Understanding the Debt Collection and Debt Recovery Process

There is one minor but crucial difference between the terms debt recovery and debt collection. Who is attempting to collect a debt makes a difference. When a creditor tries to get back consumer credit and unpaid debts from a customer, this is known as debt collection.

When a loan, like a credit card balance, remains unpaid, the creditor may hire a third party, called a collection firm, to concentrate on collecting the money. This is known as debt recovery. Loan recovery and debt recovery are sometimes used interchangeably, although they both aim to find a means to get you to repay the money you borrowed.

Since it is closely linked to your credit score, debt (or loan) recovery is crucial. If a debt collection agency is contacting you, it indicates that there is documentation of your loan default and current delinquencies. Your credit score is lowered as a result of these delinquencies, which may negatively impact your ability to obtain future loans.

The debt collection process consists of multiple parts, and it's critical to understand what to anticipate when a debt recovery agent gets in touch with you. In reality, laws have been put in place to regulate the debt collection process and guarantee that consumers are shielded from harassing debt recovery techniques because financial debt may be a difficult condition.

Terminology for Debt Recovery:

• A debtor is someone who has a financial obligation to repay a loan.
• A creditor is a person who grants credit with the understanding that the debt will be repaid.
• A third-party collector is a person or organization hired by a creditor to collect debts.

The Procedure for Collecting Debt

When a credit card or loan payment is missed, the debt collection procedure begins. Before the payment is recorded to the credit bureaus, the debtor has 30 days from the bill due date (not the billing date) to make the payment. In order to collect payment and any late fees, the creditor will attempt to get in touch with the debtor during this time via phone, email, or letter. This 30-day window is the ideal time to pay off the debt. The debtor can establish a repayment schedule and provide an explanation of their circumstances.

The creditor will often either contract the debt or write it off their books and sell it to a debt collection agency after 180 days have passed. It is advisable to take action as soon as possible because the creditor may contract or sell the debt at any point prior to the 180-day period.

Debt Recovery Process

The creditor will notify the debt collector of your failure to make payments in accordance with the terms of the agreement and provide the claim information and supporting evidence as soon as the debt is turned over to a collection agency. A demand letter is delivered to the debtor and an acknowledgement letter is issued to the client (creditor who hired the collection service) once the claim has been examined and approved by the debt collection agency. This marks the start of the recovery process.

Now that the account is open, the debt recovery process is accelerating using a number of strategies. The first is typically done over the phone in an effort to make arrangements for the payment of the remaining amount and guarantee that the payments are made.

The debt collection agency notifies the customer of the claim's transmission to the associated attorneys in the event that the debtor refuses to comply with debt resolution. The client signs the forwarded claim before it is forwarded to the linked attorneys, who then supply suit requirements if the attorneys propose legal action.

If the client consents to the terms of the case and allows legal action, the lawsuit is drafted and filed. The claim is worked on for an extra sixty days by the debt collection agency before being closed if the client chooses not to take legal action. If the debtor responds, a trial date is chosen and the discovery process starts. A default judgment is submitted by the lawyers if the debtor doesn't reply.

In the event that the client receives a favorable judgment, lawyers will file a Writ of Attachment, look for the debtor's assets, and start the process of satisfying the judgment, which typically entails liens, bank levies, garnishments, and other measures.

How to Respond to a Debt Collector's Lawsuit

Suppose you receive a summons to appear in court and are served with a debt collection lawsuit. The best course of action is to not ignore the issue! A default judgment is issued against you by the judge if you do not reply or appear in court.

Usually, an arbitration or settlement conference will take place prior to the trial. This allows you to work out a settlement with the debt collection agency and avoid a trial and the associated legal costs. In the event that no facts are contested and the debt collector prevails without a trial, they may seek a summary judgment. A summary judgment or settlement will be reached in the majority of instances.

A consumer lawyer should be on your side if the issue goes to trial. Like any other trial, the matter goes forward. After hearing testimony from all sides, the judge renders a verdict.

If a debt collector is awarded a judgment against you, they can employ different debt collection methods and are entitled to the money owing. They have the authority to collect money from your paycheck, seize valuable goods, freeze your bank account, or put a lien on your house, promising them a share of the proceeds from the sale.

Fair Debt Collection Practices Act

One piece of government legislation that protects customers from unethical and unlawful debt collection practices is the Fair Debt Collection Practices Act (FDCPA). On September 20, 1977, the Federal Trade Commission (FTC) passed it in response to many accusations of unfair practices.

A debt collector is not allowed to perform the following under the FDCPA:

• Call you excessively, either before 8 a.m. or after 9 p.m., or, if your supervisor is not happy, come to your workplace.
• Giving unaffiliated third parties information about your indebtedness is important.
• Make use of derogatory, offensive, or harassing language.
• Make inaccurate claims about the debt's facts or threaten to spread misleading credit information.
• Contacts you once a cease-and-desist letter has been sent.

How Creditors Establish Compliance With the FDCPA

The debt collector is required to send a dunning letter, or written communication, with multiple pieces of information in order to comply with the FDCPA.

The following details are to be mentioned:

• Total amount owed
• The creditor's name and address where the debt is due
• that if the debtor does not reply to the notification within 30 days of receiving it, the debt will be presumed to be legitimate.
• That is, if the debtor contests the obligation in writing within 30 days. The debt collector will provide proof of the debt.
• The debt collector will give you the name and address of the original creditor, if it differs from the current creditor, if you ask for it within 30 days. 

The Rights You Have as per the FDCPA

You are shielded from harassment by debt collectors under the FDCPA. It is best to deal with a debt collection agency exclusively in writing if you would like them to stop contacting you. This will allow you to keep a record of all conversations pertaining to the supposed debt. We refer to this as a cease-and-desist letter.

Simply and directly stating that you do not wish to communicate with the debt collection agency going forward is what a cease-and-desist letter should be. Include a request for a return receipt with the letter's certified mail delivery.

Note: The cease-and-desist letter does not apply to the original creditor who provided you with the loan; it only applies to third-party collection services.

With the exception of a final notice, the debt collection agency is required by law to cease all correspondence. One of the subsequent steps will be listed in the final notice:

• The collection of the debt will no longer be pursued.
• The creditor has the right to pursue specific legal actions.
• Undoubtedly, the debt collector will pursue particular legal action.
• Make sure the appropriate debt collection agency is receiving the cease-and-desist letter. Quick account transfers mean that you can be working with a new collector who has taken over your account. Should that be the case, send a cease-and-desist letter to the new collector.

In the event that the collection agency disregards the cease-and-desist letter, get in touch with your state attorney general's office or the Consumer Financial Protection Bureau and submit a complaint. 

Conclusion

In conclusion, debt recovery and debt collection are closely related but differ mainly in who is attempting to collect the debt. Both play a crucial role in ensuring that unpaid loans are addressed, as they directly impact your credit score and future financial opportunities. It's important to understand the processes involved, whether you're dealing with a creditor or a third-party collection agency. Additionally, laws like the Fair Debt Collection Practices Act (FDCPA) provide vital protections against unethical practices. If you're facing a debt collection lawsuit, it's essential to respond and consider legal advice to avoid worsening the situation.

Dealing with debt recovery can be a stressful and confusing process, but you don't have to face it alone. Shepherd Outsourcing offers expert solutions tailored to help you navigate the complexities of debt recovery, ensuring compliance and professionalism. Get in touch with us today to see how we can assist in streamlining your debt collection processes!