Debt recovery and debt collection processes are similar terms with one small, but very important discrepancy. The difference is who is trying to retrieve a debt.
- Debt collection process is simply a creditor’s attempt to recover consumer credit and loans that have not been paid back by a customer.
- Debt recovery process is when a loan such as a credit card balance carry on to go unpaid, and a creditor appoints a third party, known as a collection service, to emphasis on collecting the money.
Learning the Details about the Debt Collection Process
The debt collection process differs based on your creditor, but overall, you can expect the following to happen:
- You will receive a notice from your creditor that your account is past due. This is typically done by your creditor’s in-house collection department.
- Your creditor transfers your account to a “charge off” status. This normally happens after 180 days of not giving the payment. If this is a credit card account, you will no longer have access to use your card. This negative mark will somehow stay on your credit report for seven years.
- Your debt will eventually be sent to a collector. Your creditor appoints a collection agency to help collect payment which are past due. It may even sell your debt to the agency, which means your creditor no longer has any involvement in the process going forward. You would be working solely with the collection agency to pay back the debt.
- The collector contacts you to verify your identity. They may do this by mail or phone — and this can even involve calling your friends, family or employer to verify your identity. However, they’re not legally allowed to discuss your debt with anyone but yourself.
- You will eventually receive a written debt validation notice from the collector. Once they’ve verified your identity, you’ll receive a letter within five days stating the original creditor, the amount owed and how to proceed.
- You continue to receive phone calls and letters. Until you agree to pay off the debt, your collector will continue to make phone calls and send letters to you.
- You talk to the debt collector and agree to pay back the past due debt. At this point, you can try to negotiate with the collector to pay less than the original amount owed.
- The collector closes your account. Once you pay off your debt to the collector, they close your account.
Learning the Details about the Debt Recovery Process
Once the debt belongs to a collection agency, the creditor will send the claim information and supportive documentation to the debt collector noticing your failure to pay according to the terms of the agreement. After the claim is accepted and appraised by the debt collection service, the recovery process begins with a demand letter being sent to the debtor and an acknowledgement letter being sent to the client, who is a creditor.
- Phone calls begin in attempt to arrange payments for the balance past due and make sure that the payments are realized.
- In case, the debtor does not cooperate with resolving the debt, the debt collection agency updates the client with details on forwarding the claim to the affiliated attorneys.
- Forwarded right is signed by the client and sent to the affiliated attorneys and if attorneys recommend legal action, lawsuit requests are provided.
- If client authorizes the legal action and agrees upon lawsuit requirements, the lawsuit is then prepared and filed. In case the client doesn’t want to follow legal action, the claim is worked on for an additional 60 days by the debt collection agency and then closed.
- In case, the Complaint is being served. If debtor files a response, the detection process begins and a trial date is set. If debtor does not respond, a failure to pay judgment is filed by the legal attorneys.
- If a judgment is awarded in the client’s favor, attorneys will file a Writ of Attachment, attempt to trace debtor’s assets and initiate steps to satisfy the judgment.