Debt Recovery and Debt Collection are similar terms with one small, but very important distinction. The difference is who is trying to retrieve a debt.
Debt Collection is a creditor’s attempt to recover consumer credit and loans that have not been paid back by a customer.
Debt recovery is when a loan- such as a credit card balance- continues to go unpaid, and a creditor hires a third party, known as a collection service, to focus on collecting the money. Its important because it is directly correlated to your credit score. If you are being contacted by a debt recovery service, it means there is a record that you have defaulted on a loan and currently have delinquencies. These delinquencies get reported to the credit bureaus, damaging your credit score, which can potentially hurt any future loan opportunities.
There are several steps in the debt recovery process and its important to know what to expect when you are contacted by a debt recovery agent. In fact, because financial debt can be a sticky situation, legislation has been established to guide the debt recovery process and ensure that consumers are protected from harassing debt recovery practices.
Debt Recovery Terminology.
- Debtors: Person obligated to pay back money that was borrowed.
- Creditor: Person who extends credit with an agreement that the money loaned will be paid back.
- Third party collector: Person or service that is contracted to collect debts for a creditor.
Debt Recovery Process.
Once the debt belongs to a collection agency, the creditor will send the claim information and supporting documentation to the debt collector nothing your failure to pay according to the terms of the agreement. After the claim is reviewed and accepted by the debt collection service. The recovery process begins with a demand letter being sent to the debtors and an acknowledgement letter being sent to the client.
The account is now active, and the debt recovery efforts involve the following:
- Telephone contact begins in attempt to arrange payment for the outstanding balance and ensure that the payments are realized.
- If the debtors doesn’t cooperate with resolving the debt, the debt collection service updates the client with details on forwarding the claim to the affiliated attorneys.
- Forwarded claim is signed by the client and sent to the affiliated attorneys, and if attorneys recommend legal action, suit requirements are provided.
- If client authorizes the legal action and agrees upon suit requirements. The lawsuit is prepared and files. If the client doesn’t want to pursue legal actions, the claim is worked on for an additional 60 days by the debt collection service and then closed.
- Complaint is served. If debtor files a response, the discovery process begins, and a trail date is set. If debtors does not respond, a default judgement is filed by the attorneys.
- If a judgement is awarded in the client’s favor, attorneys will file a Writ of Attachment attempts to locate debtors assists, and initiate steps to satisfy the judgement.