Collecting Bad Debt

Dealing with issues surrounding collecting bad debt can be both a frustrating and time consuming endeavor. Contacting debtors who have not been responsible in paying off loan agreements that were taken out in good faith can be uncomfortable to say the least. It can sometimes be easier to let the delinquent funds simply go by the wayside and write them off as a loss on yearly income taxes. On the other hand, a debtor may have many reasons for defaulting on a loan. Medical issues, job loss, the loss of a family breadwinner can impact an individual's ability to pay off indebtedness. For families that are under this kind of stress, contact from an aggressive collection agency can only make things more difficult. Finding a fair middle ground in this area can serve the needs of both the creditor and the debtor. Collection procedures that will hold to fair accountability anyone who is being willfully negligent in paying back money owed are needed. Harassment and threats are against the law. Business owners must show solid efforts in recovering delinquent debts or they will not be allowed by the IRS to claim a loss. In many cases, hiring a professional collection agency that will work fairly and within the confines of the law may be the best answer when collecting bad debt.

When an individual signs a loan agreement to complete a purchase of some sort, that agreement constitutes a legal promise to pay the funds back within a certain frame of time. The loan may have been used to purchase a car, a home, or any other kind of material goods. For this debtor to enjoy the benefits of the material goods but not expect to pay for them is both foolish and illegal. Yet, anyone who is engaged in collecting bad debt knows that many debtors will walk away from this promise to pay. Dealing with creditors who choose not to pay or have lost the means to pay can be a sensitive endeavor. Because of this, initial contact should begin as a polite reminder of overdue payments. This will allow the debtor to save face and quickly get back on track if this is possible. In addition, a creditor may wish to offer certain inducements such as reducing interest rates or waiving penalties or fees. Some creditors will even attempt to reduce the principle on the loan in an effort to receive at least partial payment. If this initial contact is not fruitful, there are many legal options that a creditor can pursue in collecting bad debt.

When collecting bad debt, there are many options that can be utilized. Hiring a professional collection agency may be the wisest option. Many agencies will make investigations into the debtor in question. Of course, these investigations must proceed in a confidential manner. The purpose of such investigations is fairly straight forward. Often a debtor will attempt to conceal their whereabouts or their place of employment. Another point of investigation could be the amount of income a debtor is currently earning. If this income seems sufficient to enable the individual to make good on any outstanding loans, then a collection agency will be well informed as they attempt to recover delinquent accounts and will know how to move forward. A collection agency will generally charge a fee that is based on the amount of funds recovered. If a debtor has been located and it is clear that there is a good chance that they have sufficient earnings to resume payments on indebtedness, then attempts at collecting bad debt will begin. But it is important to remember that if a debtor does not show an ability to pay, they are still liable for all debts. Of course, there are legal limits on the kinds of pressures that a collection agency can apply on the debtor. The Bible talks about the pressures that can come with indebtedness. 'The rich ruleth over the poor, and the borrower is servant to the lender." (Proverbs 22:7)

There are many myths that are associated with collecting bad debt. Many creditors assume that they will need to hire a collection agency or a legal professional before they can successfully pursue a delinquent loan. This is not true. Small claims court can provide a viable option for the lay person without the costs of hiring a lawyer or a collection agency. Small claims court is also not as time consuming as collections procedures and lawsuits. Of course, small claims court can generally only recover up to around two thousand dollars, so larger debts may not benefit from this approach. Suing a debtor is off course a viable option. The main benefit of suing a debtor is that the statute of limitations on a court judgment can extend the time period over which the money that is owed can be collected. During this time, a debtor's circumstances may change, making collections activity more beneficial.

Some of the tools that can be utilized in collecting bad debt could include a letter of demand, legal action, or a loan settlement agreement. A letter of demand will inform the debtor of the consequence associated with default. Legal action can include bringing a lawsuit or taking the offender to small claims court. A loan settlement agreement is a negotiated agreement that sets up new terms for the loan. Whatever choice a creditor might make, there are many options available when a borrower defaults on a loan.