For businesses, the survival depends significantly on the payments they get from clients, contractors and service providers. Their cash flow and financial condition will be in deep trouble if timely payments are not made and the uncleared debts are not cleared on time. In this situation, they are forced to seek services from debt collectors as they can improve the collection process and ensure that uncleared bills, pending payments and debts are required.

The benefit of these debt collectors is that they are authorised to pursue legal action also, if the debtors show their unwillingness in debt repayment. The legal action they take depends on several factors and one is whether the debtor is an individual or a company.

HOW DEBT COLLECTORS PURSUE LEGAL ACTION AGAINST INDIVIDUAL DEBTORS?

LETTER OF DEMAND

The first step begins with the debt collectors or their legal representatives sending a formal letter of demand to the debtor and requesting to make the payment within a particular number of days. This letter of demand will include some major details related to the debt like the invoice's number, the amount outstanding, the due payment date, and the current due payment date that you have set.

If there was an agreement related to the debt payment, both parties may enter into a formal deed of settlement. This is a written agreement that can be relied upon in the future in terms of debt collection.

LEGAL PROCEEDINGS

The next step is initiating legal proceedings if the letter of demand and negotiations don't generate favourable results for debt collectors or their clients. The amount of the debt will impact the court you choose to pursue the legal proceedings and issue notices to the debtor. In most cases, a debt of less than $ 100,000 can be handled at the magistrate's court, and the county or the Supreme Court must handle more significant debts. According to the experts of debt collection services, the lawyer will prepare a legal document, otherwise known as the 'statement of claim', and it will explain the legal basis that you are relying upon for claiming this payment. This document will be prepared and filed with the court and then handed over to the agent to personally deliver to the debtor.

Once the debtor receives the document, he can file or serve a defence. The deadline for this will depend on the court where the proceedings are taking place. If the debtor fails to file or serve a defence within the time limit, debt collectors can plead for default judgment, and this means the court will make the judgment in your favour. Throughout this phase, there will be no requirement for parties to be personally present at the court. However, if it files a defence, the proceedings will take place through the court, and judgements will be made after hearing all the arguments from both parties.

ENFORCING THE JUDGEMENT

Since debt collectors and their clients have all the documents, letters, and proofs, the judgment is in their favour in most cases. In this situation, the debtor will have to pay the amount owed or the amount decided by the court through negotiations. Again, the debt recovery agency or their legal representatives will write a letter to the debtor requesting the payment within the set deadline and enclose a copy of the same to the court. They will enclose this mail with a copy of the court's order for making the payment. If the debtor again ignores this mail and the order from the court, further action can be taken based on the court's order. This can include the following –

Seizure and selling the assets or property of the debtor after applying to the court regarding the same

Garnishee order, which means the third party makes the payment to you rather than making payment to the debtor.

The debt collectors or their legal representatives can apply to the court for an order that a percentage of the earnings of the debtor should be handed over to you.

For debts greater than $5000, debt collectors can proceed with issuing a bankruptcy notice.