Debt Collection 101: Everything You Need to Know About Debt Collection Process
Our effectiveness depends, in part, on what stage of the debt collection process you find yourself. The “life cycle” of a collection account can be broken down as follows:
DEFAULTING ON THE AGREEMENT:
A “default,” also referred to as a “breach,” usually means a failure to make timely payment. At this early stage, most consumer creditors or lenders are willing to modify or suspend the terms of the contract to allow additional time for re-payment, to defer payments, or to make other accommodations whereby the default can be cured. At this stage, the account may remain open and accessible for continued use. However, late payments may still be reflected on your credit report, having an adverse impact on your score. In most cases, you would not require legal services at this stage.
CHARGE OFF & ACCELERATION:
Debtors are often confused as to the meaning of the term “charge off” and its impact on the relationship between the debtor and creditor. A “charge off” occurs when the creditor stops treating the money owed on the account as a “receivable,” or asset; and begins to treat the money owed as a debt, or loss, for accounting purposes. The time period within which a charge off must occur in the context of credit card accounts is regulated by federal law. Where no payments are received within 180 days after default, the credit card issuer is required to “charge off” the account. Other creditors may or may not record an actual charge off date in the transaction history for the account.
Once a creditor has charged off or closed an account, the next step is usually to “accelerate” the debt. “Acceleration” occurs as the direct result of the debtor’s failure or refusal to abide by the terms of the parties’ agreement. Acceleration is a demand for re-payment of the entire debt obligation at once. The date on which these events occur are important, as they can mark the beginning of other relevant time periods and deadlines in the collection process. The date of the first delinquent payment and date of charge off must be accurately reported by credit bureaus, and within certain time periods. The initial demand for an accelerated debt, if made by a collection agent, is subject to notice provisions and deadlines found in the Fair Debt Collection Practices Act [FDCPA] at 15 USC 1692c, 15 USC 1692e(11) and 15 USC 1692g.
It is at this stage of the collection process that Carlisle Law firm would first be able to provide legal services. An experienced attorney that intimately understands the collection process, is a valuable ally in your efforts to reduce and resolve unpaid debt.
ASSIGNMENT OF THE DEBT:
Not all debts are assigned, or sold, by consumer creditors or lenders. There are certain types of consumer debts that are more likely to be sold after charge off; and certain creditors that are more likely to sell their unpaid debt. Credit card accounts are probably the most common type of consumer debt sold to debt purchasing companies. Other commonly assigned debts include motor vehicle purchase agreements, personal loans, consumer finance accounts or credit lines, and medical, surgical or hospital bills. The price paid for each account is a fraction of the face amount of the debt, usually between .005 and .10 of each dollar.
Debts may be assigned to multiple parties over a course of time. There may be intermediary assignees that are large debt “brokers” who warehouse debt. The accounts may then be broken down and sold to smaller debt purchasing entities based on a number of demographic features. There may also be assignments to a larger debt purchaser that acts as a “holding company,” and makes subsequent assignments, often contemporaneously, to subsidiary entities responsible for the actual collection of the debt.
In the state of Georgia, assignments of debt must be in writing pursuant to OCGA 44-12-24. The development of case law in this state further requires that the assignment document identify the property that is being assigned. See Nyankojo v. Northstar Capital Acquisitions, LLC, 298 Ga. App. 6 (2009). A mere affidavit providing testimony as to the existence of an assignment is hearsay, and is insufficient proof of an assignment. See Scott v. Cushman & Wakefield of Georgia, 249 Ga. App. 264 (2001). Additional federal regulations enacted by the CFPB include requirements regarding the amount and type of account documentation that must be provided to purchasers of debt.
The assignment of a consumer debt can be beneficial to the debtor when it comes to resolution of the debt. First, the sale and assignment essentially ends the original creditor’s involvement with the debt, as it has given up any claim for repayment. The debt is now owned by a debt collector with a proportionally small investment in the account. The “spread” between the purchase price and the face amount of the debt makes it possible for the debt collector to substantially reduce or compromise the amount of the debt, while still earning a profit. As an approximation, consumer collectors can expect a return of 25% to 30% of the face amount of a portfolio of purchased accounts, over a 36 month period.
Debt purchasers, or “assignees” are subject to the provisions of federal consumer protection statutes, such as the Fair Debt Collection Practices Act [FDCPA] at 15 USC 1692 et seq., the Fair Credit Reporting Act [FCRA], at 15 USC 1681, et seq., the Telephone Consumer Protection Act [TCPA], at 47 USC 227, et seq., and the Georgia Fair Business Practices Act [FBPA] at OCGA 10-1-391, et seq. All communications from debt collectors are scrutinized by Carlisle Law Firm to find violations that may be used to negotiate the reduction or elimination of the debt being collected. The majority of collection lawsuits are not defended by lawyers. Even fewer are defended by lawyers having considerable experience in the areas of debt collection and consumer protection. As the monetary investment in an individual debt account is minimal, and the percentage of cases that involve skilled defense lawyers is small, it is generally more cost effective, and presents far less risk, to dispose of those cases without requiring payment from our clients.
Prior to filing a lawsuit, many creditors and debt collectors will make attempts to collect the debt by making phone calls, or through written demands for payment. If the creditor is making unwanted phone calls, it is important to record the date and time of the call, the number from where the call came, the identity of the creditor on whose behalf the call is made, and the name of the caller and their employer. Once this information is obtained, inform the caller that any authority that may have existed to call that number, and any other relevant numbers, is immediately revoked. Also, send this information to the creditor, and any collection agency, in writing, by mail, and/or email. If calls continue after this time, continue to record the date and time of the call, and as much information about the caller as you can. Unauthorized calls can be violations of the FDCPA and the TCPA.
As the form, content, and timing of any written demands are regulated by law, it is important to keep and make a record of them, to be later reviewed by Carlisle Law Firm as part of our representation. When sent by a collection agency, collection law firm, or debt purchaser, the debtor should consider sending a “dispute letter” regarding the validity of the debt, and request information sufficient to validate its existence and the accuracy of the amount demanded. The dispute letter should be sent within 30 days of the initial communication with the debtor. Its purpose is to stop collection efforts unless and until the debt is validated. However, this advice is given with a caveat. While it can be of some help in evaluating the strength of the collection claim, and can set up possible FDCPA violations for non-compliance, a dispute letter does not generally stop collection for long. In fact, the receipt of a dispute letter is often the last communication before a lawsuit is filed. This is likely due to the fact that the filing of legal pleadings is not a prohibited communication in response to a dispute letter, regardless of whether the debt has been validated.
Where all previous collection attempts have been unsuccessful and have failed to result in the repayment of the debt, creditors and debt collectors often resort to the filing of a civil lawsuit seeking the award of a money judgment. Though it can be intimidating, the filing of a civil lawsuit can be advantageous to both parties. It is easy to file a lawsuit, but not as easy to get a judgment. It is also costly and time consuming to chase a debtor for payment. Most collection attorneys are not emotionally connected to their cases, and would prefer to spend as little time as possible on each case. Trials and court hearings may be seen as a waste of valuable time, as well as an opportunity for judges to hear information and legal arguments that are damaging to the debt collector. Changing a judge’s mind on one case, or winning one appellate decision, can harm the outcome of thousands of future collection cases.
In all fairness, a creditor wishing to collect has no other option but to file suit, where the parties have not voluntarily agreed to a settlement. Whereas, many debtors might ignore phone calls or written demands for payment, few are willing to ignore a summons and complaint delivered by a Sheriff’s deputy, or other process server. Additionally, a money judgment gives the creditor more powerful and invasive tools to enforce their right to repayment of the debt.
POST JUDGMENT COLLECTION & DEFENSE:
There are several options available to a creditor or debt collector holding a money judgment. A money judgment may be enforced through garnishment of the debtor’s funds, in the hands of banks, employers and others. The creditor can also cause a writ of fieri facias, also known as an “execution,” to issue from the clerk of court to the Sheriff of any county in which property of the debtor is located. These executions act as liens against the debtor’s real property and improvements. The Sheriff can also perform a levy against personal property of the debtor, seizing such property to be sold at periodic auctions, where the funds received are paid to the judgment creditor to satisfy the debt. Where the judgment creditor seeks information regarding the debtor’s assets, it can also engage in post-judgment discovery; sending written requests for information and documents that may be useful for collection. They can also force debtors to sit for a deposition, under oath, where the debtor will be questioned regarding assets and income.
While a debtor facing collection of a money judgment has lost many available rights, the services provided by this law firm still produce very favorable results for clients facing post judgment collection efforts. Most civil collection judgments are “default judgments” where no response was ever made to the lawsuit by the debtor. As a result, many judges do not review these cases with the same attention to detail. Inattentiveness and a lack of knowledge as to the creditor’s burden of proof mean many default judgments are defective and subject to being set aside and vacated, thereby re-opening the case. Further, even post-judgment communications may be subject to the FDCPA. Inaccurate calculation of the current debt amount, over-reaching collection attempts, and other improper conduct can give rise to new FDCPA claims that can be used to obtain a favorable settlement. Inaccurate reporting of credit information after issuance of a judgment can also give rise to claims against the creditor or debt collector.
If you are facing an active debt collection efforts or wish to settle a closed account, give us a call today to see how we can help you to get out of debt and improve your credit and your financial future.