Third-party collection is when a third party attempts to collect a debt on behalf of a creditor. The activities of third-party debt collectors are limited by law, and creditors may turn to third parties when their own collection efforts are ineffective. The process often begins with letters and phone calls to the debtor, and may include attempts to collect from someone who has assumed responsibility for the debt. It is important to note that when a third party collection occurs, the creditor still owns the original debt.
Third-party collection is a form of debt collection that is performed by a third party, a person or entity that was not a party to the initial transaction or contract. Creditors may turn to third parties when their own collection efforts are ineffective. The activities of third-party debt collectors are limited by law in many regions of the world and people who are in debt are advised to inform themselves about the specific laws in their regions, as debt collectors sometimes try to circumvent the law when they make efforts to collect a debt.
Many large companies have their own collection departments. Initially, these departments will attempt to collect the debt internally for the company. If the debtor does not respond, the company can hire a collection agency that specializes in third-party collections. Smaller businesses may immediately turn to an agency because they cannot afford to maintain a collections department.
Classically, third-party collection begins with a series of letters, for which the creditor pays a flat fee. The letters encourage the debtor to pay the debt in full to the creditor. If there is no response, the creditor assigns the account to the agency and the agency can take more aggressive steps to collect the debt. If the debt is collected, the agency retains a commission and sends the rest to the creditor. Creditors want to avoid third party collection because it means they cannot collect the debt in full, thanks to the commission that must be paid.
Collection attempts may include letters and phone calls to the debtor. Depending on the jurisdiction, the agency may file a lawsuit on behalf of the creditor and take other steps. If someone has signed the debt or has assumed responsibility for a debtor’s outstanding debts, third-party collection may include attempts to collect the debt from this person and the original debtor. However, the collection agency generally cannot seize assets belonging to the debtor unless a lawsuit has been filed and adjudicated in the collection agency’s favor.
It is important to note that when a third party collection occurs, the creditor still owns the original debt. Creditors may also choose to sell your debt to companies that buy debt and charge for it. When the debt is purchased, the new buyer becomes a creditor. Companies that buy debt can be quite aggressive and people who owe money should try to work out a payment or settlement plan before the original creditor sells the debt.
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