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What collection options are open to creditors?

What can you do when a customer fails to pay his debts? There are two basic scenarios – go to the courts, or don’t go to the courts.

There are several options if you choose to avoid court action. The most basic is to contact the debtor and work out a payment method. If that doesn’t work, you can transfer or sell the debt to another organization that will then collect the debt. These are called debt collection agencies and they are governed by a set of rules called the Fair Debt Collection Practices Act.

Another option is to secure your loan. This is most commonly done with home and auto loans where the home or auto is the security for the loan itself. If your debtor owns property of value, the debtor can secure your loan with that property which you can use to pay off the loan if he defaults.

Court remedies

While there are some court remedies that require quick action, they are the exception and not the rule. These instances usually involve perishable goods or collateral that will decline rapidly in value.

More common is a replevin action in which you can retake the actual property you hold title to if it was wrongly taken or detained. Ordinarily, the county sheriff seizes the property and delivers it to the creditor.

A court may order an attachment hearing if the debtor is about to dispose of the property. In this case, the property is either transferred to the debtor or sold to benefit the creditor.

Lawsuits and liens

Of course, you can always sue to get your debt. After a court judgement is obtained, enough of the debtor’s property will be sold to cover the debt owed to you. Again, the local sheriff may take the property or will record the lien against the property.

If you work with a general contractor who does not pay his bills, you can file a mechanic’s lien on the project to force the project owner to pay the general contractor’s bills.

Lastly, creditors can for debtors to start an involuntary bankruptcy proceeding to force the debtor to liquidate assets to pay off debts.

In all these cases, it’s best to have the best counsel available to help you get the money you deserve. Make certain you hire experienced, qualified legal representation to get the money you have earned.

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