The process of debt collection can be intimidating. The laws and your consumer rights may be unclear and the debt collector can be aggressive and insistent. You may have the desire to pay the debt but don’t know how you could possibly come up with the large amounts of money they are demanding. After all, if you had the cash laying around, the delinquent account would never have gotten behind and turned over to a collection agency in the first place.

Debt collectors come from a few different positions:

  • Debt collectors may work for the primary debt holder as an employee working in a collection department.
  • They could get the debt ‘on consignment.’ Meaning, they work the debt for the primary debt holder and send the account back if they are unsuccessful. This process of working with various debt collection agencies can occur many times before the debt is actually sold, resulting in calls from multiple companies.
  • Attorneys collect on delinquent debt and may work for the original creditor or independently. They typically begin court proceedings faster as a means of debt collection.
  • Debt Buyers purchase the debt and as the new owner no longer ‘collects on behalf of’ the original debt collector.

The further down the process your account falls, the less value the account has to both debt collectors and debt buyers. Debt buyers only pay pennies on the dollar, whereas someone collecting on behalf of the original creditor typically gets paid a commission on any amounts collected. Everyone involved is motivated to get as much as possible paid back on the account, but they also understand that the full amount is not likely to be collected.

Process of Debt Collection

When accounts first become delinquent, an in-house agency will typically begin making phone calls and sending late notices. These collectors are often employees of the company. Your account will be reported late on your credit file and you will receive monthly statements tracking your delinquency. Collection calls are focused around getting the account caught up and back to on-time payment status. Companies generally do not leave an account in house beyond 180 days in delinquency.

Once the account reaches a delinquency of six months, the account is said to be in default, rather than just late. At this point, the original creditor may list the account as uncollectable and “charge it off” for accounting purposes. A “charge off” does not indicate you no longer owe the debt, only that the company is not confident they will be able to collect from you.

Default accounts may be assigned to various collection companies for short periods of time to see if a repayment agreement can be arranged. If no progress is made, the original lender reassigns it to another company. The result is you may receive calls every few months by a new debt collection company. The account may be sent to an attorney who will begin collection efforts through legal channels, or it may be sold to a debt buyer who purchases the debt outright.

Debt buyers retain 100% of what they collect from you, because they own the account. This entices them to accept less than what you owe, because they only paid a small amount for the debt.

Attorneys quickly move to collection through court proceedings. Instead of making annoying phone calls, they specialize in collecting debts through legal channels. The court process is expensive but very effective in obtaining judgements for the full amount you owe.

Timing of The Collection Process

There are several factors that guide lenders along the path of collection. The speed of the process is adjusted based on the following parameters:

  • Company Policy impacts the process and guidelines used for deciding which accounts go directly to an attorney and which ones remain in house, and for how long.
  • Your History of Payments and Spending Patterns. Lenders will infer information about you based on the account history. If balances gradually rose and you made a late payment here and there before going into default, it creates a picture of struggle with good intentions. If you made multiple charges maxing out the credit card in a few months and then immediately stopped making payments, it appears to be deliberate. The later example is likely to see a faster collection process than the first.
  • Overall Debt Picture. Your lender has access to every purchase you made on their account. They know if you maxed out your card buying groceries or televisions. The lender also has access to your credit report, where they can evaluate trends illustrating the level of your financial crisis.
  • Your Communication with the lender will factor into how quickly your account works its way through the legal process. Whether it is yourself or a third party, having open communication with the lender will increase your negotiating strength and enable you to arrange for payments on the account to keep it out of court.
  • Statute of Limitations for the account is the amount for time the lender is able to sue you in order to collect on the debt. While late payments are reported to the credit bureau for seven years, lenders often have a shorter period of time to make a decision regarding a law suit. Lenders are not anxious to give up legal rights for collection and this end date will impact collection efforts, which are likely ramped up as the account nears the statute of limitations. Lawsuits are frequently filed before this time expires.

Actions to Take If You Receive a Court Summons

Do Not Ignore a Summons. Whether you have funds to pay the account off, or make a settlement offer, be sure to contact the lender. In some states making a payment or even acknowledging the debt can reset the clock for the statute of limitations. Understanding the laws and consequences of your decisions is important in protecting your consumer rights.

An ignored summons will always result in a judgement for the lender or debt collector, which could result in wage garnishments or other harsh repayment structures you have little control over.

If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you're just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis.  Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs.  You don't have to struggle with high interest credit card debt any longer.  Call (855) 250-8329 or get in touch with us by sending a message through our website here