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Creditors have a number of options for debt collection, despite some limitations

3/29/2012 | Real Estate Blog

An article published on Huffington Post earlier this month discussed a number of tips for debtors regarding tricks and secrets kept by creditors and debt collectors. These include, for example: meaningless threats and bogus deadlines; protection of debtors from being called at work; privacy regarding the debtor’s debt; the fact that some debts cannot be collected because they are too old, and so on.

While creditors do have limitations in their ability to pursue a debtor for overdue bills, there are also a number of options they do have. Some of these are things they can do on their own, and others are court-based remedies. We’ll take a brief look at some of these debt collection options here.

In terms of self-help remedies, the first route is typically to contact the debtor directly to demand payment. When this doesn’t work, creditors often transfer the debt to a collection agency. Collection agencies are governed by laws intended to prevent abuses by those who regularly collect debt owed to someone else, but these limitations do not apply to creditors collecting their own debt.

Certain kinds of debts, typically motor vehicles and homes, involve secured transactions. These allow a creditor to claim the debtor’s property in order to ensure repayment of the debt.

When creditors turn to a court, they have a number of remedies to help them collect debt. One of these, called a replevin action, allows a creditor that holds title to property subject to debt to take that property back if the debt isn’t paid. Another option, attachment, is similar to garnishment. Each state has its own rules on this action. Both of these actions are only available in extraordinary cases, though.

In the event these remedies don’t work, filing a suit is always an option. If the creditor obtains a judgment in their favor, they will be able to claim the debtor’s property to cover their debt. Some creditors may be able enforce a lien.

In some cases, creditors are able to initiate an involuntary bankruptcy proceeding and force the debtor to liquidate their assets or set up a reorganization plan to pay off their debts.

Debt collection can be a stressful task, and very often is something businesses don’t like thinking about. It is, however, a reality of being a business owner. Having an attorney to consult on debt collection matters can be helpful, particularly for more complicated legal situations.