Here’s a detailed breakdown of the typical process followed by most collection agencies for legal collections:
- Legal collections operate on a contingency basis, and the associated fee is always disclosed to the client beforehand.
- Only after internal debt collection efforts by the agency are not successful, the account is then escalated to legal proceedings.
- Before proceeding legally with any account, written permission is always obtained from the client.
When an account is transferred to the Legal collections department, it initially enters a phase termed “Pre-Litigation“. During this stage, the collection agency’s in-house legal team assesses the account and issues a firm demand to inform the debtor of the ongoing legal review. This step serves as the final opportunity for the debtor to settle the account before formal legal actions commence.
Should the debtor fail to resolve the account, verification steps are undertaken to ensure that the backup documentation aligns with the account balance reported to the collection agency. This process typically involves multiple communications with client. They are updated about the account’s status ( being forwarded for Legal) and if they can provide any additional documents.
After adequate backup documentation, account is finally assigned to an attorney. Collection agencies have tie-ups with hundreds of lawyers all across the country. The case is assigned to a lawyer who is licensed in the appropriate jurisdiction where the case is to be handled.
The next steps depend on whether the attorney can negotiate a settlement or advises pursuing a lawsuit. Establishing contact with the debtor remains a challenging aspect of the collection process, and there is no fixed timeline for these proceedings. The attorneys adhere to legal communication guidelines, generally allowing a 35-day response period following their initial contact with the debtor.
If the attorneys deem the case viable for a lawsuit – based on the likelihood of obtaining a judgment and the presence of debtor’s assets and income – they will consult the client about proceeding with a lawsuit. The client is usually requested to cover the court’s filing fee, which is reimbursed from the first recovery of funds.
The client’s consent is required to advance to the lawsuit phase, which involves serving the debtor, preparing an affidavit, and awaiting a court date. The lawsuit process can be lengthy, particularly in the post-COVID era, with slow court processing times. Outcomes typically include a default judgment if the debtor fails to attend the hearing, or a standard judgment if they appear. With adequate documentation presented in court, the chances of a favorable judgment are very high.
Subsequent steps may involve another court hearing, depending on the debtor’s willingness to settle. If the debtor agrees to payment terms, collection waits for payment updates. However, if the debtor refuses voluntary payment, the attorney may pursue wage garnishment or asset liens.
In conclusion, transferring an account to the legal department does not necessarily lead to immediate litigation, and some clients may prohibit such actions. While there are some risks associated with suing a debtor, the attorneys provide recommendations considering the client’s best interests.
Amount recovered is remitted to the client after deducting the legal-contingency fee.