The Debt Recovery Process – What It Is & What It Involves

It can be frustrating when you owe money to creditors. Once a debt is owed, a creditor has the legal power to try and collect through various debt recovery services. While it’s important to not ignore the issue, it’s vital to take certain legal steps to protect yourself and to also arm yourself with information of what the process involves.

What is Debt Recovery?

In general terms, debt recovery is when a third party attempts to collect on a debt. Debt collection involves the recovery of all past due balances and fees. Debt recovery is not something to ignore, as it can directly affect your credit rating. When a debt recovery company has contacted you, there may already be a negative mark against you. This can impact negatively on you for years to come, especially for future credit applications.

The debt collection process starts when a payment is missed. After a certain period of time, if the debt is not paid, the lender will write off the debt and sell it off. Debt recovery services buy up these debts and try to collect on it.

Fortunately, there are ways to help you recover from a missed payment, such as seeking legal advice to find the best way to resolve the issue.

What Does the Debt Recovery Process Involve?

When the creditor sells your debt to a debt collection agency, all your information and credit terms are sent to them. Once they’ve received your file, they will start the process of recovery. The first step is to send you a letter demanding a financial payment. An acknowledgment letter is also sent to the creditor. After the recovery process has begun, you can dispute the claim if you believe it’s incorrect.

Once a collection agency has your information, they will continue to try and collect your debt. If you continue to ignore the demand letters, they’ll follow the next steps in the process:

  • Telephone Calls – The company providing debt recovery services will continue to contact you to arrange payments. If you continue to ignore them, they’ll contact the creditor. It’s the decision of the creditor if they want the case forwarded to a debt recovery lawyer.
  • Legal Action – If the creditor wants to proceed, a lawsuit is filed with the courts. The creditor can also change their mind and choose not to seek legal action.
  • Court Appearance – You can be served with legal papers to appear in court, and a trial date will be set. If you fail to respond, a default judgment can be reached against you.
  • Judgment Awarded – If the judgment is awarded in the creditor’s favour, the courts can grant garnishments, liens and bank levies on your accounts.

When you’re late on a credit or loan payment, it’s important to try and resolve the issue as soon as possible. If you fail to make arrangements, there can be serious consequences. The first step is to seek legal advice, as it’s important to protect yourself in the debt recovery process.