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The Collection Process

02/25/10 @ 03:24:42 pm by admin

If you are behind on your bills it can be very stressful, especially if you are unfamiliar with the path of the collection process. The following is an outline of the general path of the collection process.

Debt Collection by the Original Creditor

Typically, if you are ten (10) to fifteen (15) days behind on your payments to the Original Creditor you will experience some friendly reminders via telephone or mail to pay your bill. In an effort to preserve the relationship the creditor will start by sending you a letter saying that this is a friendly reminder that you forgot to pay your bill this month. You may also get a so called courtesy phone call reminding you to pay your bill.

Regardless if you paid the bill after receiving the letter or call, your next statement will reveal a nice penalty for being late on the payment (especially if it is a credit card). You will get a late fee, and/or an over the limit charge, and/or an interest rate hike. The new rate could be as high as 25% per annum in the state of New York.

If your bills continue to go unpaid for a couple of months the calls from the original creditor will occur more often and will become more intense. The creditor may call so often that you begin to feel substantial pressure. Be sure not to make the mistake of telling them where you work because they will be sure to call. They will also want to know how your job is going, and if you have any friends or relatives that can pay your bills.

The calls will likely continue for about three to four months and then after six months the original creditor will give up and "charge off" your account so they can write it off on their income taxes as "bad debt expense". The creditor will then report the "charge off" to credit reporting agencies and sell your debt on the secondary debt market for pennies on the dollar to some collection agency.

Collection Agencies (Third Party Debt Collectors)

Once your debt has been purchased by a collection agency the process generally gets more intense. Collectors earn the majority of their income from commissions on money collected. Although collection agencies serve a legitimate legal purpose collectors sometimes can be very abusive because of the profit motive.

In 1977, The Fair Debt Collection Practices Act (FDCPA) was passed by the federal government to curb abuse. The FDCPA makes it illegal for third-party collectors to threaten violence or harm to a debtor, use obscene language, or repeatedly use the phone to harass a consumer. The FDCPA also makes it illegal for third-party collectors to threaten to arrest a consumer, threaten to seize a consumers property, or threaten to garnish a consumer's wages unless the collector intends to do so and it is a legitimate legal cause of action.

The FDCPA places certain constraints on a third-party collection agencies. For instance, a collector must stop all contact with a consumer about a debt if the collector receives a written notice requesting no further contact or a written notice of a refusal to pay a debt. The act also makes it illegal for collectors to talk to a third party, such as consumer's employers, relatives, neighbors or friends about a consumer's debts.

In addition, when your debts go to a collection agency the agency is required to notify you by mail that they’ve taken over the account and are attempting to collect on it. The initial notification from the collection agency will also contain information telling you that you have thirty days in which to dispute the accuracy of the debt. If you challenge the validity of the debt the agency will have to go back to the original creditor and verify that the debt is accurate. During the time that the debt is being validated no further collection activity may take place.

Remember, the FDCPA only applies to third-party collectors. It does not cover the original creditor so long as the original creditor continues to collect the debt in their own name. (If an original creditor is using unfair and deceptive collection practices you can report them to the Federal Trade Commission.)

Consumers can file a lawsuit against debt collection agencies that violate the FDCPA. The maximum fine that can be imposed under the FDCPA is $1000, however, consumers can also win damages for emotional distress. If consumers retain private counsel, they can also recover attorney's fees. In addition, violators may be subject to class action lawsuits.

The Legal Process

At some point in the collection process the owner of your debt may file a lawsuit against you, especially if you own real property. The first step in the process is service of a summons and complaint. Typically a process server will come to your door and hand you the summons and complaint or leave it with your spouse or someone 18 years of age or older. It is important that you take note of the date you were served because you will have 20 days to answer the lawsuit so that a default judgement is not taken against you. Answering a lawsuit is a formal process so a letter or phone call will not work. If you are served with a summons and complaint be sure to contact a lawyer immediately so that you may preserve your rights with a formal answer, and also so you may explore the possibility of filing bankruptcy.

In the event a judgment is taken against you because you failed to answer, or your legal strategy proved unsuccessful, a judgment creditor may levy your bank accounts, garnish your wages, and place liens on your real property to satisfy the debt.

Duly recorded Judgments earn a 9% interest rate per annum in the State of New York, and automatically create a lien on real property owned by the debtor in the county where the judgment is filed.

In order to figure out where your accounts are, what assets you have, and where you work, the creditor may serve an information subpoena on you with written questions or request that you appear at a certain location for a deposition. Failure to comply is contempt of court.

Once the creditor learns where you are employed it is likely that he will have the county sheriff garnish your wages. Your wages may be garnished up to 10% in the state of New York.

The creditor may also submit information subpoenas on banks in your area along with retraining notices. If you have an account at the bank where the restraining notice is sent your accounts will be restrained for twice the amount due on the judgment (your outstanding checks will bounce).

If you have a judgment against you be sure to contact a lawyer for advise on how to protect your assets. Don't wait until it is too late.

Need a Collection Lawyer?

If you need a Collection Lawyer please call (716)-656-7676 for a free phone counsultation or HERE for a free web consultation. The first consultation is always free, and you will always speak directly to Stephen K. Underwood.

Categories: Collection Agencies

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