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.