Debt - legal actions

Helene Mueller
eCollect support team

In legal parlance, the term debt describes a specific amount of monetary value that is owed by one subject to another. In order this sum to be granted to the borrower, an official written contract is to be signed by both sides- creditor and consumer. Such document depicts the exact sum to be paid and specifies a deadline for repayment. The actual debt as a concept appears when the second party (borrower) falls behind with the prior stipulated date or dates for payment. The creditor will then mark this amount as past-due and the sum will be known as a bad debt. The debt contract specifically itemises that the amount borrowed is followed by consumer’s obligation to repay the full amount in time. Therefore the lender has the right to collect the same amount by using any legal and ethical means and methods.

Whether the creditor will decide to collect his debts on his own, or he transfers the case to a professional DCA (Debt Collection Agency), sometimes litigation process is indispensable for the successful recovery of delinquent amounts. For the proceeding of legal actions, a lender usually hires professional debt attorney. He usually represents and is part of a private legal bureau and operates in return of an hourly rate. Debt collection solicitors also charge creditors for addressing official letters to the debtor, such as letters of demand, letters before action, and others. If the creditor is using the services of a debt recovery agency, the same agency usually operates along with its own debt lawyers. If the DCA has a debt solicitor, the creditor will not be charged extra. If the agency has to use external, private attorney, there might be additional charges for the lender.

Before the commencement of debt legal actions, the creditor or the DCA acting on his behalf will send one last written reminder to the subject of debt. If this does not result, debt litigation process will start. This includes firstly the usage of debt recovery attorneys. They will continue the debt collection process by contacting further the consumer. Debt solicitors will send official reminder letters and perform in-house visits. Series of law documents will be addressed to the debtor, including the last letter of demand, or even final letter before court actions.

The next step of the debt legal service as part of the litigation process is filing the case to court. The debt attorney can file small claims court procedure and request a written order for goods and property confiscation; wage garnishment (known as Emolument Attachment Order in South Africa) or even bankruptcy. If a lawyer possesses a court order for accessing the property (a writ of attachment), he is legally authorised to forcefully enter debtor’s estate and execute seizure of goods and belongings. The confiscated items’ value is equal to the total debt amount. These belongings are taken and sold at auction and the debt is considered as cleared in full. Depending on the circumstances, a debt collection lawyer can even demand a seizure of the whole estate property.

A creditor is authorised to request payment from the subject of debt within the limitation period of the default. Such debts are called statute-barred and after a certain term of time, the debts become uncollectible. If during this period the lender had no attempts to recover the amount due and hasn’t acknowledged the debtor of his monetary obligations after the debt limitation has passed the creditor has no right whatsoever to request repayment from the consumer.

There are different laws and regulations governing statute-barred debts. In the United Kingdom and Wales, the prime regulator is the Limitation Act of 1980. According to this act unsecured debts have a limitation period of 6 years. If during this time the first party (creditor) hasn’t contacted the second party (debtor) in connection with his past-due payment, the debt will be marked as unenforceable. Court proceedings are possible, but no court order will be filed as the period of limitation has passed. Pursuant to the Scottish Prescription and Limitation Act 1973, unsecured statute barred debts have a limitation period of 5 years from the date on which the loan contract has been breached.

In order a default to be generalised as debt legal, it has to be proved that such debt exists. This procedure is known under the term debt validation and is controlled by different regulators, such as the Fair Debt Collection Act and the Fair Credit Billing Act for the U.S. and its states. Validation is considered as consumer’s request for written proof from the creditor or the DCA acting on lender’s behalf that a certain default is valid. The collection agency is obliged to send the full debt amount along with a copy of the contract between the consumer and the creditor.

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