For many of our Oregon and Washington clients, the debt collection process is a bit of a mystery. What does a charge off mean? How are these collection companies getting paid? Is that a law firm or a company that is after me now? The information below might help you figure that out. More that anything I want to give you a feel for where you are in the debt collection process. Keep in mind that if you fall anywhere in the debt collection process continuum, it is probably time to seriously consider bankruptcy and get out of the debt collection process all together.
The debt collection process starts when a company issuing credit to a Washington or Oregon consumer determines that the account is delinquent and that the consumer must be contacted about the debt. In an effort to obtain payment, many creditors have their own in-house collectors contact you via telephone calls, collection letters (often referred to as “dunning letters” or “dunning notices”) or email.
If in-house collectors are not successful in collecting from you during a limited period (usually between six months and a year), the creditor will charge off your account and place it with a third-party collector – either a contingency collection agency or a law firm specializing in collections.
If the creditor places your account with a contingency agency, the creditor and agency will agree to a specific period (anywhere from several weeks to several years) for the agency to hold the collection account. If the contingency agency is successful in collecting your debt, it will be paid a portion of the amount collected. Thirty percent is the current industry standard.
If the account is placed with a collection law firm, the firm may file suit against the consumer to collect. Collection law firms generally are paid either on an hourly basis or on a contingent fee basis. Almost all of these firms engage in the same collection practices as contingency agencies, such as placing telephone calls and sending collection letters. If a collection law firm is successful in collecting, it generally is paid a portion of the amount collected. Rather than being paid contingency fees or hourly fees, some collection law firms also purchase debts and derive revenue from collections through judicial or non-judicial processes.
If a creditor sells an account to a debt buyer, the account usually is sold as part of a large portfolio. Once a debt buyer has acquired a portfolio, it does one of the following: (1) retains the entire portfolio and collects on it; (2) retains and collects on part of the portfolio and resells the remaining accounts; or (3) resells the entire portfolio. To the extent that a debt buyer retains all or part of a portfolio, it may collect using its own collectors or place an account with a contingency agency or collection law firm.
Collection accounts are purchased and resold by a number of different debt buyers over a period of years before all collection efforts finally cease. Debt buyers generally pay 5% or less of the amount owed on delinquent accounts they purchase. The amount they pay varies based on a number of factors, key among them being the age of the debt and the number of collectors who have already attempted to collect it. The longer an account has been delinquent and the greater the number of collectors who have already attempted to collect on it, the less likely it is that the consumer will pay the debt. As the likelihood of payment drops, so does the amount debt buyers are willing to pay for the debt. Ultimately, the process of selling and collecting on an account continues until either the debt is paid or the cost of collecting on the debt exceeds its expected value.
If you have any questions about the debt collection continuum and what do do about it, please call me or set an appointment at either our Portland or Salem Law Office. I look forward to hearing from you.