Should I use a collection agency or an attorney to collect unpaid debt?

Collecting money that’s owed to you is one of the hardest parts of being in business for yourself. It could be personal debts or business debts, or somewhere in between — but regardless, when someone promises you money and doesn’t come through, it can feel really daunting. If you aren’t sure what you should do next, and you’ve done what you can on your own, you should consider hiring a collection agency or a collection lawyer.

Collection agencies are typically the first resort for people chasing delinquent debtors. For a fee, or a percentage of the recovery, they take over from the original creditor and attempt to recover as much as possible. The collection agency will usually have many clients, and its entire job is chasing down people who owe money. A collection agency will typically:

• Call the debtor at home and work.
• Send letters with “Overdue Notice” through the mail.
• Ask around, with their relatives, friends, or neighbors for information.
• Contact credit bureaus.

From credit card accounts and medical bills to old utility accounts, collection agencies handle very high volumes of consumer debts in the hundreds or few thousand dollar range. If your main concern is collecting, they can often be a sensible choice. However, their toolkit is fairly limited.

Collection Lawyers

A collection lawyer is a different animal altogether. Collection lawyers may not use those tactics, but they have many other options. Most collection lawyers will not personally make harassing calls or personally make calls to credit bureaus. Instead, they engage in a slow, deliberate set of legal steps.

• A demand letter, which clearly warns that a lawsuit is incoming.
• Filing a lawsuit.
• A money judgment from the court.
• Enforcing the judgment.

Once a judgment is entered, many find that it is not the end of the process. It’s only the beginning of the next. A collection lawyer helps you track down the debtor’s assets and present legal papers to seize them, and apply them to satisfy the judgment. In Pennsylvania, a judgment can be a lien on real estate. A property can’t be sold or refinanced until it’s satisfied.

Lawyers can also help make sure a settlement agreement is in place in writing, so the debtor and the creditor are bound to it. The debtor might want to pay a little bit a month, but these kinds of agreements can come with obligations that hold the debtor responsible if they don’t follow through — including paying interest and any attorney fees.

Lawyers might charge different ways — some might charge a percentage, but others might charge only by the hour. The terms are set in advance. Some of the main factors a lawyer will look at are how much money is owed, whether the debtor has money or is judgment-proof, and whether the debt is old.

Violating the Fair Debt Collection Practices Act

Some debt collection agencies violate federal law in their zeal to collect. Recent investigations by the CFPB, FTC, and FBI have discovered unlawful behavior among debt collection agencies. Some have posed as police officers; others use threats and intimidation. What they are doing is violating the Fair Debt Collection Practices Act (FDCPA). Arrests have resulted, even. It is worth vetting the agency before turning your debts over to them.

Hiring a Fiduciary

When you hire a collection attorney, you are hiring a fiduciary. A fiduciary is a person who is acting on behalf of someone else, with the legal responsibility to keep their interests paramount. Lawyers owe a wide range of duties to clients as part of the Rules of Professional Conduct in Pennsylvania. They can be disciplined if they violate these rules. It is especially important to find the right one. You should interview several lawyers before picking one. Some lawyers might be too aggressive; others might be timid. You need to choose based on experience and attitude.

With the right lawyer, many debtors will end up paying in full, or striking a deal, when the suit hits them. With few exceptions, debtors rarely have valid defenses, and they usually want to avoid expensive legal costs. If the debtor won’t settle, or never responds, then a court can enter a judgment. But if it comes down to filing the suit or not, pursuing a lawsuit is often the most effective thing you can do.

The bottom line? If someone owes you a lot of money, get a lawyer. If it’s just consumer debts in small dollar amounts, an agency might be better. Either way, check their experience, and how quickly they respond.