Nexa Collections

Header Right

Debt Recovery

by

Statute of Limitations in Debt Collection

Statute of limitations (SOL) is a time period after which a debt collector loses the right to sue the debtor or take any legal action against him. Statute of limitations laws vary from state to state, for example in California it is about 4 years while in Rhode Island it is 10 years. In most states it’s between 3 to 6 years. Debts that have passed the statute of limitations are known as “time barred debts”.

Q1. If the statutes of limitations have passed, is the debtor free from debt?

No, the debtor still has the moral obligation to pay. The debt has not disappeared just that the debt collector can no longer force a debtor to pay or sue him in the court.

Q2. If a debt collector contacts a debtor after the Statute of limitations has passed, has he broken a law?

Not necessarily. Let us look at these scenarios.

– A debt collector may have a wrong “Date of Debt” in his system. It is also possible that the debtor has wrongly calculated it and Statute of limitations have not yet expired. Both parties should clarify this amicably so that there is no confusion. Present the proof if necessary.

– A Debt collector can still try to collect by sending a letter and calling over the phone. The debtor can tell the collector that he has no intention to pay and he cannot be forced to pay since the SOL has passed. The guidelines on statute of limitations varies by each state (and sometimes cities too), a collection agency must be very careful while trying to collect on these time barred debts.

Q3. What are the consequences of not paying the debt after Statute of limitations have passed?
The debt collector can report the bad debt to the credit bureau reporting agencies like Experian, Transunion and Equifax. That unpaid debt will appear on the debtor’s credit history for many years (typically 7 years). This will greatly lower chances of a debtor from taking more loans and sometimes even making it harder for him to get a good job for many years to come.

There is another consequence of not paying the debt. If the financial institution forgives or writes off a debt which is more than $600, they may send a Form 1099-C to the IRS and a copy to the debtor as well. This is applicable to the principal amount only and interests and other fees cannot be added. IRS will make sure that this amount is added to the debtor’s income. There are some exceptions when this is not applicable like, discharge of debt due to bankruptcy or debtor’s insolvency etc. Since debtor took money and did not pay it back, IRS treats this as an income and demands tax on it. If the debtor claims insolvency then IRS form 982 may apply. Debtor should consult a tax professional to handle this scenario.

Q4. How is the Statute of Limitations date calculated?
First of all let’s understand the “Date of Debt” concept. It is the date when the debtor made some activity on that account. It could be the date when the item was purchased, or when the payment was due, or when the last payment was made or even when the debtor re-agreed to pay the debt ( means the debtor has agreed again to the ownership of the debt). The most recent date is called the “Date of debt” and the SOL is calculated from that date.

A debtor may have agreed to pay in 4 different ways
a) Oral Contract – Debtor agreed to pay orally (ex: an orally recorded phone message)
b) Written Contract – This could be a signed contract or an invoice.
c) Promissory Note – In this the details of repayments are spelled out – Example mortgages or car loans.
d) Open-ended– Here the balance and repayment terms can change- Ex: Credit cards, line of credit etc.

Following are some examples of Statute of Limitations by each state (in number of years).

State Written Contract Oral Promissory Open Ended
Alabama 3 6 6 3
California 4 2 4 4
Delaware 3 3 3 3
Florida 5 4 5 4
New Jersey 6 6 6 6
New York 6 6 6 6
Rhode Island 10 10 10 10
Texas 4 4 4 4

A state may alter the Statute of Limitations period, therefore do not rely on the table above. Your collection agency should have the most up to date information on this. A proof of last activity may be a copy of check, credit card statement and other forms of communication that may have happened with the debtor.

Q5. What can Restart the Statute of Limitations?

If a debtor makes even a small payment ( say even $10) after the Statute of Limitations has passed or agrees to make payment under a new arrangement, it can potentially reset the “Date of Debt” again. In other words the Statute of Limitations will reset and the debt collector can sue debtor in the near future.

Q6. Can the old debts be removed from the debtor’s credit report once the Statute of Limitations have passed?

It can be removed only if the debt is inaccurate or legally disputable or has been resolved. Statute of Limitations has nothing to do with credit bureau reporting and affects the credit score for 7 years.

Q7. Why is there a concept of Statute of Limitations after all?

It’s kind of a fairness doctrine. A debtor cannot be harassed all his life for a debt he could not pay. After all even a creditor takes a risk if he does not take the full payment right away. As the debt gets older, circumstances change, documents are lost and important evidence can be misinterpreted. The objective is to encourage diligent collections while evidence is available and fresh. Considering all these factors, the Statute of Limitations came into existence.

Are you looking for a collection agency? Get in touch with us by visiting our “Contact us” section.

Video: 

https://youtu.be/z2v9oziK4rk

by

How to select a good collection agency?

Hiring a collection agency is like selecting a reliable business partner. Here are some factors that will assist you in shortlisting which collection agency is the best for you.

1. Does the agency have experience in your industry?

Laws and techniques of collecting money differ from industry to industry. For example, the approach used to collect money from the customers of a car dealer is very different when money is collected from the patients of a dentist. A doctor may want to use diplomatic verbiage to collect debt, while a car dealership may want to go for intensive collections.  HIPAA privacy laws apply only when the debt is from healthcare industry. Your collection agency should have experience in collecting debt which is relevant to you.

2. Collection agency’s reputation:

Ask for references from your lawyer or your chamber of commerce. You may also check reviews on Better Business Bureau (BBB) website. Check if they are registered on the ACA website. Most reputable commercial agencies are members of the International Association of Commercial Collectors.

Ratings are important, but it is also important to understand that agencies which collect from individuals generally have a lower rating than those who strictly do Business collections. So, make sure you are not comparing apples to oranges.

Overall, you want to select a low risk provider.

3. Do you need services for Individual or Business collections (or both?)

Individual (or Consumer) collections refers to collecting money from individual debtors (a person). Business (or Commercial) collections is Business-To-Business collection.

What kind of debtors do you have – Individual or Business or Both? Therefore check if your collection agency has experience in dealing with the kind of debtors you have.

4. Adherence to rules and regulations:

All collection agencies must follow rules specified by the Federal and State governments, which includes not indulging in threats, harassment or falsifying information. Contrary to popular perception, there are plenty of good bill collectors out there. While the occasional bad actor gets the headlines, less than 0.01 percent of all collection contacts end in complaints to state or federal regulators or the Better Business Bureau, according to ACA International, a Minneapolis, Minnesota-based industry trade group.

Such collectors generally have a short career in the industry. Following laws is essential for the survival of a collection agency. Illegal actions can result in heavy fines on the collection agency and even the client (the original creditor). After all the collection agency is collecting on creditors behalf. A collection agency which follows guidelines like FDCPA and HIPAA are less likely to get sued. Members of the Commercial Collection Agency Association are the only collection agencies certified by the Commercial Law League of America, and they have to pass some stringent requirements to obtain that certification.

Is your collection agency willing to provide detailed information on their collections process? For instance, exactly how will your customers be contacted, how often, and in what manner?

5. Licensed to collect in all 50 states

If your debtors are local, then hiring a local collection agency is suffice. But if your volume is large and your debtors are present in many states or may move to other states then it is recommended to select a collection agency which is bonded and licensed to collect in all 50 states.

6. Insured or not

Collection Agencies should ideally carry Professional Liability coverage for their errors and omissions. Defense for suits alleging failure to comply with the Consumer Protection Acts are the most common suits Collection Agencies face. FDCPA lawsuits are rising every year. Even frivolous claims cost money to defend; thus, this coverage is vital to a Collection Agent’s business.

7. Ask for references and their recovery rates

Ask your collection agency to provide references of their old or current clients. Not all collection agencies will provide this. But an agency should be able to minimally provide their average recovery rate for your industry. This will give you a fairly good idea about their debt collection performance.

8. Do their services and cost suit you?

Typically, debts lower than $1000 generally does not require a customized collection approach. Bigger the debt, higher is the need for a customized approach. Some services are flat fee based while others are percentage based? Here are some examples of services which collection agencies offer.

a) Written Demands: These are collection letters and cost about $20 for 5 letters.

b) Collection Calls: These are percent based collections. Depending on the balance, age and services provided, a collection agency may charge between 10 to 50% commission of the amount collected.

c) Legal suit: This is also percent based collection and is suitable for larger outstanding debts only. An agency may charge between 10% to 50% commission for legal collections. Some collection agencies have tiered contingency rates based on size and age of the account.

Lookout for savings: Make sure to fully understand the fee structure of the collection agency. One collection agency may charge 40% for a service; however a similar agency may charge you 25% for the same service.

9. Technology:

Does your collection agency have an online client portal, so you can see the debt collection status of each account submitted. If they do not have a client portal, will they keep you informed about the collections activity or proactively tell you when a payment is received? Do they take enough measures to secure your and the debtor’s data? If they accept credit cards, they should ideally be PCI complaint. Does their online client portal use Secure Socket layer ( SSL / Https protocol). If they are sharing data with other parties, are those secure or not.

10. Skip tracing services

Skip tracing is a service which allows a collection agency to try to locate a debtor if their contact information (address/phone) has changed. Unable to locate a debtor is a fairly common scenario, therefore using skip tracing to find debtors latest whereabouts is an important part of collections. [See our detailed article here on Skip Tracing]

11. Background check on debt collectors?

A collection agency should check that the sensitive data of their clients is not handed over to those debt collectors who have a criminal background. Your reputation is very important, and you want to ensure that the debt collector is not prone to use collection methods that harm your reputation.

12. Credit Bureau reporting:

Many collection agencies do not report noncollectable debt to the credit bureaus. During a collections call, if a debtor asks the collector “Will you report this to Credit Bureaus if I do not pay”, or “Will this appear on my Credit History?”. If collector says “NO”, the debtor is less likely to pay.

Note: 
We have listed a lot of selection factors above. Even a great collection agency may not be able to fulfill all points discussed above, that does not make them bad or inferior. But this list will certainly help you to make a meaning selection when comparing one collection agency with another.

Getting the most out of your collection agency:

1. Be honest to your collection agency. Keep them informed of any changes that you may become aware of during the collections activity on an account. Keep all the paperwork supporting the validity of the outstanding debt and provide them when asked by your collections agency.

2. Sooner you submit an account for collections, better the chances are of recovering that money. Typically, a collection agency will accept accounts 60 days after the payment date was due (also called the date of debt).
Debt Recovery Chances

Visit our “Contact us” section to get in touch with one of our shortlisted collection agency.

Video:

https://youtu.be/npFGCR3y5WY

 

by

Find the Debtor’s Latest Address with Skip Tracing

What if you send a bill to your debtor and it comes back as non-deliverable, or if you try to contact them on the phone number listed in your records and find that it no longer works? Suddenly your past due amount appears to be noncollectable.  The biggest mistake most creditors make is to keep that account aside for weeks thinking what to do about it, even though your repeat attempts to contact the debtor have consistently failed. Waiting on this account any longer means you are letting the account to age further, lowering the chances to recover money from this account even more.

“Skip” Debtor Status: In collections industry a debtor whose contact information has changed or the information provided by creditor is no longer valid is said to be in “Skip” status.

Video: 

What do collection agencies do if the debtor is unreachable? ( i.e.  in Skip status).

For collection agencies, “Skip” status is a fairly common situation. An experienced collection agency has many tools and tricks to find the debtors most current information. In short, Skip-tracing is the process of tracking down individuals.

This may include

1) Information on the debtor’s latest credit application.
2) Relatives
3) Phone books
4) Post office/USPS
5) Utility companies
6) Banks
7) Voter registration records
8) Credit bureaus.
etc..

Collection agencies generally do not acquire this information themselves, but pay organizations called Skip Tracers who collect this data from the above sources and sell it. Collection agencies generally buy a bulk subscription from these Skip Tracers so their cost of locating a debtor is a fraction of what it would cost to locate a single debtor.

Let’s look at the most common reasons why debtor’s are unreachable:

1. Unreachable landline number: These days a lot of people are ditching their landline for cell phone.  In such cases, the debtor normally has the intention to pay, but he did not realize that the creditor needs to be informed about his phone number change.  Leaving you to do all the detective work.

2. Debtor has relocated: This could be because of job change, divorce, retirement, health issues or other genuine relocation reasons. The debtor is surprised when contacted on his new address or phone number, but his intention is not to go in hiding or not to pay.

3. Intentionally hiding: This could be because debtor is in some legal trouble, or hiding from police or even from his family members. May be the debtor has to pay money to many other parties like you and decided to go in hiding.  Regardless of the reason, such debtors are hardest to locate and it’s even harder to collect any money from them. They might have even given you wrong information about themselves while buying your product or services. In worst circumstances, it might be a case of identity theft too. These kind of cases need to be handled very carefully.

Letting a collection agency handle Skip Tracing and Collections is a cost effective solution:

There are many Skip tracing techniques.  But usually creditors (or companies) have to shell out money to purchase access to this information, therefore its better hire a collection agency that already has access as part of their services.  Do factor in the amount of time and energy you or your staff will put into these kinds of efforts. Is your staff even trained for such a detective work? Plus add the cost of those man-hours of your employees that they spend on this task (their salary, office space, insurance etc.), therefore assigning this account to a collection agency almost always turns out to be much cheaper and an efficient option.

Skip-tracing has always been an important part of the debt collection process. Collection agencies are able to quickly get access to public and proprietary data from thousands of proven sources by using paid skip tracing services. Although there is no guarantee that a collection agency, even with all its resources and tricks will certainly be able to locate the debtor, but the chances are far better than what your untrained staff would do.

Other interesting information

Sometimes,  Skip tracing process reveals additional information like – The debtor has declared bankruptcy, has deceased, in an active military duty ( if so, different rules apply) or if the person is known to file lawsuits against the debt collectors or creditors. Any of these reasons will likely discourage even a collection agency to perform any debt recovery efforts.

It is possible that debtor was not found during the first round of Skip Tracing, but with advancements in technology, it is now possible for Skip Tracers to report once there is a hit on a later date. This automatic process is called “triggering”.

A popular skip tracing service is “Accurint for Collections” by LexisNexis. Skip tracing services provided by major credit bureaus are also extremely popular.

by

Most common excuses and reasons debtors give during collection calls

These are the most common reasons why debtors are unable to pay their debt. Sometimes they are actually truthful, but many of them simply use these as a delay tactic to defer paying on time, or even avoid paying altogether. A debt collector should always ask for the proof or an explanation  about what the debtor is saying. The debt collector may even give option to the debtor to pay the outstanding amount in installments or renegotiate to settle the debt for a slightly lower amount.

 Type  Debtor’s Reason  How to negotiate
 Financial Problems  • Job Loss.
• Divorce.
• I am waiting for my customers to pay me first.
• Cash flow problem.
• Spent money on a medical emergency.
• Lost money in gambling.
• No money to pay, no special reason.		  Understand debtor’s situation and ask when he expects the situation to improve, contact debtor at a later date again. May be debtor is more comfortable paying in installments, or settle for a slightly less amount.
 Delay Tactic • Need a copy of invoice or statement.
• Prove me that I actually owe this amount.
• Never received an invoice, asking me to pay.
• Check is in the mail, you should get it soon.
• No time for this right now, I have other priorities.
• Our accounting department work only 1 hour a day or once a month, please call during that time.  Our accounting department sits elsewhere.
• No time to go to the bank due to my work schedule.- Changing banks or checkbook not received yet.
• Signatory is not available.
• Lost the bill, can you sent it again.
• Really, I haven’t paid it yet? Give me time to check my bank statement.
• I know nothing about this.
• Debtor returns the bill to the sender, tries to become untraceable.
• I did not expect my bill to be that high.		  Provide information if debtor has requested. This could be resending the invoice or documentation to prove that the debt is actually owed. Most of the time the collectors have to actually call the debtor on a later date/time that is convenient for debtor, and then communicate that he has already been given enough time. Every situation is handled differently. An experienced debt collector knows how to work around these delay tactics.
 Dispute or Denial to pay  • I do not owe anything
• I will send you legal notice for harassing me.
• Let’s go to the court.
• Invoice is disputed.
• Never received the goods or service.
• Goods were defected or service provided was bad.
• I am being overcharged or I did not expect my bill to be that high
• My insurance company did not cover my entire bill as I thought.
• Over my dead body.
• Threats: Dude, I have connections; will have someone visit you !!		  If debtor continues to resist and there is adequate proof that debtor owes the debt, it may be the time to check with the attorneys if a legal suit is advisable.
 Other Reasons  • Statute of limitations
• Person you need to talk to is not here right now.
• Bankruptcy
• Debtor has expired
• I have already paid.
• Wrong number.		  A debt collector needs to get the facts straight and get further information on the case. Take a call if further collection activity is even possible or not.

A Debt Collector should deal with great patience, yet sound confident and assertive. Using abusive or unprofessional language is not only illegal; it can also take debtor to a point where he becomes completely non-cooperative.

Image Credit:
https://morguefile.com/creative/typexnick/4/all

by

Difference between Commercial and Consumer Debt Collections

The term “Commercial  debt collections” refers to the  debt collection activity where the debtor is a business entity. A business can be a sole proprietorship, partnership, LLC, Inc, MNC, etc. Commercial debt collection is also called business-to-business debt collection.

( A debtor is someone who has not paid their bill on time, in this context it refers to a business).

Difference between Commercial debt collection (business debt) and Individual debt collection (consumer debt)

One may think, a debt is a debt, then why do we classify it as a Commercial or Individual debt. Here are the main reasons.

1. Fair Debt Collection Practices Act (FDCPA):  These are comprehensive guidelines which the U.S. government has specified for collection agencies that must be followed while collecting the debt. The strict laws of FDCPA, attempts to protect debtors from any illegal harassment techniques by a debt collector to a large extent.  Some states have their own set of laws but largely follow the federal FDCPA version. There are additional laws what may be applicable, ex: Health Insurance Portability and Accountability Act (HIPAA), Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA) and Service members Civil Relief Act (SCRA).

Important Note: Commercial debt collections are NOT subjected to FDCPA, this law applies to only individual debt collections. FDCPA includes rules which prohibit harassment, threats and deception. Although there are fair collection guidelines which apply to commercial collections too, but they are not as stringent as Individual debt collections/FDCPA.

On the other hand, some examples of individual debts include – an individual’s own unpaid credit card bills, mortgage bills, student loans, medical debt, etc. They do not come under Commercial debt category. Due to the higher risk involved in collection of individual debts, collection agencies usually charge a higher fee for individual past due cases than commercial debts.

2. In Commercial debt collection, every case is treated differently. The scenarios change depending on the type of business. For example the approach involved in collecting from an hospital will be different from a car dealership. Collection agencies attempt to keep a delicate balance between recovering the money, at the same time attempting to maintain a good relationship between the two parties (if possible). The average balance of commercial accounts is much higher when compared to individual debts.

Overall the laws presume a business owner to be more savvy than the average consumer.  It’s assumed that business owners have a higher level of sophistication and accountability. The primary advantage of hiring a commercial debt collection agency is their extensive knowledge of laws that pertain to your case. Attempting to collect money yourself, while staying within the laws can be a very challenging task.

Video:

https://www.youtube.com/watch?v=s90j-y7kRYk

Debt collection process often includes these steps:

Delegating the case to a law firm ( or an in-house law firm),  background investigation, skip tracing, credit analysis and payment plans. If your debtors are from all across USA,  its is better to work with an agency that is licensed, bonded and qualified to collect in all 50 states. Ask if your Collection agency follows the latest data security techniques, encryption and technology.

by

What is a Collection Agency?

Collection agency is an organization that attempts to collect money from individuals (or businesses) who have not paid their bills on time. They will normally accept this account for collections only when its 60 days past due.

Watch this video:

https://youtu.be/iO4oCpF0C24

 

What kind of a debt can be assigned to a debt collection agency?

1. Unpaid medical bills to a doctor or hospital.
2. Services or products which were sold but were not fully paid.
3. Past due mortgage installments, credit cards bill or other forms of loans.
4. Non payment of phone bills, gym charges or other recurring membership fees.
5. Unpaid installments of car loan, student loan or bank loans.
6. Other interest and penalties.

Overall, you can initiate collection activity for almost any past due account for which you are legally entitled to get paid for and have sufficient proof to back your claim.

Example

Lets assume, you are a ‘dentist’ and your patient agreed to pay for your services in 5 installments. But the patient has stopped paying after the 2nd installment. Your gentle reminders to the patient have not resulted in any success. Would you write off the unpaid amount or would you go after the patient by trying harsher measures? It is advisable to avoid both. Taking intensive measures could even result in counterproductive action against you.

Now you approach a Collection Agency and tell them to collect your past due amount from your patient (or say Debtor). Depending on the type of service you select, a Collection agency will attempt to collect the outstanding debt and charge you a fixed fees or the percentage of debt collected. (Read: Services that Collection Agencies offer).

Should I try to collect the debt myself?

Sure, if your staff has time to do a few polite reminder calls or send bills to the debtor, and then time to do the followup for the same, try it out. But be extremely careful, respectful, polite and patient during your communication with the debtor. Most likely you will realize that too many man-hours are being spent and your staff is probably trained adequately to handle these situations.

Collection agencies are not only experts in collecting debt, the moment your debtors gets to know that a professional debt collection agency is involved, they are more inclined to pay off the outstanding debt at the earliest.

Documents to prove you legally own the debt:

There are thousands of collection agencies in United States, big and small, and each have a different way of working and the services they offer. In most cases, the collection agency will not ask you to submit all proof (or paperwork) of the outstanding debt initially, they will ask you to provide that if and when needed. For ex: If the debtor disputes the charges. A collection agency will normally start the collection activity by asking only the basic information like Debtor Name, address, phone, amount due, bill/reference number, date of debt and sometimes debtor’s SSN. At all times you should maintain sufficient proof of the outstanding debt.

Additional information:

As mentioned earlier, collection agencies are experts in collecting debt, that’s what they do all year long. They ensure that the demand notices being send out with maximum impact (letters or phone calls or legal notices), and that proper legal procedures are followed. This is extremely important “Proper legal procedures”, it includes “Fair debt collection practices act” specified by each state.

Before a collection agency signs you up as a client or starts accepting your past due accounts for collections, they will ask you to sign a legal agreement (on paper or an online contract). This agreement authorizes them to start collection activity on your behalf. Their agreement also includes important disclaimers and some standard legal stuff.

It is normally advisable to start collection activity after its been over 60 days from the date of debt, or that date when the payment was due. The sooner you submit an account for collections, the chances of recovering your money are significantly higher.

Defaulted debts are often placed on the debtor’s credit history, and usually remain for several years.

 

Image source:
http://www.creative-commons-images.com/clipboard/collection-agency.html
Creator attribution: Nick Youngson – link to – http://nyphotographic.com/