33% of Shoppers are Increasing Their Debt This Holiday Season

While holiday shoppers are showing signs of decreased spending and more control of unhealthy spending habits, 33% of shoppers are still planning to increase their debt this holiday season.  According to a Accenture’s annual holiday consumer spending report, survey results show that consumer expect to spend an average of $582 on their holiday shopping lists and 23 percent plan to spend more than $750.  Over half (52%) expect to increase their spending from last year by $250 or more.

The good news is that according to the survey, most shoppers are better prepared for their spending this year than they were last year, with 51% saying they will pay cash for their purchases.  However, there is still a large number of consumers who state that they will put their purchases on a major credit card—33%, in fact.  This is still one-third of consumers who plan to add to their consumer debt this holiday season. 

According to Chris Donnelly, managing director of Accenture’s Retail practice, “The research illustrates a shift in U.S. consumers’ approach to their holiday spending.  Many consumers are still struggling to balance their household budgets, at the same time that pay raises and bonuses remain in short supply, and they are realizing that this is not a short-term phenomenon.  Consumers will remain resistant to the impulse purchase, and retailers will have to work harder to secure that extra spend by having a unique product, service or experience, and being clear on the value to the customer.”

Some of the ways consumers are coping with having less money to spend and attempting to spend money more wisely include an increased amount of online shopping, where items can often be found at better prices.  Shoppers are also taking more advantage of discounts and promotions offered by retailers in an attempt to lower their overall spending during the holiday shopping season. 

Much of Student Loan Debt is Not Being Paid Back, According to a Recent Report

The percentage of unpaid debts in the U.S. isn’t nearly as dismal as it was a few years ago—or even last year—except for one type of debt: student loans.  While the percentages of total consumer debt fell this year, as well as delinquency rates for that debt, student loan debt has been steadily growing for the past 8 years, with delinquency rates on the rise, as well.  In whatever way you look at it, the outlook isn’t a positive one.

From a report released in September, outstanding student loan debt now totals $956 billion and is still rising.  Approximately half of that amount is new student loan debt that is being taken on, while the other half is defaulted loans that are now showing up on credit reports across the country, affecting the credit of thousands of Americans.  It is now calculated that some 11% of student loans are now 90 days delinquent, which is considered “serious delinquency” by most credit standards.  In addition, many student loans are in deferment based on the debtor’s circumstances or continued enrollment in school, so these rates could be even higher once deferment periods end.  Since deferment is a limited prospect, it remains to be seen what will happen when it ends for the hundreds of thousands who have taken out more in student loan debt than they can afford to pay back. 

Since student loan debt is one of the few types of debt that cannot be discharged in bankruptcy, it remains to be seen what effect student loans will have on the economy if the default rate continues to rise.  Meanwhile, collections agencies and collections attorneys are watching closely to see just what role they will be playing in the process and whether student loan debt will be the next big debt bubble to hit our nation.  

What should my collections agency use automated software and how will it help us run more efficiently?

When Using a Law Firm to Collect Unpaid Debts Makes Sense

Let’s face it—consumers who have failed to pay their debts and are who are past the point of worrying what it will do to their credit aren't going to always pay attention to collection calls and letters, particularly if they have lost a job, changed their phone number or moved.  In situations when you have tried every method of communication possible and the debtor still refuses to work with you, it might be time to use a law firm to collect on the unpaid debt, especially if the debt that is owed to you is a significant amount of money.  

  

First of all, a letter or phone call from a law office tends to carry a lot more weight in the mind of the debtor than a letter from a collection agency.  Since most collections agencies have their calls and letters on an automated process, while the communication might be sternly worded, most will not go through with judgments or lawsuits in order to receive payment.  A lawyer, however, is fully prepared to initiate a lawsuit on your behalf when the debtor refuses to pay or make payment arrangements. 

This is why lawyers who specialize in debt collection are more much more effective than a collection agency tends to be.  Therefore, if the debt is significant, you should hire a debt collection attorney.  When you do hire a lawyer, you should be prepared to show up in court and go through the entire legal process (including court fees and retainer fees) to collect on the debt that is owed to you. 

However, using a law firm is usually a last ditch effort because law firms often demand a 50-50 or one-third split of the collected debt.  Also, since lawyers tend to handle specific types of debt collection cases, it might be difficult at first to find the right attorney who specializes in the types of debt owed by your nonpaying clients. 

What is the current situation with student loans in default in the United States this year?

Using Technology to Increase Efficiency in the Collections Industry

The collections industry has come a long way in its technological prowess, making the process of collecting unpaid debts easier across the board, despite tough economic times.  With a wide scope of technological platforms and software available, your collections agency can operate smarter and more efficiently, allowing your staff to prioritize and plan their strategies better. 

Many software platforms offer unlimited configuration capabilities and an intuitive user interface. For example, there are platforms which provide each user with a personalized view of the system, depending on their role in your company.  This means that software can be customized depending on who is viewing the screen: Reps and Agents, Supervisors and Manager, Executives and Accountants, Creditors and Debtors, Analysts and System Administrators.  This allows you to organize your collections operations in a hierarchy of groups, collectors, supervisors and external users to define automatic case assignment decision rules.

As additional components, with many software platforms created specifically for the collections industry, you can:

·         Assign collection tasks among different collector groups, agents and back-office support groups.

·   Include creditors and debtors for approval of payment arrangements, deduction or settlement authorizations.

·    Automate case assignment rules among different collection groups and task assignment rules for support groups.

·         Establish special rules and conditions for collecting cases based on each client contract.

·         Trigger alerts according to collections performance, activity or inactivity.

·         Know the best language to contact your debtors.

·        Allow foreign language speaking agents to use the software application in their first language.

·    Assign accounts that have a preferred foreign language to a sub-group of agents that speak their language.

·        Customize application alerts and messages according to user language.

·    Send communications such as letters, emails, SMS and other reminders in the debtor’s preferred language.

·       Set a schedule of automatic and suggested actions according to the case profile.

·      Trigger different collection stages based on case aging and elapsed time from placement.

·       Ensure consistency in planned follow-up actions and maintain fluid communications with debtors.

Retaining Good Employees and Motivating Staff in Tough Economic Times

The collections industry has certainly seen easier times than the current economic and fiscal climate.  With escalating consumer debt and an economic recession still keeping many debtors unwilling or unable to pay their bills, employees of the collections industry face difficult and demanding shifts dealing with people who are both stressed and distressed.  So in the midst of all that stress, how do you motivate your employees to stay in the industry without running away as fast as they can? 

With incentives that work, you will be able to increase the morale and loyalty of your staff members while helping them achieve greater productivity in a challenging work environment.  Although monetary rewards are usually the best incentive for employee retention and boosting morale, there are several non-monetary incentive schemes that can be used, as well, to increase your staff’s commitment to the job.  Better working conditions, better communication with management, time off and contests are always great ways to provide non-monetary incentive to your employees who perform well. 

One way to measure employee performance is “promises to pay per hour,” which involves calculating the percentages in which your employees are able to reach successful negotiations with debtors with a promise for payment.  Additional performance measures can be assessed when contractual payments are upheld by debtors, and payments are made based on a promise to pay that the employee initiated through his or her contact with the debtor.   

However, one of the best ways to provide non-monetary incentive is through greater recognition of high performance.  Publicly recognizing employees for a job well done can be one of the most effective methods to encourage employee retention and maintain positive employee motivation.  The desire to be “top dog” in a work environment will lead many employees to put their best effort toward successful collections.  Such recognition usually suggests future advancement in the company and increased wages with that advancement, so employees will look at it as a type of future monetary reward. 

Government Collections and What a Government Contract Can Mean for Your Collections Agency

According to ACA International’s website, the U.S. Government obtains the help of private collection agencies to collect on non-tax debts that are owed to the Federal Government.  The agencies that use PCAs for collections purposes include the U.S. Department of Education, the Department of Health and Human Services and Department of Treasury’s Bureau of Financial Management Service. 

According to the site, “in fiscal year 2010, PCAs under contract with the departments of Education, HHS and Treasury had referrals of $35.9 billion in delinquent federal debt. PCAs collected $777 million in FY 2010.” (Source: Department of Treasury Fiscal Year 2010 Report to the Congress—U.S. Government Receivables and Debt Collection Activities of Federal Agencies)

The government seeks private collections agencies and collections attorneys to assist with its debt collection and aid in establishing repayment agreements with debtors.  The government also hires private collections agencies and collections attorneys to help determine whether a debtor is deceased, disabled, bankrupt, or out of business.  In addition to the Federal Government, state governments also use private collections agencies to collect on delinquent taxes and other debts owed to the state. 

Can collection agencies acquire government contracts?

The Rewards and Pitfalls of International Collections

For a collections company looking to expand their business and horizons, international debt collections is a viable option to put your company on the track to more money and more clients.  In an increasingly global marketplace, companies are doing business with third-party contractors from other countries who might offer great prices at the beginning of a business enterprise but end up failing to pay. 

As this situation becomes more common, these companies and small businesses will be looking for collections agencies and collection attorneys who specialize in this unique form of collections.  Since few collections agencies offer international collections, your company would have a lucrative advantage in a specialized area that is too often under-represented in the United States. 

While the advantages and rewards are immediately apparent, there are several pitfalls along the path of international collections that should be considered before you branch out into this arena.  Below are some issues to further research before making the decision to accept international collections tasks from your clients. 

1. Different legal requirements—branching out into international collections means facing an entirely new set of legal requirements for collections practices, depending on the country where the debtor resides and operates.  These legal requirements can create hoops that are tricky to jump through and must be thoroughly researched before taking on a case. 
2. Foreign language ability—language obstacles present a significant hurdle to debt collections, and might require the use of translators to effectively communicate with the debtor and with the necessary legal agencies in the debtor’s country of residence and business operations.  This presents an added cost to your base operating expenses that is not always necessary in collections within the United States. 
3. Time zone differences—since you will be on a vastly different time zone than the debtor, this obstacle might present challenges for communicating with him or her.  In addition, as there are US laws regarding the times in which a collector can communicate with a debtor during the nighttime hours, these laws are also present in other countries, increasing the challenge. 

What are some ways to ensure employee retention at a collections agency during tough economic times?

What the Consumer Financial Protection Bureau Means for Small Collections Firms

Due to recent changes that the Obama administration made in creating the Consumer Financial Protection Bureau, beginning January 2, 2013, there will be a federal agency that will oversee the country’s largest debt collection firms.  Under the new regulations, the Consumer Financial Protection Bureau (CFPB) will oversee any debt collection firm that brings in annual profits of more than $10 million.  Companies that do not meet this $10 million minimum will not be included in the CFPB’s crosshairs for increased regulation and oversight. 

The CFPB’s aim is to ensure that debt collectors follow the regulations and consumer protection practices that the Consumer Protection Act requires, including civil communication with debtors and maintaining fair debt collection practices.  However, although there are approximately 4,500 debt collection firms in the country, approximately 175 of these collections firms will be under the scrutiny of the Consumer Financial Protection Bureau.  The remainder will continue to be under the general regulations of the Federal Trade Commission but will not be under such close scrutiny. 

This recent push is due to the Federal Trade Commission’s attempt to crack down on unfair debt collection practices such as calling more than a certain number of times a day, harassing debtors at their place of employment, and calling outside of the hours of 8 a.m. to 9 p.m. in the debtor’s local time zone.  According to an FTC spokesman, the agency received 180,000 complaints in 2011 due to actions initiated by debt collectors in the attempt to collect upon unpaid debts that violated these restrictions, among others. 

While the FTC will continue to focus on collections firms of all sizes, the CFPB will regulate and enforce consumer protection law on the 175 firms that turn the biggest profits from collections.  This means that the smaller collections firms can breathe a sigh of relief that their own debt collections practices won’t be under such close scrutiny, although they must still follow the restrictions set forth in the Fair Debt Collection Practices Act.    

Free Marketing for Your Collections Business

There are as many marketing schemes out there for small businesses as there are small businesses.  Marketing “gurus,” marketing companies, and marketing plans will have your head spinning with ideas—but when you look into the actual Return On Investment (ROI), you might be disappointed to learn that many of the schemes that work for one company might have a completely different success rate (or lack thereof) for another.  That’s why focusing on avenues of free marketing still makes the most sense for small collections companies that are wishing to expand their business and reputation.  Below are a few of the most-used free avenues for online marketing. 

LinkedIn

Do you (or does your company) have a profile on LinkedIn?  If not, you’re missing one of the most valuable, FREE online marketing opportunities available to your collections firm.  On LinkedIn, your employees can connect with your business, which adds a human face to your company, providing something that has too often been lost—particularly within this industry. You can also connect with other businesses and prospects who will be potential customers for you down the road. 

Facebook

According to the most recent numbers available, Facebook has hit the one billion active users mark this October 2012.  “Active users” means users who visited the site within a month.  If we were looking at the website in terms of population, those numbers would put Facebook as the third most populous “country” in the world. 

There is a lot of confusion about Facebook in the online marketing world.  While on one hand, many people recognize it as a viable marketing opportunity that is both free and accessible to most people, they also realize that Facebook is used primarily as a social networking site for individuals.  While LinkedIn focuses on business to business connections, Facebook focuses on social interaction among individuals—interaction that often doesn’t include easy acceptance for business marketing.  However, when a company chooses to use Facebook as primarily a placeholder page with company information, this is still a better choice than not having a Facebook page at all. Even if you don’t have a lot of daily action taking place on your page in the form of status updates and “likes”, you are still represented on a platform that has 900 million users and your Facebook page still gives your company greater search engine visibility on the Internet.   

How are financial regulators focusing on the credit and collections practice this year?

How the Internet Can Increase Your Collection Company’s Reputation and Brand Image

According to a recent Pew Research poll, there are currently 164 million adult users of the Internet in the US.  This is why having an online presence is necessary if you are a collection agency that is looking to market your services and maintain a solid reputation.  The best part about your online presence is that it is a simple, inexpensive way to not only control your image and your brand image—it is also the best tool you can offer to allow your company the room it needs to grow and thrive, even in tough economic times. 

Content marketing

Marketing through your website’s content is an easy, inexpensive way to get the word out about your business.  While a lot of businesses worry that this will take too much manpower, it really is as simple as writing about the topics in which you are an expert.  Is there a question that your clients typically have about the debt collection process?  Write out a 300-400 word response to that question and put it in the form of a blog entry on your website.  This not only establishes you as an expert in your field, but also makes it easier for search engines such as Google to find your website when someone types that particular question into their search engine. 

Get involved in Social Media

LinkedIn, Facebook and Twitter all offer easy, free applications to increase your company’s reputation and brand image.  These social media portals provide you with the opportunity to participate in group discussions and announce any special achievements that your company has won or attained.  Facebook and Twitter are also good places to announce when you have a new blog topic that has been posted, and will link your social media “friends” to the blog within your website.  This not only increases your website traffic (which helps you reach better visibility on the Internet)—it establishes your site as a professional link that helps potential clients build trust in your services and abilities.  

How do Government contracts figure in to the collections industry and should I apply for one?

American Express’ $112 million Settlement

Federal financial regulators, alleging that American Express used illegal methods to convince consumers to settle old debt, have finally reached a settlement with American Express Centurion Bank of Salt Lake City, Utah.  According to this settlement signed by Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC), approximately 250,000 customers will be refunded amounts near to $85 million dollars.  In addition American Express will pay civil court fees of $27 million. 

The settle determined that American Express was falsely telling consumers “that if they entered into an agreement to settle old debt (that was no longer being reported to consumer reporting agencies), such settlement would be reported to consumer reporting agencies and thereby improve the consumers’ credit scores.” It was alleged that American Express also knowingly entered into settlement agreements with customers “that implied that consumers who entered into settlement agreements to partially pay such debts would have the remaining balance of their debts forgiven, when in fact the balance remained a debt owed to American Express.”

This increase regulatory pressure for creditors and collection practices was one step of several that have taken place in the recent year. In fact, CFPB’s action to pursue this legal action was fresh on the heels of two more settlement agreements worth over $100 million each that were filed against national credit card companies within the past three months.  The first was Capital One, which settled on a $140 million dollar agreement in July and the second was Discover, which settled on a $200 million dollar agreement in August. 

 

American Express will now be forced to forgive the debt it allegedly promised to forgive in the first place and consumers who had been denied American Express cards based on this unforgiven debt will receive $100, along with a pre-approved offer for an American Express card.  

Are Government Contracts the Next Big Wave for Collection Agencies and Attorneys

When the economy faces uncertain times, government contracts can prove to be a lucrative and steady income for your collections business.  Beyond the increased business and stable pipeline of income, one of the biggest pros to securing a government contract is that you can be assured of prompt payment—often in as little as 15 days. 

Some of the cases for which both local and state governmental agencies hire outside collections firms include motor vehicle violations, parking violations, and court-mandated alimony.  On a federal level, student loans are becoming a hot commodity for collections as many people are defaulting on them, and can prove to be extremely lucrative for any collection agency that manages to secure the contract. 

The best way to apply for a government contract if you are a collection agency is to look on the Federal Business Opportunities website.  In order to do this, you will need your firm’s North American Industry Classification System (NAICS)code—this can be acquired from your accountant or you can find it through a search of the U.S. Census Bureau’s website. 

The process to apply for a government contract isn’t an easy one, however, and many small businesses fail to secure one simply because they don’t spend the time and effort required to make sure they are familiar with the process and have the funds needed to start.  Experts estimate that obtaining a government contract for your collection agency will cost approximately $3,500 and take approximately eight months to achieve.  And this is only if you follow the rules carefully and pay due diligence to deadlines and certification requirements in order to get priority bidding status for your collections firm. 

Many Chambers of Commerce and Small Business Association chapters offer workshops and informational sessions to help small businesses cover their bases in obtaining a government contract.  Use these resources that are available to you, or you can hire a private consultant who will guide you through the process.

How to Use a Legal Network Effectively in your Collection Strategy

Having the right legal network in your collection strategy can mean the difference between success or failure in your collections efforts.  With a downturned economy comes the need to find new and improved ways of collecting on unpaid debt and there is no better way of learning these than through working with a legal network of collection professionals.  The words of Ken Blanchard—renowned author, speaker and global leader in leadership training—certainly ring true in this business: “None of us is as smart as all of us.”  

Finding a nationwide legal network of professionals and attorneys in the industry will make your collections practice an evolving one—one that is aware of new industry trends and new approaches to successful recovery methods.  You will learn from each other and obtain valuable insight from collections professionals who will become trusted mentors.  These professional relationships will help grow your business and solidify its success. 

A legal network also adds that added punch to your collections attempts, encouraging delinquent customers to pay more quickly due to the multiple attorneys backing up the claim.  Everyone wants to avoid litigation (including you) and having a legal network on your side helps make your collection attempts more “pressing” to the average consumer who fails to pay their bills on time. 

Additionally, a legal network will be able to help you handle a wide variety of collections endeavors that might not be easy for a traditional debt collection firm to handle.  These include contracts, international collections, insurance subrogation, PPO claims and HMO disbursements, commercial/retail collections, and high technology accounts.  Legal networks also provide the necessary resources for skip tracing to find contact information for accounts in which the holder has moved or changed phone numbers and jobs.  This type of tracing is extremely valuable in tracking down non-paying customers who are able to ward off traditional debt collection strategies.  

How to Avoid Burnout in the Collection Industry

Collection industry professionals are some of the most misunderstood professionals working today, prompting many within the industry to burn out before they are able to achieve success.  For any job—whether within the collections industry or not—the state of career burnout results from a combination of exhaustion (both physical and emotional) and an overall displeasure and diminished interest in the work.  It can happen to anyone in any career field but is most common in those fields that are misunderstood by the general public or carry enormous pressure, two qualities that certainly apply to the collections industry. 

So how do I avoid it?

The first step to avoiding burnout in the collections industry is to set realistic expectations for yourself and avoid the tendency to be a perfectionist.  Perfectionists tend to set goals that are too high; when the goals are inevitably not met, they blame themselves for the failure when really, very few people (if any) could have met such unreasonable goals.  When you admit that there are facets of the collections industry that are out of your control, you allow yourself to set more reasonable expectations and goals. 

The next step to avoiding burnout is to become an active part of building the business for which you work.  Many of you reading this blog are collections attorneys or professionals who are building your own collections firm, so this advice is a given, but still others reading might have been hired on as an employee without a vested interest in the success or failure of the company.  In either case, taking on an active role in building the business will do two things to help you avoid burnout: 1) It will help you look beyond the momentary struggles and see the bigger picture and 2) it will provide the incentive to look for solutions to problems instead of becoming overwhelmed by them. 

Finally, and perhaps most importantly, immerse yourself in tasks that are at various stages of completion.  Not only will this make your work more varied (thereby preventing boredom), it will allow you to celebrate small victories across a timeline of several months.  These small victories will be the impetus for renewed energy in your job and renewed focus, preventing the dreaded burnout so many in the collections industry experience.  

What are some of the perks with working with a legal network instead of a traditional debt collection agency in collecting on unpaid debts?

How to Use Automation and Virtual Collection Systems to Reduce Costs and be Profitable

The economic problems of the past 5 years have been significant, resulting in the double-edged sword of increased collections opportunities AND increased difficulty in collecting on those accounts.  In order to compensate for increased accounts and increased need to cut on expenses, collections firms are learning to make use of the benefits that automation and virtual collection systems can bring. 

The term ‘virtual collections’ generally refers to applications that include:

1. Electronic payment options
2. Automated negotiation features
3. Interactive collection communications (ICC), such as the Internet, e-mail, text messaging, and interactive voice response systems (IVRs)

Through the use of an automated collection system, it’s easy to offer delinquent customers the opportunity to agree to an individually tailored settlement any time of day or night, 7 days a week.  These automated systems allow collection firms and collection attorneys to collect on debts immediately online and use real-time credit scores to help determine the customer’s ability to pay on a debt.  Such information can be vital in providing a suitable automated negotiation that will be mutually beneficial to both the collector and the delinquent customer. 

You’ll find that the payment initiation procedures vary, depending on the virtual collections system used.  Some virtual collections systems will be limited to electronic bill pay, while other will add more extensive features allowing debt negotiations.  The types of payment channels will differ, as well, with some collecting mainly via credit or debit cards and ACH payment, and others offering additional features such as PayPal and other online payment portals.  These additional payment initiation features can help with your collection efforts, as many delinquent customers make money on the side through eBay or Craigslist and are often paid for these transactions through PayPal. 

The greatest benefit to virtual collections systems, however, lies in their ability to provide advance reporting and analytics regarding collection accounts.  This, combined with the feature of real-time credit report information, help collection agencies determine the extent to which their delinquent accounts should be pursued based on the customer’s most up-to-date credit information.  

Does an automated collection system offer ways to access a customer's credit score and ability to pay in order to provide a tailored settlement online?

Important Questions to Ask Before Taking on International Collections

Outsourcing has moved businesses into a global arena but along with the perks of this comes a very real downside – collecting on unpaid international debts.  In the wake of an economic downturn that has forced many businesses to cut costs by using overseas labor or products, international collections as a viable collections activity has increased.  But is the hassle of dealing with international laws worth the money gained?  

The simple answer is “yes” but that answer comes with a caveat: you have to ask the right questions to determine if international collections will be worth the time and effort you put into these accounts.  And since the laws relating to international debt collection vary from country to country and can often be affected by international treaties, it’s important to be as specific and up-to-date as possible when obtaining the answers to these questions. 

1. What does the original contract say about jurisdiction? Specifically, will courts uphold your contractual jurisdiction clause?
2. Will the court in your home country have jurisdiction over the company in another country?
3. If the court in your home country has jurisdiction over the foreign company, what is the process of serving your complaint on that foreign company, how difficult will the process be, and how long will the process take?
4. If you are able to achieve a judgment in your favor in your home country, how will you collect from the foreign company?  Will the home-based judgment stand in the country of the foreign company or do you need to bring a new lawsuit in that particular country?
5. Would it be easier to just file the lawsuit in the country of the foreign company?
6. Will you be able to seize assets of a company in a foreign country?  What is the process for doing so and will the courts require a bond?  Also, is there a way that the company can claim false seizure and how successful would that claim be if it did?  

Commercial Collection Trends—Increasing Debt but Also Increasing Difficulty in Collecting It

Commercial collection trends have changed over the years, and at present, are experiencing a shift that is both good and bad for the industry.  The good is that as the economy continues to lack stability, businesses are failing—particularly those related to the travel and tourism industry.  With this decline in consumer activity, the commercial debt sector is increasing, with more accounts to collect on; the bad news is that these accounts are even more difficult to collect on than many personal consumer accounts.

 

According to a survey completed by the Commercial Collection Agency Association (CCAA), “the probability of full collection on a delinquent account drops dramatically with the length of delinquency.”  The examples they show are striking: after three months, the likelihood of collecting on a delinquent commercial account drops to 69.6%.  After six months, this number goes down even further to 52.1%.  After one year, the collection agency or debt collection attorney can expect a 22.8% probability that any money will be collected on that commercial account.

   

According to another survey conducted by CCAA, 80 percent of its members surveyed “indicated that they have experienced a decline in the collectability of accounts placed with them for collection.”  This, again, is a result of an unstable economy and might not taper to a more promising outlook for quite some time.  Since the economic downturn and recession of 2008, many small business owners who have been struggling to hang on by dipping into their life’s savings or personal retirement accounts have now reached the end of their cushion and are now simply unable to make things work for their business.   

While this certainly doesn’t mean the commercial debt collection sector is a waste of time, what it DOES mean is that commercial debt becomes just as difficult as personal debt to pin down.  Business owners are changing their business name or starting a completely different business, thus making it even more difficult for debt collection attorneys to collect on their old debt.  

Is Litigation Worth it? Rising Court Costs and the Decision of Collectors to Sue

The costs of litigation are rising but a lawsuit is still the debt collector’s strongest weapon against debtors who refuse to pay on their account.  Since the costs of litigation are the burden of the agency filing, it’s important to know just how much is too much when a creditor or collection agency is determining whether or not to file a lawsuit.  First, you have to ask the following questions concerning the collection account you’re considering for litigation:

1.       Is the claim large enough?

Many attorneys will not work with a collection case that is under$2,500.  Amounts under this amount will usually be more trouble than they are worth to litigate.

 

2.       If a commercial collection account, is the debtor still in business?

If you are collecting on a commercial account and the debtor has since closed his or her business, it’s highly likely that the assets have already been distributed.  Additionally, if the business was a sole proprietorship, you must serve the summons to the owner's primary place of business or residence, which could be difficult if the business has been closed.

  

3.       Does the debtor appear to have sufficient assets to satisfy a judgment if one is awarded?

In the business of collections, litigating a case in which a debtor doesn’t have sufficient assets to pay a judgment will likely be a waste of your valuable time and resources.  However, many creditors will still file a suit even in the absence of assets to satisfy it in order to “prove a point,” since the judgment will remain on the debtor’s record for 10 years.

 

4.       Will the court costs exceed 10% of the value of the claim? 

Generally, initial court costs should not exceed 10% of the value of the claim. If they do, in most cases, the collection account isn’t worth litigating.  

What is the best way to handle a dormant judment that has not been paid?

Using Asset and Bank Account Locators Effectively

The new “hot topic” in the collections industry right now is dormant collections, and debt collectors and collection agencies across the nation have begun to focus on dormant collections accounts as a valid revenue source.  However, this “hot topic” is also a topic that is fraught with concerns over regulation and litigation, and collectors should approach it cautiously, being sure to remain in compliance with Federal regulations at all times.  With careful research and properly managed dormant collection accounts, these potential revenue sources can help a collection firm offset the costs of litigation and resources needed for asset searches.

 

When beginning a dormant collection, a collection agency or collection law firm should first validate the judgment.  Often, this is easier said than done.  In many cases, the balances shown on the court documents are incorrect, the information doesn’t line up, or there are other issues that might cause compliance issues if not thoroughly validated.

 

After complete and thorough validation of the debt and the debtor’s responsibility to pay it, the firm should then find a solid source for asset location.  It’s important to remember in this step that accuracy rates for even the best asset locator sources are rarely more than 20% and often closer to 5%.  This inaccurate information can end up costing the creditor or collection holder even more valuable time and money.

 

Collections firms who specialize in dormant judgment validation and collection will often have the resources to perform skip tracing and asset location without hiring a third-party firm.  However, these searches take considerable time and money, two resources that many collections firms have little of.  Once a dormant judgment is established, validated and located, the collection firm can then use tactics such as wage garnishments to ensure that the collection will be processed and time and money are well spent.  

Are collection agencies beginning to focus more on dormant judgments? How are they doing it?

How Dormant Judgment Collections Will be the Next Big Arena for Collection Attorneys and Agencies

The economic struggles still facing our nation—as well as the rest of the world—have a significant impact on the collections and accounts receivables business.  As consumers are unable to find jobs to replace the ones they might have lost, and the housing market is still keeping many homeowners underwater with mortgages they can’t afford, the collections industry faces a truly formidable foe.  Not only are debtors moving more and becoming increasingly hard to locate, but the amount of money that goes into resources to locate a debtor and his/her assets is often not worth the amount of the debt they owe.

 

In order to recoup the additional operating expenses involved in tracking down and filing lawsuits against debtors, collection firms and collection agencies are looking to dormant judgments—and there are plenty of them out there.  A collections enforcement firm recently released statistics revealing that up to 80% of judgments remain unpaid every year.  These high numbers of unpaid debt, even after the debtor had been sued, has caused a serious dent in the pockets of collection attorneys and collection agencies around the country, and has prompted such tactics as skip tracing and accessing payroll databases in order to locate debtors who have changed their address, phone number, and/or place of employment.

 

When reopening a dormant collection, it is important for the agency to spend time thinking about the best chances for recovery so that no more wasted effort or money is spent toward the dormant account.  One way to do this is through the use of asset locators to determine the debtor’s vehicle and real estate assets.  If the debtor has significant assets—either in the form of real estate, vehicles, bank accounts, retirement accounts, etc.—the collection agency can then place a lien against these properties or receive court approval for wage garnishment, making collecting from a non-compliant debtor a little easier in the process.  

Familiarity with Student Loan Debt Collections is Crucial for Debt Collection Agencies

As student loan debt continues to rise, the number of agreements that debt collection agencies receive increase as well.  While this is great business for debt collection agencies, it is crucial that agencies be well aware of the rights that consumers (students in this particular case) have.

·         Debt collection agencies can only call a certain number of times per day.

·         Debt collection agencies can only call between certain hours of the day.  Contacting outside of these hours is deceptive and illegal practice on their behalf.

·         Debt collection agencies may not use any form of abusive or threatening language nor can they threaten debtors with the pursuit of legal action.

·         Debt collection agencies can, for no reason, contact a debtor’s co-workers, employers, relatives, friends or neighbors regarding the debt owed.

·         Debt collection agencies are prohibited to take part in deceptive debt collection methods, as outlined in the FDCPA, Fair Debt Collections Practices Act.

·         Debt collection agencies cannot misrepresent the amount of debt owed or the status of the debt.

·         Debt collection agencies are not allowed to provide any information regarding the owed debt to third parties.

·         Debt collection agencies are not permitted to continue contacting a debtor if that debtor has provided, in writing, a request to no longer be contacted.

·         Debt collection agencies must halt all contact with the debtor if an attorney is representing him or her.

·         Debt collection agencies must provide debtors with information regarding the debtor’s entitlement to validating the said debt.  If within 30 days the debtor has requested validation, all communications must cease until the debt has been thoroughly and appropriately validated.

Student borrowers have rights when it comes to student loan debt collection and these rights must be considered by debt collection agencies; otherwise, trouble looms as the borrower is entitled to requesting compensation for damages. 

International Debt Collections: How Can I Collect?

When you think of debt collection, you don’t necessarily think of international debt collection.  However, the need of debt collections internationally is on the rise as more and more companies do business online rather than face-to-face in the business office.  While the internet provides an immense number of opportunities for businesses to succeed, it also opens the door to being ripped off by international customers as well as local customers.

Unfortunately, international debt collections aren’t as easy as they are in your country.  An invoice or letter simply is not going to do the trick.  Debt collection agencies are knowledgeable in what needs to be done to obtain payment for the debt that is owed.  However, there are certain things that need to be kept in mind when debt collection agencies work to obtain the international collection.  Consider the following:



1. International customers have the same rights as local customers in regards to the time in which they can be called.  It is helpful for a debt collection agency to be well aware of all time zones and ensure that there are employees working during the time international customers can be reached.  If you simply work within local time zones, international customers will never be at the other end of the line.

2. It is also helpful if there are employees that can speak fluently in other languages.  Otherwise, you may get a hold of an international debtor, but without being able to communicate with them regarding the debt that they owe, collection won’t come for the creditor.

3. Ensure that the international country’s laws are up-to-date and you are familiar with them.  Otherwise, this could cause a wide range of problems for not only the debt collection agency but also the creditor.

It isn’t the easiest task to collect debt from an international customer, as there are certain laws that must be followed.  However, it can be done – even without litigation.  Keep in mind, though, that a lawsuit may be filed in your home country or it may be required that it is filed in the debtor’s home country.

Do collections agencies have to follow rules and regulations?

Debt Collecting - A Regulated Business

When a company provides service, a product or a loan to an individual, they expect to receive it back as per the credit agreement.  Unfortunately, this isn’t always the case.  More often than not, especially in today’s tragic economic times, companies want vengeance on their customers that have not fulfilled the terms within the agreed upon credit agreement.

While retribution cannot be obtained, a company has a right to hire a debt collection agency.  However, debt collection agencies do not always follow the rules (unfortunately) and it gets them as well as the creditor in trouble as the debtor reports this “bad behavior” to appropriate authorities.  Nonetheless, it is possible to ensure that this doesn’t happen.

Debt collection agencies simply need to ensure that all employees are up-to-date on new regulations regarding debt collections.  One way to do this is by holding monthly meetings to address any concerns that employees may have regarding the current collections regulations.  At the same time, this meeting can be held to provide information for new regulations that have been passed.

In addition, when new collections regulations become known, it is critical that all employees receive a training session.  While this doesn’t have to be a day-long class, a brief yet full explanation of the new rules can truly help a debt collection agency succeed in obtaining owed debts.

It is crucial that every employee of a debt collection agency be completely familiar – in fact, they should know it like the back of their hand – with the Fair Debt Collections Practices Act, aka FDCPA. The FDCPA describes exactly how, where and when debtors can be contacted and outlines deceptive practices that are strictly prohibited.  When misleading practices are put into play, a debtor has rights to recover damages, which is not what the creditor wants. 

The Hard Truth with Debt Collecting

It’s no secret that the past couple years have showed a slumping economy.  It’s important to think about what else comes along with an economical decline.  The obvious accompaniment is an increase in debt for consumers.  Yes, this increase has shown astronomical numbers in the last couple years.  With such a debt increase one would think that collections agencies are breaking the bank.  Well, that’s not exactly the case.

It’s correct to assume that an increase in debt will also cause an increase in business for collections agencies.  The unfortunate part about this scenario is that unlike most agencies that see a rise in profits when business increases, collections agencies don’t always reap the same benefits.

 

In the past couple years, collections agencies have seen more and more work coming to their door.  The problem is it’s not uncommon for this work to go unpaid.  Collections agencies have had to hire more employees to help regulate the new workload, however some or many of the claims that are coming in are not bringing in the green.

 

Who is to blame?

It’s not necessarily a ‘who’ as it is a ‘what’.  Collections agencies are having a hard time collecting debt.  This difficulty is a major cause of the regulations that the government has in place to protect those that are in debt.  Collections agencies are forced to walk on a thin line while they are attempting to go about their debt collecting business.  It’s safe to say that the rules and regulations are not on the collectors’ side when it comes to debt.

 

Debt collecting is not an easy endeavor and it certainly isn’t the cash cow that many people presume it to be.  The sad truth is, in a struggling economy, it’s every aspect of the economy that struggles-not simply those who owe.   

When economy is down, and people are in debt, do debt collection agencies flourish?

Chapter 11- A Reorganization of Business

Chapter 11 bankruptcy is one of the more involved forms of bankruptcy that is available.  In filing Chapter 7 bankruptcy, a trustee is appointed to liquidate non-exempt properties and pay off the creditors.  This is not the case when it comes to Chapter 11. 

When a Chapter 11 petition is filed a trustee can still be appointed, however their properties are not immediately sold.  By filing this petition the debtor is granted automatic stay, which means the creditors have to ‘back off’ on attempting to collect.

The main difference between a Chapter 7 and a Chapter 11 is that in a Chapter 11 the company is still hoping to stay in business, they simply need a more ‘lax’ payment plan in order to recoup.  In Chapter 11 there is a reorganization plan that is set.

A reorganization plan gives the debtors the ability to get their financial affairs in order.  They may negotiate small payment plans, or even lesser interest rates in order to help the debtor to pay back their debts.  With that being said, some creditors have the ability to disapprove or reject the plan. Those creditors that are considered to be ‘fully impaired’ will reject a reorganization plan. 

If a plan is not worked out with the creditors and subsequent plans are rejected, the debtor may be forced to change into a Chapter 7 bankruptcy plan. 

While Chapter 7 bankruptcy is typically called liquidation bankruptcy, it is Chapter 11 that is known as reorganizational bankruptcy.  Most creditors prefer this type of bankruptcy, because in the former there is a good chance they will not get their money back.  Chapter 11 may be a slow process, but it ensures that everyone is on the same page when it comes to paying back debts that have been acquired.  

Chapter 7 – A Liquidating Process

Chapter 7 bankruptcy is the process of cancelling out your debts through liquidation.  Often times this form of bankruptcy is called the ‘straight’ or ‘liquidation’ bankruptcy.  Here are the things that you should know about Chapter 7:

Process

The first step of filing for Chapter 7 is to gain a petition.  Once you have this you will be assigned a trustee to take over your case.  They are knowledgeable about assets and properties, and they will be responsible for separating your unsecured debts from your secured debts.  From there you will have to pay off your secured.  It’s the unsecured debts that take a little more consideration.

The trustee will look at your properties and classify which ones are exempt and which are non-exempt.  They will then liquidate your non-exempt properties and pay off your creditors. 

Essentially you are putting all of your trust into the trustee.  You will no longer have control over your financial affairs or your property.  They are responsible for selling off your assets, and repaying your creditors. 

Cost

It costs around $300 dollars to file and administrate the Chapter 7 bankruptcy process.  It will also cost a decent amount of your time.  The process usually takes anywhere from four to six months, and may require courthouse visits. 

Who is eligible?

If you have already had a bankruptcy discharge in the last 6-8 years you will not be eligible to file again for Chapter 7.  Also, your income and expenses will be looked at, and it will be determined if you are in the position to feasibly repay your debts.  If it is determined you can repay, then you will be put on a Chapter 13 repayment plan. 

Bankruptcy is a tricky concept, and there are many things that need to be known before filing.  It’s always advisable to talk to a lawyer before, and throughout the duration of the Chapter 7 process.  

What if Your Debtor Does Not Have Anything to Liquidate?

With growing debt the words ‘Chapter 7 Bankruptcy’ are beginning to be heard more often.  As you know, Chapter 7 bankruptcy involves liquidating the non-exempt assets and paying off your debt.  All of your debts are separated into secured and unsecured.  The secured debts will have to be lawfully paid off or the collateral will be taken.  The unsecured debts will be put into two categories, and from there the assets will be liquidated.  However, the question must be asked, what does one do in the case of no assets? 

What is a no-asset case?

As has been previously stated, when Chapter 7 is filed the assets for unsecured debts are separated into two categories.  These categories are exempt and non-exempt properties. 

It’s the non-exempt properties that are eligible for liquidation to pay off creditors.  A trustee is assigned to the properties, and they are in charge of liquidating them and gaining the cash to pay off the creditors.   However, more often than not there aren’t any assets that would fall under this category.   This would be considered a no-asset case.

What happens when there is a no-asset case?

When a no-asset case is presented, the creditors do not get paid from the unsecured debt. There isn’t any property to be liquidated, so there isn’t any cash to be handed off.  This results in the debtor’s debt being discharged, and the credit card company not receiving a payday.  Most lawyers will do their best attempt in making sure their client (the debtor) doesn’t have any non-exempt assets throughout the liquidation process. 

 

Debt collection attorneys specialize in realizing when a property should be considered non-exempt.  Despite the relentlessness of the other side, collection attorneys are able to aid the debtee in collecting the debt that is entitled to them.  

Can You Liquidate for Credit Card Debt?

Credit card debt is one of the largest forms of debt that people are getting into.  Accessible usage and high interest rates make credit cards one of the easiest ways to sink into a financial crisis.  When this happens, the debtor has a major option to think about pertaining to bankruptcy.

Those that have credit card debt are eligible to file for Chapter 7 bankruptcy.   The filing of Chapter 7 bankruptcy is a contract that is making the debtor’s property available for liquidation.  This will relieve the debtor of their unsecured debts. 

What are unsecured debts?

Unsecured debts are debts that are not backed by some form of collateral.  Most debts, such as home mortgages and automobiles are secured.  This means that if the payments are not made, the company can relinquish the home or vehicle that is being used as collateral.  However, when it comes to Chapter 7, it’s the unsecured debts that are able to be relieved. 

What is the Chapter 7 process?

Once it has been established that a Chapter 7 bankruptcy petition is going to be filed, there is then a trustee that is assigned to oversee the ordeal.  It’s the trustee’s duty to separate exempt and non-exempt property.  From there, the creditors are notified that a Chapter 7 petition has been filed. 

Subsequently, all of the non-exempt property of the debtor is then liquidated.  The cash that is received from this liquidation is then passed out to pay the creditors.  If there is any remaining cash it may go to the claim’s company. 

Once the credit card companies have been paid, the debtor is then discharged of the preceding debts.  Credit card debt is a messy thing to get into, and it is definitely the slipperiest of slopes when it comes to debt.  Steer clear of this kind of debt, and keep track of your finances.  

Why do Collection Law Firms Outperform Collection Agencies?

To ask the question ‘What has a better outcome- a collection agency or a collection law firm?’ is the same as asking ‘What is better, a diner or a 5 star restaurant?’.  Both offer food, however one obviously excels over the other.  In this case, it just so happens to be the collection law firm that excels.

One of the main reasons why a collection law firm out performs a collections agency is based on the fact that collection law firms have much more legal rights.  An agency cannot perform nearly as many duties as a law firm.  

A collection agency is merely an agency.  They can make phone calls and write letters.  That is basically the extent of their legal boundaries.  If the debtor doesn’t pay, there aren’t any real consequences coming from the agency.  This is where the law firm and agency differ.  A collection law firm is able to all of the same things as an agency; however they can also file suits.  Debtors are typically much speedier in payments if they know a credit hurting suit can be filed against them.  

Also, in the long run, a collection agency can potentially cost you more money.   When a collection agency is not able to collect, which is often, they have to then turn the case over to an attorney who can file a suit.   This leads to more money being paid out by the one who is seeking a collection.  The most efficient thing to do is to just cut out the middle man (the agency) and hire the attorney in the beginning.  

It’s also important to consider the types of people that will be taking your case.  With a collection firm you are guaranteed to have educated, motivated individuals who will be able to know the full realm of your claim. A collections agency cannot grant the same expert treatment that you will receive from a collections attorney. 

With that being said, it really does depend on the size of the debt that is being collected.  While law firms stand strong on their legal ground, collection agencies have call centers, and technological features, that simply cannot be matched by a law firm.