About Debt Recovery

When you buy a home or a car, your lender has a sense of security. That sense of security comes from the lender knowing that if you default on your loan, for any reason, your property can be repossessed. However, when a loan is not secured, as is the case with credit cards, your lender cannot show up to your house and take back whatever it is you bought with your credit card. The lender knew when credit was extended to you that the debt you incurred was an unsecured loan. However, even though the lender cannot repossess what you have purchased on your credit cards, there is a way for the lender to recover the money you owe.

Identification

Debt recovery is also referred to as debt collection. A debt-recovery service is usually a third-party service hired by a business or individual to recover an outstanding balance. The third party typically works on commission, for particular lenders, (i.e., credit cards, department store cards). A debt-recovery service, on average, will receive 10 percent to 50 percent of whatever is collected from you. Because the commission is so great, a debt-recovery service will use an aggressive strategy to recover debts. However, they are governed by the Fair Debt Collection Practices Act to stay within certain guidelines (see Resources).

Considerations

Not all debt recovery is done on a lender's behalf. The debt-recovery service might actually own your unpaid debt. Meaning, your lender sold your defaulted loan to the debt recovery service at a tremendous discount. (Lenders will do this to rid its books of bad debt). You will still owe the outstanding balance, but the debt recovery service will be working on its own behalf as opposed to working for your lender.

Effects

If your account has been turned over to a debt-recovery service, you have lost any opportunity of resolving the matter directly with your lender. All of your phone calls and written correspondence will be forwarded to the debt-recovery service.

Warning

Even though you may have defaulted on a loan, a debt-recovery service might have exceeded the statute of limitations to recover the outstanding balance. If the statue of limitations has expired, you are not legally responsible to pay the debt. However, if you agree to remit payment or send a payment into the debt recovery service, you will financially resurrect the statute of limitations (see References).

Misconceptions

Not all debt-recovery services are honest. If you believe a debt-recovery service is trying to collect a debt that is not legitimate, you have the right to request---in writing---that the debt-recovery service verify that you owe the debt. If the debt is valid, the debt-recovery service is required to provide written proof that you owe the debt, who you were indebted and that it was definitely you who incurred the debt. You must do this within 30 days of being contacted by a debt-recovery service. If the debt-recovery service does not provide you this information, they will be in violation of the Fair Debt Collection Practices Act. To read more information on validating an unpaid debt, see References.