If a debt goes unpaid for a long period of time, it can be sent to collections. This usually means that the debt owed is written off by the original creditor and sold to a collection agency. At the time the original creditor sells the debt, the debtor’s credit is negatively affected because the unpaid debt has already been reported to the credit bureaus. The collection agency buys the debt at a fraction of the original debt owed, and then tries to collect the debt using various methods.

Once a person’s unpaid debt is reported to the credit bureaus as unpaid, the person is unlikely to be approved for new lines of credit or loans. In some situations, having debts in collections can also affect a person’s ability to get a job or rent an apartment. An unpaid debt can also keep increasing through the addition of interest charges.

In addition to the negative impact on a person’s credit, when a debt is sent to collections, the person may begin to be harassed by debt collectors trying to collect on the debt they purchased. The Fair Debt Collection Practices Act protects consumers from unfair and abusive collections practices. In addition, the law provides a way for the consumer to sue the debt collector if the debt collector has harassed the consumer in attempting to collect on the debt.

If a debt is sent to collections, the consumer can pay the underlying debt and any applicable interest charges in order to start rehabilitating his or her credit score. However, there may be instances in which the debt itself is not properly attributed to the consumer. If there is a mistake and the consumer does not owe the debt, the consumer may challenge the debt in court.

A person whose debt is in collections can also arrange to make payments to a debt collector in installments. This can be a good way for the person to clear an old debt without it being too much of a financial burden. However, arranging to make payments does not guarantee that a debt will not be sold again to another collection agency. If the debt is sold, the debtor may find him or herself in new negotiations for the repayment terms, unless the original repayment terms were arranged with the help of an experienced attorney who ensured some rights for the debtor.

Sometimes, a consumer who owes a lot in unpaid bills may decide that the best way to handle the situation is to file for bankruptcy. If the debts qualify for discharge in bankruptcy, then filing for bankruptcy can help the filer reset the button and begin to rebuild his or her credit. However, bankruptcy also negatively affects a person’s credit, and before a person files for bankruptcy, he or she should consider whether filing will leave him or her at more of a disadvantage than allowing the debt to go into collections.

Contact an Experienced Attorney

If you are experiencing financial troubles and  bankruptcy seems like the way out, you need to speak with an experienced attorney. Our attorneys can discuss the legal issues that will arise with bankruptcy and how they will affect you, in addition to debt settlement and other ways you can manage your debt. Call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

Creditors would generally prefer to be able to collect a debt from a debtor simply by sending the debtor a bill and receiving immediate or gradual payment from the debtor. Unfortunately, not all debtors pay their bills on time, and some do not pay the debt at all. When a debtor defaults on a debt, the creditor has to decide how to best collect the debt.

Creditors who make the decision to file a lawsuit to compel a debtor to pay a debt may do so in order to preserve their rights. If a debt goes unpaid for a certain period of time, the debt can become unrecoverable through a lawsuit. This period of time is known as the statute of limitations and can be used as a defense by a debtor. Therefore, a creditor can file a lawsuit before the time is up in order to stop the debtor from raising this defense.

If the debtor chooses not to participate in the lawsuit, the court can automatically rule in the creditor’s favor, and grant a default judgement. Even if the debtor does not pay the judgement awarded in a lawsuit, the creditor can use the judgement to take other collection actions, such as wage garnishment.

The preservation of the creditor’s rights by avoiding a statute of limitations defense is one of many considerations that go into the decision to file a lawsuit. Another major concern is the cost of litigation to preserve the creditor’s rights. If the cost of filing a lawsuit and litigation to collect the debt is more than the debt, the creditor may decide to write off the debt.

In many cases, especially if the debt is small and it would cost the creditor more to try and collect the debt, a creditor may decide to turn the debt over to a collection agency. In some cases the creditor sells the debt to the collection agency for less than the debt owed.

It is more difficult to collect a debt that is unsecured if the debtor files for bankruptcy. A bankruptcy trustee usually pays off secured debts first, and then unsecured debt may be paid off for a fraction of what is owed. In some cases, unsecured debts are not paid at all. If commercially possible, creditors should ensure that all credit extended to debtors is secured by some collateral. Securing a debt can also be useful before a debtor files for bankruptcy.

A creditor can use a lien to foreclose or repose property that secures a debt and force its sale to pay the debt. Arranging a sale of repossessed property usually requires taking certain steps to ensure the best price is paid for the repossessed property. Before organizing a sale to recover a debt, the creditor should consult an attorney to ensure that they do not violate the debtor’s rights when executing the sale.

Contact Us for More Information

For more information on how you can best collect a debt with minimal costs to your organization and how to deal with debtor bankruptcy, you need to consult an experienced creditor’s rights attorney. Contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

(image courtesy of Fabian Blank)