Collecting Bad Debt: How to Make Them Pay? |
By Siddarth Nagaraj on March 10, 2011
.jpg.aspx?width=75&height=75) Collecting bad debt is an essential part of resolving conflict between creditors and debtors, but it is also a process frayed with tension that can cause unhappiness for all parties concerned. It is also a highly contentious issue given the manner in which bad debt is sometimes collected and the legitimacy of complaints on both sides of the divide. While creditors have every right to pursue repayment of debts according to the terms that were agreed upon, many debtors can face extenuating circumstances which are not helped by collection agencies that are employed to extract due money. While debtors can do their part to address problems by focusing on repayment, there are a number of strategies that creditors can utilize to ensure they do not end up incurring a loss.
Many creditors hire debt collection agencies to locate debtors and receive payment on their behalf. However, this is not an option that should be taken without consideration of alternatives as it can have several implications. In addition to charging fees that are based on the amount of debt recovered, collection agencies often act in ways that are ethically questionable. While many debt collection agencies help their clients recover debt in a responsible manner, others have dubious reputations for using unethical tactics to convince debtors to pay up. These agencies use a wide range of tactics, from intimidation to harassment to outright fraud. Although such practices are prohibited by legislation enforced by the Federal Trade Commission, many collectors continue to engage in doubtful behavior when servicing their clients. Understandably, this has stained the reputation of debt collectors and has also alienated many debtors.
That is not to say that debt collection agencies should be avoided entirely. They are often very useful in convincing individuals who will avoid paying up for as long as possible to do so, but not everyone falls into this category and application of pressure to all debtors can have negative consequences for creditors. When dealing with clients who are relatively reliable but are having difficulty repaying on time, it is advisable to use reminders or inducements at first rather than directly confront them with debt collectors. Waiving penalties or reducing interest rates may make it easier for debtors to repay and provide a positive motivation to fulfill their obligations.
Of course, such inducements and amicable offers do not always produce positive outcomes. In those cases, it may be appropriate to pursue legal action. Creditors can take debtors to small claims court if the debt concerned is up to $2,000. It is often less costly to seek repayment of debt via small claims court than to hire the services of a debt collector. If the debt exceeds $2,000 you may also want to consider suing the debtor, although attorneys often charge high fees. The statute of limitations regarding debt-related lawsuits allows extension of the time period over which loans can be collected, meaning that creditors can still benefit even if a debtor’s circumstances change.
The collection of bad debt is always a tricky process for everyone involved. Despite the problems that debtors face, it must be acknowledged that creditors have a legitimate right to demand repayment as agreed. However, it should also be noted that it is in everyone’s best interests to do work as hard as possible to reach a compromise rather than acting aggressively as a first option. Should negotiation fail to produce a suitable agreement, then it may be necessary to pursue legal action. Nonetheless, if it is possible to avoid conflict with debtors and receive payment for loans, then it is firmly within the interest of creditors to do so. |
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