Debt collecting is a tightly regulated practice that benefits both the debtor and the collector. If the person to whom you loaned money does not pay up, you have multiple avenues in which to pursue the person while still following the law. Failure to follow debt protocol could work against you if a debtor files a civil suit.
Purpose
The purpose for debt collection protocol is to protect both the debtor and the lender. If you are the lender, the procedure for debt collection gives you multiple avenues for getting your money and holding the debtor responsible for her actions. A debtor is protected because collection protocol gives the person chances to negotiate payments and pay the sum without fear of harassment.
Methods
Debts are collected from debtors through collection agencies, arbitration or small claims court. Collection agencies buy the debt from you for a fee that is usually deducted from the money that they pay you.
If you choose to use arbitration, an arbitrator must be hired to serve as the "judge" between you and the debtor. Whatever the arbitrator decides, you and the debtor must follow.
Small-claims court is used as a civil option for collecting your debt. Both sides must hire a lawyer to represent their interests. A judge decides payment options and possible wage garnishment.
Rules
There are rules in debt collection protocol that you must follow to avoid breaking laws set by the Federal Trade Commission. According to the FTC, you cannot harass, misrepresent yourself or pursue the debt beyond business hours. For example, you could not call the debtor at 10 p.m. posing as a sheriff in order to scare the debtor into paying the debt. You must also make multiple attempts to contact and inform the debtor of her obligations. You must have the attempts as proof if you pursue the debtor in a court of law.
Consequences
Following debt collection protocol may not always make the debtor pay the total amount owed to you. If you choose arbitration, debt collection or small claims court, the fees and charges associated with those methods takes away from your total collection. For example, a debt collector may only buy your debt if you give up 50 percent of the debt's value. Obtaining the debt amount before using a third-party yields the highest return.
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