Understanding Debt Collections In The United States

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Copyright (c) 2013 Accounts Receivable

National Collection Agencies located within the United States pursue the first phase of the collections process using their own in-house team of professional staff members. Their job is to pursue debtors as thoroughly as possible with the constraints of United States laws that have been passed at the federal, state, and local levels.

National Collection Agencies should have a professional staff that makes sure to work with their clients in an efficient and timely manner, working to collect debts as quickly and effectively as possible. National Collection Agencies should also be charged with extensively documenting the debtor's file as collections activities proceed, as this is a key part of the legal defense should the client have to pursue legal action against the debtor, if and when the amicable phase eventually fails.

Upon the failure of the amicable phase of collections, National Collection Agencies within the United States should immediately proceed to the legal phase of the process.

Legal collection

After the failure of the amicable phase, the collections process proceeds to a second tier that involves legal collections professionals. This is not handled in-house by most National Collection Agencies, however, as the United States has a large and capable network of dedicated legal collectors who are involved with an extensive network of collection attorneys. These attorneys serve large geographical regions, including the continental United States, the Caribbean, Alaska, and Hawaii.

It is the policy of most National Collection Agencies to work primarily with attorneys who are members of at least one law list. These lists are responsible for independently assessing and bonding potential attorney members, and this ensures that attorneys are committed to collections, getting the job done quickly, and using their experience as a key source of leverage against American debtors. It also ensures that they are the most effective and experienced collection attorneys serving their immediate geographic area or region of the country, and that bodes well for clients of National Collection Agencies.

Legal System

The United States legal system is divided into 51 separate components, based on the number of states and the territory of Puerto Rico. This 51-part system is further divided into federal courts, district courts, and a number of local and state courts that handle matters of debt collection and judgment enforcement.

Statutes of Limitations

The Statute of Limitations in the United States sets a time period after which a debt cannot be pursued by the creditor or reasonably collected from the debtor. This period of time is not universal, however, and it varies on a state-by-state basis. The shortest Statute of Limitations currently allowed by any state is two years, while the longest such limitation is six years. For those debts involving a written contract, the limitation typically expires after between 3 and 10 years.

Attorney Process

Just like most National Collection Agencies seek to make amicable payment arrangements with debtors throughout the country during the first tier of collections, the attorneys hired for the legal tier of collections are also required to make amicable efforts toward collecting payment of the debt. This good faith effort must be pursued before a lawsuit can be filed in court on behalf of the creditor. Typically, this amicable collection effort lasts only seven days, though some attorneys due attempt amicable collection efforts for as long as 30 days from the time the case is delivered to them. The length of this period will also depend on the attorney's ability to make contact with the debtor.

Attorney Costs and Fees

Unlike many countries around the world, the United States allows collection attorneys to be hired based on a contingency fee plan. This allows any attorneys' fees to be paid only if, or when, the case has been a success for the creditor in court. This rule is relatively universal, but an exception does apply if the case becomes heavily disputed or if the debtor files a countersuit against the creditor that the attorney is representing. If this becomes the case, the attorney will change their fee structure from a contingency rate to an hourly rate.

In the event that the attorney hired by most National Collection Agencies has made no successful contact with the debtor who is facing legal action, or if the debtor continues to refuse to pay toward the debt's outstanding balance, the attorney will submit a copy of his recommendations to for review. These recommendations will feature requirements for the lawsuit to proceed, and will be subject to the approval of the client that the attorney is charged with representing. Typically, the requirements to launch a lawsuit include the payment of court costs, a non-contingent fee for launching the lawsuit, and any out-of-pocket expenses that might be incurred by the attorney while filing and pursuing the case. Additionally, process fees, filing fees, and motions or garnishment fees can be included in this total. These amounts should be refunded when the case is won.

The non-contingent lawsuit fee charged by most attorneys is often up to 5 percent of the debtor's outstanding balance with the creditor. This amount is credited toward the overall fee of 10 to 25 percent charged by the attorney when the case is finished and the funds are collected from the debtor through the use of a judgment and any enforcement methods.

Filing the Lawsuit

After the attorney has received the suit requirements and the required documentation, a summons and complaint will be prepared and filed with the clerk of the court. All courts do require personal service of these documents on the debtor, and most of these courts further require that such documents be served within 90 to 180 days of being originated by the court itself. If this service is not achieved within the given allotment of time, the court will typically dismiss the lawsuit. Furthermore, if the lawsuit is served outside the Statute of Limitations, the case will be dismissed.

Proceeding with Litigation and Discovery

After the corporation or individual has been served, they will have a period of time between 20 and 40 days to answer the complaint and return it to the court from where it was issued. This is a wide window of time, but is typically regulated by individual states to be much shorter -- often no more than a month.

If the debtor does file an answer to the complaint, the case moves into the discovery phase. This is, by far, the longest part of the legal process when pursuing a debt. This court-mandated period is responsible for researching and proving the debt, and both parties are able to request documents, answers, interrogatories, and requests to admit. Depositions are also allowed during this process, if witnesses are needed to further prove the case. The court can, at its discretion, issue a deadline for the discovery process in order to speed up the trial's outcome.

Obtaining Judgment

Judgments can be obtained through several different methods, each of which typically includes payment of the court costs and any post-judgment interest based on the statutory rate enforced by the court.

If a debtor does not respond to a complaint served to them by the court's representatives before the mandated deadline has passed, the attorney representing th cleint will file for a motion for default judgment. Depending on how backed up the court's judges are, this motion can take anywhere from 30 to 180 days to complete.

Judgments can also be entered if agreed to during a settlement agreement between the creditor and the debtor. This is done through the entry of a consent judgment order. Settlement agreements can also be reached in arbitration and mediation, or during negotiations between attorneys representing both parties.

A summary judgment motion can also be issued, and is considered highly effective. This occurs only in cases where there is no material dispute to the facts of the case as presented by the creditor's attorneys or representatives.

Judgment Execution

After the court has entered a judgment using one of the four methods described earlier, an attorney will record that judgment in the public record. Recording that judgment creates a lien against the debtor's current property, or any property that they might acquire in the future. This judgment lien will remain valid for between 5 and 25 years, depending on the debtor's location.

The judgment itself must be served on the debtor through service of process, just like other documents associated with the legal process. At this time, a writ of execution allows the judgment creditor to employ the local sheriff or bailiff to garnish bank accounts or wages, liquidate property or assets, and pursue other methods of execution.

Any costs incurred by the creditor to execute the judgment are the responsibility of the debtor being pursued. These costs can include garnishment fees, keeper fees, bailiff or sheriff fees, and fees associated with seizing and liquidating property to repay the debt.

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