Debt Collection, Simplified
Filed Under (Legal) by admin on 26-09-2008
Collecting debts from debtors can sometimes fall into deaf ears. Generally, debts may be either secured or unsecured. The simplified discussion below presupposes an unsecured credit.
Extrajudicial remedy
To avoid lawsuits, creditors generally try to negotiate with their debtors regarding payment of debts that has become due and demandable. Debtors, however, parry creditors’ demands. Either because they can’t pay or they don’t want to pay.
In this situation, all efforts carried out personally by creditor may only prove futile.
As a remedy, modern business practices include employing the services of a collection agency, which in turn employs the services of collection lawyers. The collection will be pursued by the lawyers who have considerable amount of experience in debt collection for individuals, small and medium business enterprise or even corporations.
Collection lawyers, through years of experience of collecting, have devised bad debts recovery methods for their clients. For a start, they may try to re-negotiate with debtors to pay their outstanding debts for a given and usually limited period. This may be carried out through letters or phone calls.
In the US, it has been a practice to charge debtors toll or airtime fees for calls made to them. But in 1977, the Fair Debt Collection Practices Act (FDCPA) prohibited the practice. Among other things, FDCPA also gave limits to the hours during which a collection call may be made.
The Act also prohibits false, deceptive or misleading representations and disallows debt collection agencies and lawyers from making threats of actions the latter cannot lawfully or does not intend to take.
Judicial remedy
If despite collection letters and phone calls, the debts remain unsatisfied, collection lawyers resort to judicial and statutory processes to have them paid.
The lawyer will file a debt collection suit in court. The debtor will be summoned by serving upon his/her person court documents informing him/her that a court action has been filed against him/her, among others.
The debtor must respond to the lawsuit. He/she may opt to hire his/her own attorney and trial may proceed.
If the debtor did not answer, the lawyer for the creditor will move the court for a default judgment, which is usually granted. This judgment will be against the party who refused or failed to answer to the lawsuit – in this case, the debtor.
Execution of judgment
By virtue of the judgment of default, the lawyer is now empowered to exercise several options to collect money from the debtor. The creditor may choose to exercise one of the following remedies:
• Attachment
• Garnishment
• Replevin
• Receivership
Attachment is a legal remedy where a creditor can have the property of a debtor seized to satisfy the debts, like cars, houses and bank accounts.
Garnishment is a remedy, which allows the creditor to deduct from the debtor’s wages until the debt is fully satisfied.
Replevin empowers the creditor to seize certain goods that the debtor has property interest in, such as security interests, to satisfy the debt.
Receivership is a process wherein a third person is appointed by the court to dispose of the debtor’s property for payment of debt. This is usually done in cases when large corporations, as debtors, are involved.
Time constraints
Collection suits must be filed within the time limit provided in the law. The limitation on when to file an action for collection of debts varies from state to state. This time limit is covered by Statute of Limitations that most states in the US have.
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