Legal

How The Debt Collection Business Works

How The Debt Collection Business Works

Debt collection often gets a bad reputation and the truth is that it is pretty unfair that they do. The reason for the bad rep is that people mistake a debt collection agency as being some kind of muscle-bound loan shark but this couldn’t be further from the truth. In reality, a debt collection agency runs a very helpful business and they actually help far more people than they cause problems for. To clear up the misunderstanding that many have around debt collection agencies and law firms like Prime Lawyers who work alongside them.

What Debt Collection Agencies Do

A debt collection agency is a company which offers a chance for lenders to get rid of bad debt and borrowers to pay off debt which they previously didn’t think that they could. What happens is that a bank or a lending facility will find that they have loaned money to someone either in cash or by way of financing, which is not being paid back. Now let’s assume that the lender gave out $10,000, and they now have bad debt, instead of them investing their time and energy chasing up this bad debt, not knowing whether it is even going to be paid back, it is far easier for them to sell that debt for, let’s say $7,000, to a debt collection agency. Now the bank will have to write off $3,000, but it’s better than losing $10,000, and the agency have a $10,000 debt for just $7,000.

Speaking with The Borrower

The first step that a debt collection agency will not look to take is to speak with the person who owes the money. This will happen by way of phone calls and letters, and of course, the hope is that the person who owes the money responds. Should they respond to the communication, the debt collection agency will be able to offer favorable terms to pay the amount back, accepting a low amount each month and even freezing interest. What the agency will also be able to do offer a lump sum payment discount, accepting perhaps $8,000, which they can now do because they only paid $7,000 for the debt.

Failure

Sadly in most cases, the person who owes the money does not speak with the debt collection agency, choosing instead to ignore it in the hope that it goes away, which of course it doesn’t. This will leave a debt collection agency with no choice but to take the case to a county judge, who will then rule the next course of action. If this is a debt for a hire purchase agreement then the item which was bought with the money will be taken from the borrower. Alternatively, a court may demand that the debt collection agency take possessions to the value of what is owed, alternatively, the judge may simply decide to punish the borrower making sure that they can never loan money again.

The process is very simple in reality and it is very much a win-win situation that is created.

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