Understanding the Debt Negotiation & Collection Process

Debt negotiation and debt collection walk hand in hand. In order to fully understand debt negotiation one must first understand the bill collection process. Generally, the collection process follows this path: original creditor tries collecting the debt -> collection agency tries collecting the debt -> law firm tries collecting the debt. Sometimes the debt may be sent immediately for legal collections. Other times it may never be sent for legal collections, even 6 years after the original delinquency. In truth, the debt collection process can be somewhat unpredictable and varies from creditor to creditor. That being said, this is the typical road that most delinquent debts follow.

Step 1: Friendly reminders to pay – The original creditor through mail, an automated voice message, or live person will contact you to remind you that your last payment wasn’t received. The calls may come once every few weeks and are generally amicable.

Step 2: Late fees, default interest rate – Your next communication may not be as friendly, and you’ll most likely be reminded that your balance has now increased because of late fees and interest charges as high as 32%.

Step 3: Increase in calls, more aggressive and threatening communications: At this point, the creditor may start calling you several times a day, sometimes even at work or your parents’ house.

Step 4: Charge off – When a creditor charges off your account, they write off the balance as a loss, which is accounting for “we don’t expect to get paid on this account.” Unfortunately, this does not mean that they’ll stop their collection efforts, and a “charge off” will affect your credit profile negatively. Once an account is charged off, the original creditor will most likely either sell your balance to a “debt buyer” for pennies on the dollar along with thousands of other accounts. Other times the original creditor will assign your account to a third-party collector, who is paid a percentage of whatever they are able to get you to pay.

For information about the next step in the debt collection process, follow this link: third-party debt negotiations.