Debt collection is a tricky thing. Thanks to past abuses by creditors, states have passed laws to protect debtors from abusive collection efforts. Unfortunately, some state laws have gone too far in the other direction. Instead of merely protecting debtors, they actually hamper legitimate efforts to collect. What are creditors to do when their limited collection efforts fail?
It is harder than ever in the 21st century to collect on bad debts. The law prohibits certain types of collection efforts altogether. Those efforts that are allowed are tightly regulated as well. All it takes for a debtor to successfully avoid paying is a little knowledge of how to use the law to his advantage. And unfortunately, that happens far too often.
A Realistic Assessment Is the Starting Point
So what is a frustrated creditor to do? The starting point is to conduct an honest and realistic assessment of the situation. The old saying that you cannot get blood from a stone certainly applies to debt collection.
Is the debtor’s claim of having no reasonable means to pay legitimate? Is his income limited and valuable assets nonexistent? Does he have few prospects that indicate his circumstances will change in the future? Here is the point: there may be no value in pursuing a debtor who truly cannot pay. Pursuing the debt will only mean spending more money that might never be recovered.
Sending the Debt to Collection
It is probably smart to walk away from debts that have no realistic hope of being paid. But sometimes debtors do have the resources to pay at least something. Other times they have the ability to pay but just refuse to do so. In both cases, sending the debt to collection is an option.
Collection agencies make a living by collecting bad debts on behalf of their clients. Some collection agencies buy the debts as financial assets. But in so doing, they tend to pay pennies on the dollar. Other collection agencies work on consignment. They charge a fee based on the percentage they manage to collect.
As useful as collection is, it doesn’t always yield the desired results. Does that mean the game is up and the debtor has won? Not necessarily. There is one final option creditors can look into.
A Civil Lawsuit against the Debtor
A third option for creditors is to take their debtors to court. They can file civil lawsuits in hopes of getting judgments entered in their favor. What is a judgment? It is a court order recognizing the existence of the debt and the legal right for the creditor to collect it. Judgments often include the original debt plus attorney’s fees, court costs, etc. Some states even allow creditors to assess interest.
The tricky thing about judgments, according to Salt Lake City’s Judgment Collectors, is that courts rarely get involved in enforcement. A court will enter a judgment against the debtor, but it is still the creditor’s responsibility to collect on it.
Most states give creditors access to additional tools including garnishment, judgment liens, and property seizure. These additional tools are generally what motivate creditors to go to court. Without a judgment in place, a creditor could not garnish a debtor’s wages or seize and sell his property.
Numerous laws passed over the last five decades have given debtors a lot of protection against collection efforts. But creditors still have options. There are still ways to collect bad debts without running afoul of laws protecting debtors against abusive practices. It is up to creditors to learn what those options are and then exercise them accordingly.