Plain English Guide to Collecting Debts

Credit Agreements and Policy

Keys to collecting debt legally and successfully include preparing a policy and procedure manual and a credit application form.

Attempting to Collect a Debt

A measured approach to debt collection is better in the long run than immediately going to a collection agency or court. Consumer credit laws affect preliminary debt collection methods, while the Truth-in-Lending Act regulates the amount of interest that can be charged on overdue payments. In addition, it may help to look at sample debt collection letters before composing your own.

Your Customer's Bankruptcy

The debtor has the benefit of an automatic stay immediately upon filing a bankruptcy petition. That stops you from taking any further action to try to collect the debt unless or until the bankruptcy court decides to the contrary.

More Information

• FTC's Guidelines for Fair Debt Collection
• Credit Protection Laws
  
• How to Advertise Consumer Credit and Lease Terms
• Bankruptcy Basics

Interest on Overdue Payments

Interest charged on late payments may be subject to state usury laws limiting the amount of interest that can be charged. If the maximum amount of interest is exceeded, the debt may be forfeited and a penalty assessed. In addition, interest on overdue payments must be written clearly and conspicuously in order to avoid violation of the Truth-in-Lending Act.

Collection Agencies

Before hiring a collection agency to pursue your debtors, make sure that the agency is licensed and bonded. Your state's collection agency administrator can provide information on licensing requirements. In addition, make sure the agency operates under the Fair Debt Collection Practices Act, and check with your state's consumer protection agency or regional FTC office to see if there have been any grievances filed against the agency.

Collecting Money Judgments

If a money judgment is awarded to you in court, further action may still be needed to receive payment. Such action may include contacting the defendant, or in worse cases, providing information about the defendant to a law enforcement officer so that they can assist you in collecting the debt.

Mechanic's Liens

Contractors who are hired to improve real estate, but then are not paid for work completed, may file for a lien against the property. Should the debt remain unpaid, the contractor has the right to collect it by a foreclosure sale of the property.