer has it and cashes/deposits it, it is cash like any other cash the creditor has. So putting that provision in the contract gets the creditor nothing over simply saying the debtor ought to pay him the cash.

Not to mention the fact that someone in business for themselves would not generally have a tax refund, they would generally have a balance due...which makes the provision even more worthless.