What is The Debt Collection Process?
Debt collection is the process a creditor utilizes to recover monies loaned to an individual when the individual defaults or stops paying back a debt or loan. Generally, there are three phases to the debt collection process.
Phase 1During the first six months of your delinquency you will mostly deal with an in-house or internal collector. The original creditor often sends bills in the mail, reminders to pay or demands to pay, and calls you in an effort to collect the monies owed. This may be your best time to settle your debt with the creditor.
Phase 2After six months, creditors often refer your debt to a third-party agency. At this point the debt is still owned by and owed to the original creditor. If the third-party agency recovers some or all of the original debt, they are paid a fee or commission for their debt collection services and your debt to the original creditor is paid in part or full.
Phase 3In the last phase of the debt collection process, the original debtor writes off your debt and sells it to an outside collection agency, also known as a debt buyer. Your creditor is no longer involved. The debt buyer still seeks to recover all of the original debt - often calling and writing in an effort to recover the original debt.
Many creditors turnover their debt collection efforts to a debt collection law firm, rather than third party agencies or traditional debt collectors. Like debt buyers and third-party agencies, law firms must also comply with federal and state laws that govern the debt collection process. Creditors seek attorneys because it adds more pressure on the individual to pay off the debt - because inevitably an unpaid debt winds up in court for judicial enforcement of the debt through a judgment or wage garnishment.