While creditors can more easily collect on secured debts, or those debts whose payments are secured by some type of property or collateral, creditors with unsecured debts may have a more difficult time enforcing debtors' obligations. Common types of unsecured debts include personal loans and credit card debts. However, there are legal means of collecting unsecured debts, and creditors should utilize these means in order to collect upon unsecured debts owed to them.
You should initiate your collection efforts by contacting the debtor directly and demanding payment of the debt. Through this type of informal contact, you may even wish to consider compromising or settling your debt for a lower amount that the debtor owes, especially if you fear that you will waste your time and money attempting to collect the entire debt from a debtor with no job and few assets.
If sending delinquent notices for payment to the debtor is unsuccessful, many creditors turn to collection agencies for assistance. Collection agencies specialize in taking all legal means to collect debts, and particularly, unsecured debts. Typically, you can retain a collection agency on a contingent fee basis, which means the collection agency will retain anywhere from 30 – 50% of the amounts collected by the collection agency toward the debt. You would receive the remaining portion of the payments collected after the agency's contingent fee has been deducted.
If you are owed a substantial amount of money, however, it may be more cost-effective to hire an attorney who charges by the hour. A collections attorney can sue the debtor in court and obtain a judgment against the debtor for the amount of the unpaid debt, as well as other costs and fees, depending on the terms of your loan agreement, if one exists. Once the attorney obtains a judgment in your favor, you can request that the court garnish the debtor's income and/or assets in order to collect your debt, although some exemptions to garnishments do exist in all states.
All creditors and collection agencies must abide by the Fair Debt Collection Practices Act (FDCPA) which requires certain disclosures be made to debtors about the debt that the creditor is attempting to collect, and prohibit harassment tactics to collect the debt. Likewise, the Federal Consumer Credit Protection Act (FCCPA) limits the amounts that can be involuntarily deducted from a debtor's wages or other sources of income. Individual states often have law, as well, that mirror or even go beyond these federal laws in protecting debtors from unfair collection practices.
Particularly if you are seeking recovery of a substantial debt, or if you have a complex loan agreement, you should enlist the assistance of an experienced collections attorney. If you are unable to collect the debt informally, an attorney's services will be essential in filing the necessary court documents to obtain a judgment in your favor, as well as for presenting you with all available options for the collection of your debt.