Collecting debt

Helene Mueller
eCollect support team

Collecting debt applies to the recovery procedure of default payments and past-due delinquent payments. The process contains different collection tools and approach techniques for the successful collection of bad debts in full from the subject of debt. The debtor is in obligation to settle the outstanding amount, because he is bonded under a specific agreement signed between him and the lender. Debt collection can be performed by a professional debt collection agency, which operates in return of an interest fee charge. But the process can be carried out by the creditor, as well. In this case the debt collection is known as ”first-party” debt recovery, because the whole course is executed by a subdivision, which is part of creditor’s company.

The whole debt recovery process is under the control of different acts and regulations, which frame DCAs’ (Debt Collection Agencies) legal actions and separate the illegal and harassing methods. According to laws in general, collecting defaults’ agencies have the right to contact the debtor in any way, in order to perform successful communication with him. The phone calls have to be in compliance with the national time-frame standards and the written conversations (emails, letters) have to be non-harassing and as polite as possible. Letters of demand and letters before action can be sent, as long as they maintain legal and ethical tone.

Collecting debt process can consist of legal proceedings and court actions as well. Legal process includes hiring of different law representatives, such as debt collection attorneys and debt recovery solicitors. Personal visits to debtor’s premises can be carried out; personal belongings can be forcefully seized and sold at auction. Such actions are legal but debt lawyers prefer to use them as a last resort, unless it is not extremely necessary. Generally recovery attorneys prefer negotiating methods, including different payment plan offers, IVAs (Individual Voluntary Arrangements, generally used in UK & Wales), etc.

Court actions include small claims court proceedings, contacting the debtor by court legal representatives, official letters, summoning the subject of debt to trial process, etc. Such actions are the last step in the collecting debt process. If the debtor still refuses to pay, this may affect him severely, leading to harsh actions, such as wage garnishment, large fines and penalties, bankruptcy, even property seizure.

Individual & business debt collection

Individual debt refers to personal, consumer debts, such as family debts, household loans, medical debts, student debts, car loans, credit card and purchase debts. Consumer defaults can be recovered by a debt collection agency on behalf of the original creditor, where the debtor is an individual.

Commercial debt recovery refers to recovery process, where the creditor and the debtor are both business organisations. Such debts derive from corporate loans for funding different training and entrepreneur programs, start-ups, etc. Business collecting debt is more complicated operation, as commercial debts are usually connected with very large amounts lent to the subject of debt.

Some acts (like the Fair Debt Collection Practices Act for U.S.) regulate only individual and not corporate debts. The FDCPA covers consumer debts’ actions and cannot control business debts. In UK commercial collecting debt complies with acts for business debts, but also with regulations for individual debts: the Federal Trade Commission, the Office of Fair Trading, the Late Payment of Commercial Debts Interest Act, Late Payment of Commercial Debts Regulations, different EU regulations, the Consumer Financial Protection Bureau, and other laws and organisations.

National and nationwide collection

Collecting debt can be served on a national or on a nationwide level, depending on the debt collection agency. Some recovery companies operate only on local level, within one country, and some offer worldwide debt recovery services. Collecting debt on local level is always faster than the nationwide debt recovery, but according to different researches, both have almost the same success rate for recovery percentage.

International debt collecting agencies either have legal operatives (physical presence) in all countries they serve or they have agencies based in the same countries, which act on their behalf. Another difference between national and nationwide debt collection is that transnational debt collection has to comply not only with local laws, but also with international regulations and financial control acts. Logically, debt recovery actions also have to be carried out according to the same laws and regulations, in order not to get in breach with debtor’s rights as a consumer.

National debt collection is the standard and most common debt recovery process. Agencies, which offer debt collection within the borders of only one country, are also usually based in the same country as well. Their actions and process of collection have to comply only with country’s specific laws and regulations.

Used literature & external links