There’s a minimal but significant difference between a debt recovery and debt collection. The distinction is who is striving to recover the debt. Therefore, debt collection is simply the lender’s attempt to try and retrieve a credit or loan which has not yet been paid by the client.
However, debt recovery is when a client ends up not paying the money owed to him by the lender, who therefore seeks the services of a third party, also known as debt recovery services to emphasize on collecting the money.
Debt recovery is very crucial because it is precisely linked to your credit score. Therefore, the moment debt recovery services are pursuing you, it indicates that you have defaulted on a loan and currently have financial crimes. These financial crimes are therefore reported to the credit bureau and result in a lower credit score. Moreover, the lower credit score may affect your future lending capabilities. So, how are the debt collection services carried out? Are there steps to follow when carrying out the process? The answer is yes, and we are going to look at these steps before that, you should familiarize yourself with the following terminologies.
Debt collection terminologies
- Debtor: A person compelled to repay the borrowed money
- Creditor: A person who offers credit with an arrangement that the borrowed amount will be repaid.
- Third-Party collector: A person or service hired to collect the borrowed money.
After familiarizing yourself with the terminologies mentioned above, let’s, therefore, check the debt collection process before proceeding to the debt recovery process.
Debt collection process
The process starts after confirmation that the debtor has failed to repay the money. This is after the agreed period has expired. The status of the loan is therefore reported to the credit bureaus. However, during this period, there will be communications from the creditor trying to convince the client to repay the amount and incur late repayment fees. The debtor can, therefore, elaborate on his situation and establish a repayment plan.
After the agreed time frame has expired, the credit is then relinquished to another branch of the same company whose specialty is on recovering the irresponsible debt. The department isn’t a recovery agency but just a subsidiary of the equal company. They, therefore, can report your unreliable lending record to a credit bureau, which may then blacklist you.
Debt recovery process
Once the debt has been handed over to a collection agency, the creditor sends information and supporting documents to the debt collector about your failure to repay the loan as per the agreement. Therefore, after the debt collection services have reviewed and accepted the claim from the creditor, the demand letter is then sent to the debtor, and the recovery process begins after the acknowledgment letter has been sent to the creditor.
Therefore, after that, the following happens
- Communication begins through telephone calls to ensure the outstanding balance is repaid.
- If the debtor doesn’t oblige to repay the debt, the debt collection services inform the client with information on redirecting the claim to the allied attorney.
- The claim sent to the attorneys is therefore signed by the creditor and sent to the allied attorneys who, therefore, recommend legal action.
- The client then accepts the legal action to continue upon filing suit requirements. The lawsuit is later filed.
- The debtor, therefore, files a response after being served with the lawsuit, the recovery process begins, and a trial date is set.
- If a judgment is passed in favor of the creditor, the attorneys will, therefore, file to get access and locate the assets of the debtor and instigate steps to gratify the judgment.
Bottom Line
The debt recovery process is usually long and tiresome, as mentioned above. However, it is often a good idea to repay debts on time to avoid the above tedious processes, which are time-consuming. Remember, the debtor pays the costs incurred by the debt recovery services. So, avoiding extra costs by repaying your debt on time is a good thing to do.