The Stages of Debt Recovery Explained

Most companies that offer credit cards, store cards, home catalogues and small debts will have a set of rules in place in order to recover money owed. There are various stages of debt recovery and the process will usually start in the first instance with a telephone call or letter from the company that has given credit to the debtor.

The Pre-Legal Stage

If a company has given credit and the agreement or contract has been defaulted on, meaning missed payments, then the first point of action will be contacting the debtor. This contact will usually be in the form of a letter or telephone call to the debtor informing how much is owed and when the amount must be paid by.

This is the earliest point in the stages of debt recovery, and for debtors this is the point where a repayment plan should be set in place. At this point debt collection agencies will not usually be contacted; it is only when the debtor refuses to acknowledge the letters or calls that debt collectors will be called in.

Arranging Repayments

It is in the best interests of the debtor to arrange a repayment plan with the credit company. At this stage there is still a chance to avoid the debt collection companies that will add on a fee on top of the amount owed. The credit company may be willing to stop or write off interest at this stage, accept lower repayments, and give more time to make repayments. It may even be possible to avoid any record on the debtor’s credit file at this stage if a new repayment schedule is accepted and the repayments are made on time.

The Debt Collector Stage

If the debtor has ignored all contact from the credit company then debt collection agencies may be called in. Debt collection agencies will charge a fee for their services that will be passed on to the debtor. Debt collection agencies will use more aggressive forms of debt recovery such as contacting the debtor repeatedly by phone, email, letters, and even text messages. Many debt collection agencies do use practices that rely on the ignorance of the debtor regarding his or her consumer rights.

Remember, no debt collector can make a home visit without the debtor’s permission. They cannot harass or embarrass the debtor by repeatedly telephoning the home or workplace. Again, at this stage, the debtor would be wise to make some form of repayment plan and stick to the repayments. Information gathered on the debtor at this time will be used to make a decision whether or not to take legal action.

Legal Action Stage

The stages of debt recovery could now take a more serious turn depending on the amount owed. The credit company may now decide to proceed with legal action; this means court action. A claim form will be sent to the debtor of the intention to proceed with court action. The claim will list all money owed, and will also have a claim for court fees and fixed costs that may be paid by the debtor. The debtor usually has 14 days to reply to the claim and explain their situation.

County Court Claims

The most likely scenario at this stage will be a County Court Claim, but a court hearing can still be avoided if the outstanding amount is paid. If the amount is not repaid then there will be a court hearing in private. The court judge will look at the facts of the case and decide whether or not the money has to be repaid.

County Court Judgements

A County Court Judgement (CCJ) is an order from the court informing the debtor that he or she must repay the debt. The CCJ will either be for the full amount in one lump sum or an agreed amount of repayments. If the debtor has more than one creditor to pay then an administration order may be used. This is where all creditors are paid from one monthly amount paid by the debtor and divided between creditors.

If the debtor does not adhere to the CCJ then creditors can apply for further steps to be taken. These steps may include lowering repayments or stopping repayments until the debtor is in a position to make repayments. In all cases more fees will be applied to the creditor. Ultimately bailiffs may be called in if instructed to do so by the courts.

The stages of debt recovery are different depending on the amount of money owed and the financial situation of the debtor. In most cases it is better to contact the original company who gave credit and arrange repayments rather than have the courts involved. This can lead to a damaging credit rating, and will make it very hard, if not nearly impossible to obtain credit in the future.