Debt recovery and debt collection are related concepts with one minor but critical difference. The distinction is in who is attempting to recover a debt. Debt Recovery Lawyer in Mumbai
Debt collection is a creditor’s attempt to reclaim unpaid consumer credit and loans from a client.
When a debt, such as a credit card amount, goes unpaid, the creditor engages a third party, known as a collection service, to focus on collecting the money.
Debt recovery is critical since it immediately affects your credit score. If a debt collection service contacts you, it indicates there is a record showing you have defaulted on a loan and now have delinquencies. These delinquencies are reported to credit bureaus, lowering your credit score and perhaps jeopardising future loan possibilities.
The debt collection process consists of multiple parts, and it is critical to understand what to expect when approached by a debt recovery agency. In reality, because financial debt may be a difficult condition, legislation has been enacted to manage the debt recovery process and protect customers from harassing debt collection techniques.
Terminology for Debt Recovery
Debtor: a person who is compelled to repay borrowed funds.
Creditor: a person who lends credit with the understanding that the money borrowed will be repaid.
Third-party collector: a person or business hired to collect debts on behalf of a creditor.
Debt Collection Procedures
When a credit card or loan payment is missed, the debt collection procedure begins. Before the payment is recorded to the credit bureaus, the debtor has 30 days from the bill due date (not the billing date) to make the payment. During this period, the creditor will make every effort to contact the debtor through phone, email, or letter in order to collect their payment and any late fees. It’s preferable to pay off your debts throughout this 30-day period. The debtor can explain his or her predicament and devise a repayment strategy.
After 30 days, the debt is transferred to another department within the same corporation that specialises in debt collection. This is not a collection agency, but rather a division of the loan corporation. They have the authority to report your delinquency to a credit agency and cancel your credit card account.
After 180 days, the creditor will generally contract the debt or write it off their books and sell it to a debt collector. Keep in mind that the creditor may contract or sell the debt at any moment prior to the 180-day deadline, so it’s best to act sooner rather than later.
Process of Debt Recovery
When a debt is assigned to a collection agency, the creditor will submit the claim information and supporting evidence to the debt collector, indicating your failure to pay in accordance with the terms of the agreement. After the debt collection service has evaluated and acknowledged the claim, the recovery procedure begins with a demand letter to the debtor and an acknowledgement letter to the customer (creditor who enlisted the collection service).
The account is currently active, and debt collection activities include the following:
Telephone contact is initiated in an attempt to arrange payment for the outstanding balance and guarantee that payments are received.
If the debtor does not participate in settling the debt, the debt collection service informs the customer that the claim will be forwarded to the linked attorneys.
The client signs the sent claim, which is then given to the linked attorneys, and if the attorneys urge legal action, suit prerequisites are delivered.
The lawsuit is prepared and filed if the client permits the legal action and agrees on the suit conditions. If the customer does not choose to take legal action, the debt collection organisation will work on the claim for an additional 60 days before closing it.
The complaint has been served. If the debtor responds, the discovery process commences and a trial date is determined. If the debtor does not answer, the attorneys file a default judgement.
If a judgement is entered in favour of the client, the attorneys will file a Writ of Attachment, seek to discover the debtor’s assets, and begin the process of satisfying the judgement (bank levies, garnishments, liens, etc.).