Debt collection refers to a creditor outsourcing the collection of debt owed by private people and companies to an attorney or a debt collection agency. The debt can be collected either outside of court or by a bailiff’s court.
What is debt collection?
If you have debt you either do not or can not pay, the case can be transferred to debt collection. This often means that a third party is charged with the responsibility of collecting debt. This can be a debt collection agency or an attorney. The creditor can also elect to collect themselves or go to a bailiff’s court.
When the debt is transferred to collection, the debtor is from then on contacted by the attorney, collection agency or the bailiff’s court. They will attempt to set up a payment scheme or find a different solution, to make sure that the debt is repaid. This could include returning the article purchased on credit or using valuables as a safety deposit. If the debtor continues to neglect paying their debt or breaches their agreement, these valuables can be sold.
When is debt transferred to debt collection?
A case can only be handed to collection when payment remains open and ten days have gone by after the first reminder is sent. The creditor can send a first reminder with a warning regarding collection, if they have not received a satisfactory explanation for why the payment was not made. If you do not respond to the first reminder within ten days, the case can then be sent to collection.
A reminder contains a warning about the consequences of neglecting to pay. Reminders are commonly associated with a fee for every one that is sent. Private creditors can send a maximum of three reminders. If it is about a running agreement such as a loan or a subscription service, the company can not accept the payment of a later bill as payment for an earlier reminder. This way, they can not demand monthly reminder fees for the same debt. Apart from reminder fees, a company can also demand rates of the sum owed, should payment be delayed.
What a debt collection agency is allowed to do
When a debt collection agency takes over a debt, they will contact the debtor in order to process it. They may grant a delay or form an agreement on a temporarily lower rate if the person can not afford to pay the sum at that moment.
If the collection agency and the debtor can not reach an agreement or establish contact, the case is then often sent to a bailiff’s court. This can lead to the person being registered as a bad payer in their respective credit rating agency, such as SCHUFA in Germany or RKI in Denmark.
Debt collection agencies are subject to collection laws that are meant to protect loaners and debtors from being treated unfairly. This includes clear rules for how they are allowed to collect debt and contact debtors.
Debt collection agencies are allowed to do the following after the deadline for payment has been missed:
- Contact someone by phone or by mail in order to reach an agreement on how the debt is to be repaid
- Seek out the person concerned at their residence if they have announced their visit in time or the person has missed an earlier announced visit
- Inform the person about the debt collection agency’s options for handing the case to a bailiff’s court or register them in the national credit rating agency
They may not:
- Seek out a person at their workplace unless that person is the company’s owner or outside their residence
- Alert others (employers, family or friends) to a person’s debt or share other sensitive information
- Use words like “collection” or “reminders” in written documents that are accessible to people other than the debtor
- Neglect to show valid identification
- Mislead or lie
- Bring forth threats about pressing charges unless they have knowledge of the person concerned committing criminal acts
- Subject them to unreasonable pressure
If the debt collection agency breaks the law or violates “good practices”, you can report them to the police or file a lawsuit with the national customer protection agency.