The Debt Collection Process In A Nutshell

By Carol Maiocchi


The information contained in this overview provides a broad and simplified summary of the collection process. Numerous variations and tangential steps can occur at different points in the process. Actual activity depends upon a widespread array of possible outcomes including results of contact with Debtors, possible settlement arrangements, bankruptcy filings, court decisions and the potential for a Business Debtor to cease operations. While each claim must be processed adhering to legislative and statutory requirements, collection efforts require careful tracking and reporting on a claim by claim basis in order to maintain continuity and follow-up routines throughout the life of the claim.

Collection Agency Activities

Activities at collection agencies center on attempts to locate Debtors and to collect debts solely by direct contact with Debtors. Written notices and telephone calls are the methods most commonly utilized by collection agencies. Typically, agencies will use a combination of letters and accompanying telephone calls to attempt contact with the Debtor in order to notify him or her of the nature of the debt, the creditor and the total amount due. If the agency is successful, a repayment schedule or a settlement arrangement will be set-up and the collection agency's fees will be taken from the proceeds collected. Fees usually range from 25% to 35% of the amount collected.

The Debtor may be an individual or a business entity. There may be single or multiple Debtors in connection with a specific claim. It should be noted that the terms of any contract or service agreement issued at the time the debt was incurred can impact the placement amount and potential interest calculations used when commencing collection activities.

Written communications are often issued in the form of a series of "Demand Letters". The Demand Letter will notify the Debtor(s) of the Creditor(s) name, the amount of the overdue debt and will advise the Debtor as to legal rights to dispute the validity of the claim. Telephone calls may also be made periodically in an attempt to establish repayment procedures.

All written and oral communications should be performed in compliance with the requirements of the Fair Debt Collection Practices Act which is structured to protect consumers against debt collection abuses.

Our Approach

We have found it both effective and efficient to target our business efforts toward a specific client base and approach. When selecting clients, we view the collection process as a pre-cursor to litigation. Accordingly, we tend to avoid small placement amounts or volume-based collection activities. In many situations, our clients elect to begin with the legal process toward debt collection and eliminate or minimize agency-based activity. We do not make telephone calls to Debtors. Our collection agency contact with a Debtor follows a simple approach:

  1. Use research methods to determine a viable location at which to reach the Debtor or Debtors;

  2. Send an initial Demand Letter specifying the pertinent debt information with accompanying legal rights information. This initial letter gives the Debtor 30 days in which to respond, as required by Federal Law.

  3. If no contact has been established with the Debtor after 30 days, send a Follow-up Demand Letter;

  4. If there is still no contact with the Debtor, after an additional 14 days, send an "Attorney Letter" which advises the Debtor that the amount in question has now been turned over to an attorney for subsequent legal action. This letter is sent on Law Firm letterhead. This step actually represents the start of the transition to legal processing. All subsequent communications with the Debtor will be from the law firm.

  5. Prepare a credit report, contact the client, overview the case potential and establish disbursement guidelines to proceed with litigation. Obtain the Client's approval to proceed, if legal process is recommended.
Legal Action and Subsequent ActivitiesThe Summons and Complaint

If the client approves legal action, the law firm begins preparation of a Summons and Complaint.

The Summons & Complaint details the nature and components of the outstanding debt and is pre-reviewed and verified by the Client prior to service on the Debtor. The completed and verified Summons and Complaint is then sent to a process server who:

  1. Serves the debtor according to established legal guidelines
  2. Files the Summons and Complaint with the appropriate Court
  3. Obtains the Index Number from the Court in which the case has been initiated
  4. Prepares an Affidavit of Service and possible Non-Military Affidavit, as required by the court in which the case is brought
  5. Forwards required documents and notifies the law firm when all activity has been completed

It should be noted that service can take a significant amount of time (often four to six weeks), especially if attempts to reach the debtor are unsuccessful and follow-up is required.

After the law firm receives verification that service has been completed, legal notice is again sent to the defendant (CPLR 3215), including copies of the Summons & Complaint, the Affidavit of Mail Service and the formal Notice advising the Defendant of the time allowed for a response. Defendants typically are given 45 days after Notice is sent in which to respond or provide an answer to the Summons and Complaint.

During the 45 day time period, if the Defendant contests the claim, legal action will continue until such time as the Court reaches a decision as to how the case is to proceed. Legal proceedings can include subsequent pleadings, court appearances and possibly a trial.

If neither the Defendant nor the Defendant's Attorney has filed an Answer within the appropriate time-frame, a Statement for Judgment (Default Judgment) can be sent to the Court for approval and filing.

The goal in all circumstances is to obtain a Judgment.

The Judgment

Once the Judgment has been obtained, it is usually filed with the appropriate County Clerk in order to enable a marshal or sheriff to perform property and income executions and also to establish a lien on real property. Liens on real property are in effect for ten years from the date the Judgment is filed in the County Clerk's office, in the County where the real property is located. All other enforcement against personal property can continue to up to 20 years from the Judgment date, or if applicable, the date of the last payment. The Judgment Debtor is notified of the commencing enforcement activities via a Notice of Entry, which is legally required to be sent to the Judgment Debtor on an annual basis.

While the Judgment is the vehicle that permits legal enforcement methods such as income and property executions, actual collection of the debt occurs only with in-depth research and diligent follow-up on the part of the law firm. Obtaining the Judgment is merely the first step.

Our Approach

Find the Judgment Debtor's vulnerable assets and you stand an excellent chance of collecting the full debt. Our staff is dedicated and specialized in recovery methods. Through extensive use of custom electronic data-bases and information gathering techniques, we have found that our success stems from focusing our efforts on researching, locating and then restraining the Judgment Debtor's assets. The term 'assets' includes items such as

  • Bank Accounts
  • Individual Wages
  • Other Property Items Such as Business Assets (when applicable) and Personal Assets
  • Real Property-Related Transactions, such as refinancing and mortgages
  • Reported Income
  • Payment of Rent
  • Mortgage Payments

When an asset has been seized and/or restrained, it is often the case that the Judgment Debtor will make arrangements to pay off the full debt or will set up a payment schedule in order to pay down the debt in installments. All such arrangements are electronically tracked in our system, including settlement arrangements, ongoing interest accumulation, payment plans, remittance reporting to the Client and delinquencies requiring further action.

All cases which do not bring results on the first attempt are given scheduled follow-up and periodic renewed research - as a result, it is often the case that a Client's collection rate will improve steadily over time. Our technology is structured to prevent any claim from "falling through the cracks". Our internal management, finance and diary reporting is extensive. Further, Client reporting can be customized to provide an array of information based on the specific Client's requirements. All Clients receive scheduled status reporting, usually on a monthly or quarterly basis.

In summary, our strength is in our ability to deliver results by remaining focused on collecting the debt.

Commonly Asked Questions

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