Brent Tucker’s Weblog

You have an account at collections. Face it, you have a problem to deal with. The stress is just about unbearable, and the fact is that you are legally responsible for the money. The fact is that your account has been sold, and you now have to deal with the repercussions of not paying for the debt on time.

When a collection agency receives your debt, they have a couple of courses of action that they can take. The first, as you know, is to start calling you and try to collect. That is the most common method of getting money from a debtor on a defaulted account. The collection agency has another option, though. They can choose to sue you for the money.

Why would they do this? Well, each collection agency is different, but the reason is that they think they can get more money out of you by suing you than by collecting the funds.

When evaluating a debtor for suit, a collection agency will check quite a bit of information about you. You see, when your account is first purchased, the collection agency spends money to find out about you (See my BLOG entry http://creditconundrum.wordpress.com/2008/03/02/cc4-how-the-debt-collector-finds-you/ for more information). Now that they have all that information, they spend some time evaluating your financial and personal wealth situation, and then make a determination on whether or not to sue.

There are many factors, but here are some of the high points:

1) Is the Statute of Limitations on your account nearing the end date? (see http://creditconundrum.wordpress.com/2008/03/11/cc11-what-is-the-statute-of-limitations-for-my-credit-card/ for information on the statute of limitations).

2) How high is the balance of your account? If it is so high that they feel you may not be able to make payments, they might look at you as a candidate for a lawsuit.

3) What are your demographics? Certain demographic groups are more likely to pay against a judgment that others.

4) Are you employed? It is easier to collect money from someone who is earning it. Go figure.

5) Do you have equity in a property or some other asset? If so, they may be able to get you to re-finance, or to sell and pay up.

Any of these factors may contribute to their decision, and there are many additional factors. Just understand that they make a decision based on their probability of success and the amount they think they can be awarded in the suit.

Now, there are problems for a collection agency when it tries to sue someone. First, the agency has to pay fees to file, and pay for an attorneys time both to prepare the case, and also to do the actual litigation. This can be quite expensive, so the return on investment has to be quite clear. They will look at the costs to file and go to trial, the amount they bought the debt for, and the collectible amount, and decide if the money is worth it.

The end game, though, is that if they win their case, you will probably end up paying what you owed, plus interest, penalties and fees. The collection agency can put a lien on your house, so that when you sell they get their money. They can order a garnishment against your pay check. And they can request assistance in getting their payments from the court.

A couple of things you should know before I close:

1) If you stop making payments on a payment plan you have established with a collection firm, it may be a trigger to get them to pursue you in court. The fact that you were paying probably means you can, so they might go after you.

2) Just because you haven’t seen a summons yet doesn’t mean you won’t if your Statute of Limitations runs out. As long as they filed before the end date of the SOL, you may still have your day in court.

Finally, I will tell you this: Most lawsuits filed against debtors are settled out of court. A smart debtor knows that they might lose the case, and will want to just get rid of the debt. So, if they sue, get a lawyer, and try to get it settled. You may end up saving a bunch of money, and you may be able to make the debt go away.

To get a copy of my FREE e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you might hear during a call from a collector, how they use the information they get from you, and how you can protect yourself by not divulging too much.