The Way Collection Agencies Work

I am not a lawyer, I am a judgment and debt referral expert (Collection Broker). This article is my opinion, based on my experience in California, and laws vary in each state. If you ever need legal advice or a strategy to use, please contact a lawyer.

While there are wide variations on how collection agencies work to recover money from debtors, now very few engage in the stereotypes of abuse that were more common many decades ago. While there are bad apples in every profession, most debt collectors are polite and reasonable, usually much more than the debtors.

All collection agencies starts with a letter and/or a phone call, because:

1) A small percentage of debtors pay after they get first notice of the debt, as some realize this is now serious.

2) It gives the debtor a chance to contest the debt and explain their side of the story, because once in a while, the debt is not legitimate. Some examples of this are if the debtor filed for bankruptcy protection, or a judgment against them has expired or was vacated.

3) Laws require that debtors be mailed full or mini "Miranda" wordings, informing them of their rights, how they can dispute the debt, how to contact a government agency, etc.

The mini Miranda, has words similar to "I am NAME, of this BUSINESS-NAME, a debt collector representing CREDITOR-NAME. Information obtained during the course of this call will be used for the purpose of collecting the debt." Similar words must be included on all letters, and used in all phone conversations.

After some time has passed, usually 30 days, most collection agencies write or call again, until one of two things happen:

1) They succeed in making friends with the debtor, and work out a current or future payment plan. Once in a while, they will visit the debtor's residence for friendly face-to-face discussions.

2) The debtor informs them in writing to stop all communications. This is somewhat like telling a painful tooth to stop hurting, because it does not stop collection actions, and debtors will still receive all legal notices.

Sometimes their next step is putting the debt on the debtor's credit report. Then more waiting, and if there is not a judgment yet, sometimes they sue the debtor to create a judgment. Having a judgment is the key to being able to request that a sheriff levy the debtor's assets.

After there is a judgment, most collection agencies use private investigators to find the debtor's assets, and their lawyers to recover the judgment. Most collection agencies do not need to own your debt or judgment, because they work on their client's behalf.

Most collection agencies charge between 25% to 50% of what is recovered, depending on how new the debt is, how much is owed, and what fees they charge. At 50% there should be no upfront or any other costs, at 25% you should expect to pay some fees. Most collection agencies charge an upfront fee for unlawful detainer judgments.

A judgment or debt broker knows the best collection agencies, and brokers are easy to find with a web search.

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http://www.JudgmentBuy.com - is the best and fastest judgment and debt solution, where Judgments and debts quickly get recovered by the very best - matched to your debtor.

Mark Shapiro - Judgment and debt Broker - best quality free leads for collection agencies and contingency collection attorneys.

Tags: agencies, agency, collection, company, how, work

2 members like this

Comment by Alan Kula on October 12, 2011 at 8:57am: This does apply to commercial or consumer debt?

If a collection chargers 20% if collected, then 33.33% if the account goes to an attorney for suit. But during the collection process the agency gets an attorney involved without the written consent of client then the clients decides not to go further with the agency to sue, because they feel 33.33% is to expensive and finds a private attorney. Closes the file with the agency. Can the attorney sue the client for his/her time that collection agency authorized. Thanks, Alan

Comment by Mark Shapiro on October 12, 2011 at 9:36am: I had to write a general article, I know it is not right for every collection agency. Everything depends on the contract.

Comment by Brett Menzie on October 12, 2011 at 10:33am: Great article Mark. Helps those who are not debt collectors but working with agencies everyday, to understand the processes you go through. Thank you for posting it!

Comment by Rene Henke on October 12, 2011 at 11:27am: Great article, it is important choosing a debt collection agency charging the debtor the max possible in local law.

E.g. in the Netherlands you can get 15% of the debtor on top of the principal amount, plus some document cost etc. In the end normally collections is thus free of cost for the customer. This aplies for a number of European countries.

To Alan: No power of attorney for the lawyer no invoice I would say. Take a close look at the T&C