Debt collection is a process of collecting monies owed by companies or individuals. Creditors usually have a debt collection department of their own, i.e., a first party agency. If the first party agency is not able to recover the debt within six months, creditors hire outside agents that offer debt collection services. Such agents are called debt collection agencies.
A debt collection agency is engaged in recovering monies owed by debtors. It can charge creditors a flat fee or a fraction of the total amount owed. The activities of a collection agency are subject to the Fair Debt Collection Practices Act (FDCPA). Violation of the FDCPA regulations may invite astronomical fines or criminal proceedings for illegal practices.
A debtor is a person who owes the debt. When people do not pay their debts on time, due to lack of financial planning or uncontrollable circumstances, they become debtors. They may not be able to pay because of a loss of employment, serious illness or an accident that renders them unable to work. A business can also be a debtor in the commercial collection scenario. Such a business can be sole proprietor, partnership or corporation that incurs debts to run the business.
Debtors have been awarded certain rights by the FDCPA, under which debt collectors cannot harass or threaten them or use profane language. If this happens, a debtor may file a suit against the collection agency. A number of non-profit organizations, such as Americans for Fairness in Lending, educate debtors on their rights.
A debt buyer is usually a collection agency that buys delinquent accounts from creditors. In return for taking over the responsibility and hassles involved in collection debt buyers charge a percentage of the face value of the debt. A debt buying company may choose to collect the debt on its own, resell portions or hire a collection agency.
Junk Debt Buyers or JDBs purchase very old or distressed debts for pennies or a dollar and try to recover the entire amount. This industry is thriving since it is a legal business. However, some junk debt buyers resort to illegal practices to collect debt. It is difficult for them to obtain sufficient documents to be able to collect the debt. If a debtor sends a debt dispute letter, a junk debt buyer cannot validate the debt.
