Are you looking to reclaim unpaid debts but lack the technical expertise of how does debt collection work? If you continue reading you’ll gain practical insights into debt collection and how to effectively tackle it.
Debt collection is one of the oldest known professions, yet the tactics and technology that modern debt collectors rely on are ever-changing. A thorough understanding of the debt collection process is needed to ensure you get repaid every penny you’re owed.
This overview of debt collection laws and collection tactics reveals why it’s crucial to have legal assistance when reclaiming sizable unpaid debts.
Taking on a debt
Debt collection first begins when a debtor seeks money from a creditor that must be repaid in the future. While the actual debt itself may not be due for months – or even potentially years – interest rates or other fees usually begin accruing immediately.
Landlords, business contractors, banks, and other types of creditors who are owed money begin monitoring the debt to ensure repayments are being made on time.
When debt collection begins
The debt collection process itself begins in earnest when a debt becomes delinquent.
A delinquent debt refers to a legally owed sum of money that hasn’t been paid back. It usually refers to a party that hasn’t been paid back for 60 days or more.
After more than 60 days, the original creditor has waited long enough and will likely begin contacting the debtor in hopes of securing repayment.
In order to save money and be friendly, many creditors start debt collection by personally contacting debtors instead of relying on a bill collector. A debt collector may be more cordial with debtors if the creditor hopes to maintain a commercial relationship in the future.
This only works a small percentage of the time, leading creditors to rely on professional agencies when trying to get debtors to cough up what’s owed.
Creditors who are owed particularly large sums of money may decide to immediately enlist legal support rather than approach debtors personally. Bill collectors will be more eager to assist in the collection of a debt when larger sums are owed, as they can profit more off heavy debts.
Debt collection laws allow for the buying and selling of delinquent debts. Once a bill collector is hired to pursue a delinquent debt, the collection process moves on to tracking down the wayward debtor.
Establishing contact according to the FDCPA
When creditors attempt to establish contact with debtors, they must carefully follow certain laws to avoid the illegal harassment of another person.
Debt collection laws such as the Fair Debt Collection Practices Act (FDCPA) serve to protect debtors from illegal collection tactics that some creditors may not be aware of.
This law also ensures that legitimate debt collectors aren’t outcompeted by nefarious agencies that break laws in order to reap profits.
According to the FTC, debt collectors can contact you using almost any method of technology, whether it’s a phone call, email, or text message.
Whenever debt collectors are speaking with debtors for the first time, they’re required to reveal certain things. For instance, they must identify themselves as a debt collector and provide their name and address. They cannot lie about who they are.
A collection agency must also reveal the precise amount of money that’s owed – any misstep and they risk a violation of the Fair Debt Collection Practices Act.
Debt collectors may send details like the amount owed to debtors in writing within the first week of initial contact if they don’t state it when making initial contact.
These are by no means the only regulations debt collectors are required to adhere to. Under no circumstances can creditors or collectors misrepresent their identities or the debts in question when speaking with debtors.
Falsely presenting themselves as a lawyer or law enforcement official is expressly prohibited, though actual lawyers are increasingly involved in the debt collection process.
Debt collectors cannot contact debtors at unusual times or places. Generally, debt collection agents cannot contact debtors before 8 AM or after 9 PM in the United States.
Repeatedly calling someone late at night to remind them of their unpaid debt was a common tactic for many decades – legislation such as the FDCPA was passed with the explicit intention of putting an end to these practices.
If a debtor requests that a bill collector stop calling, future contact cannot occur over the telephone.
Debt collectors are prevented from speaking to the friends, family, and coworkers of debtors about any debts they may owe due to debt collection laws such as the FDCPA.
They must also honestly express the true amount owed without attempting to collect additional interest or fees that were not originally part of the legally owed debt. If a debtor has a lawyer, they can direct the debt collection agency to forward all future communication related to the debt through the lawyer rather than dealing with it themselves.
Tracking down debtors
Some debtors find a new home or job that requires them to move somewhere else after taking on debt. Those who have purchased a car with a loan before defaulting on their debts may have driven halfway across the country, for instance.
This requires debt collectors to scour the country for debtors who may be far away from the original lender who loaned them cash in the past.
Once a debt becomes delinquent and the collection process can seriously begin, third-party agencies begin to perform “skip tracing,” which refers to tracking down debtors. Once a debtor has finally been located, the real work involved with collecting the debt can begin.
Validating debts before collecting
Now that debt collectors have established contact with the debtor, they must validate the debt.
First, debt collectors must send a written notice to the debtors informing them of the amount of debt, to whom it’s owed, and a statement that the debt is considered valid if the debtor doesn’t dispute it within 30 days of receiving the statement.
At this point in the process, a debtor may dispute the debt or claim that it cannot be collected from them.
For example, it’s illegal to try and force a child to pay for the debt of their deceased parent — this is an uncollectible debt.
If the debtor disputes the debt, the debt collector must obtain legal verification of a debt or a copy of the judgment against a debtor.
It’s important to remember that disputing a debt will usually only work if a debt collector is targeting the wrong person; those who owe legitimate debts that courts have ruled upon will struggle to dispute the validity of debts.
Debt collection can’t become harassment
Debt collectors have every right to pursue the money they’re legally owed. Nevertheless, laws such as the FDCPA govern the debt collection process to ensure that collection doesn’t devolve into illegal harassment. Certain tactics must be avoided at all costs.
If a voicemail is left over the phone, the debt collector must clearly identify themselves with a name and contact information without describing themselves as a debt collection agency.
This “limited-content” voicemail regulation serves to protect debtors from being accidentally outed as owing money to family or friends when checking their voicemail.
Collectors cannot knowingly contact you after they’ve been introduced to an attorney.
Bypassing a debtor’s lawyer and communicating with them directly can be seen as a form of intimidation and harassment. Should legal counsel be retained, the collection process must proceed through them after initial contact has been established.
A debtor cannot be contacted regarding their debts while they’re at work.
Debt collectors can’t show up at places of employment during work hours, but it also extends to work emails and telephone numbers.
Debt collection agencies cannot send messages to your work email or dial work numbers if they believe your employer would prohibit such communication.
Personal threats are prohibited
The debt collection process cannot become physically abusive. Harming a debtor or threatening physical or financial harm if a debt isn’t repaid by a certain date is illegal.
The use of obscene or profane language isn’t allowed, either, and threats made to an individual’s reputation or associates are also considered abuse under the FDCPA.
Third-party agencies cannot publicize a list of names of those who have unpaid debts, either – public naming and shaming is generally prohibited.
This means that debt collectors must be careful when using digital tools like Facebook or LinkedIn to contact debtors.
Additional protections for debtors are coming at the end of 2021, and many of these new rules are focused on social media platforms. Any social media message about an unpaid debt which would be visible to the public cannot be made following these changes, for example.
Launching a legal battle
Debtors who feel as if their rights have been violated have the ability to launch a civil lawsuit against their debt collectors.
There is a limited time window for taking legal action, however, as the Supreme Court case of Rotkiske v. Klemm established a statute of limitations on debt “within one year from the date on which the violation occurs.”
This means that debtors have exactly one year to pursue a lawsuit against debt collectors after the alleged violation. Trying to sue for a rights violation that occurred any longer than a year ago will be an uphill battle.
On the other hand, debt collectors may try to initiate legal proceedings against debtors once the collection process is well underway.
After a debtor has been traced, contacted, and their debts validated, a collection agency may decide that legal action is the best method for reclaiming what they’re owed.
A court order could require the debtor to pay back the debt, perhaps by garnishing their wages for a certain amount of time until the debt is satisfied.
Before going to court, creditors may take other steps to try and encourage debtors to pay up.
Legal battles are expensive, after all, and debt collection agencies are looking to salvage as much money from this situation as possible.
Third-party agencies may report delinquent debts to credit agencies and other organizations in an effort to diminish the credit score of debtors. It’s not until a legal judgment is obtained from a court that the money will be repaid – and even then, there may be difficulties.
The post-judgment process
Even after a debt collector has won the legal battle, a debtor isn’t necessarily going to pay the money they owe just because a court ordered them to. The post-judgment phase of debt collection is often the most difficult.
Garnishing wages requires a court order and may be difficult to obtain even if the creditor wins the case. Alternatively, the bank of the debtor may simply be slow to work with the creditor when it comes to releasing the owed money.
Levies and liens
Another post-judgment collection method is to impose a levy upon debtors.
A levy is effectively a legal way of seizing property as a form of repaying debt. Courts may agree to issue a levy against cars, homes, and other physical assets a debtor owes in order to make restitution to the lender.
Once a creditor has been granted a levy in court, they can seize and resell the property in question to reclaim the owed debt. Levying real property as a house or car takes longer than levying intangible property like a bank account or wages.
The third most common way to collect a debt after a legal judgment is a lien. A lien is simply a legal claim upon property that occurs when a debt isn’t repaid. While a levy involves actually taking property, a lien refers to a legal claim to that property.
If a “judgment lien” is obtained on a debtor’s house, the proceeds from selling the house will go to the creditor. Securing a lien or a levy from a court is one of the most effective methods of debt collection, but it can be difficult to accomplish before the statute of limitations on debt takes effect.
Selling an unpaid debt
Finally, creditors and debt collection specialists may determine that this entire ordeal is too lengthy, costly, and difficult to deal with. To cut their losses, they can sell the unpaid debt to someone else, effectively making the collection process their problem.
Debt buyers may scoop up unpaid debts that others have stopped trying to collect if they believe they’re the only ones who can reclaim it. Whether an unpaid debt can be sold to another creditor likely depends upon the specific terms of that loan and whether it’s an attractive investment to another debt collector.
Selling unpaid debt is most common among debt collection agencies, who typically pay pennies on the dollar to acquire legal rights to a debt, and then ring the debtors incessantly.
This is much more of a “numbers game” style of collections and is most common in consumer collections. Commercial debt is less often bought and sold, particularly when individual creditors want to collect the amount they are owed in full.
Moving past the debt
Amateur creditors who attempt to collect by themselves may end up wasting valuable time, money, and energy. With the help of a debt collection attorney, however, the collection process can be quick, easy, and profitable.
Wage garnishment can last for months or even years. Why bother with the hassle of personally overseeing such a lengthy debt collection?
Landlords, contractors, lenders, and other creditors can ensure the smooth collection of any debt with the help of the legal experts at Hanna & Jarbo.
Our team of collection specialists is ready to collect your judgments immediately.
Why struggle to pay the bills when others owe you money? Contact Hanna & Jarbo today to ensure your next debt collection process ends in success.