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Ethical Ways to Collect Unpaid Debt

Creditors have the legal options, either from court proceedings or other alternative settlement, to collect unpaid debts from their clients.

Meanwhile, it is important for creditors to follow the ethical and legal ways when dealing with their bad debtors so they can avoid lawsuits based on harassment and fraud.

Under the federal law, creditors are prohibited to harass, lie, mislead, and abuse debtors as part of their debt colleting practices. In case creditors adopt such illegal practices, debtors can file a case before the Federal Trade Commission.

To avoid lawsuits, suspensions, and other legal penalties, creditors should know the ethical and legal ways in collecting debts.

Resort to other remedies to collect unpaid debts to avoid court litigation which can drag for years.

Ideally, creditors should personally communicate with their debtors to come up with a mutual agreement that will provide benefits to both parties. In some cases, a neutral party can serve as a mediator between both sides to resolve the issue of unpaid debts.

Hire a collection agency to collect the debts.

Under the Fair Debt Collection Practices Act (FDCPA), creditors can hire a collection agency to collect the unpaid debts in case that they have failed to establish a mutual agreement between their clients. In this process, creditors can also avoid lawsuits.

Keep all the relevant transaction which can increase the chances of creditors to collect debts.

When the debts involve huge sums of money, creditors usually require collateral such as land property or house. In this condition, creditors should secure all the transactions that will give them the right to claim their client’s property in case that they fail to pay their debts.

Under the doctrine of lien, the creditors may legally claim the property of their clients to secure the payment of a debt.

Urge other creditors to file involuntary bankruptcy proceeding.

In case that a debtor has many unpaid debts to different credit companies, the latter can initiate an involuntary bankruptcy proceeding against the client. If successful, the court may ask the debtor to liquidate his assets and properties to pay the creditors or it may establish a repayment plan between the two parties.

File a case before a court.

In case that the creditors and debtors did not come up with a mutual agreement, the credit companies can ask the court to provide pre-judgment remedies (known as garnishment) that may give the debtor’s property title to the creditors unless their clients secure their debts. Another court measure may allow creditors to take the property of the debtors.

In case that the pre-judgment measures failed, creditors can file a lawsuit against the debtors to collect unpaid debts.

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