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Debt companies companies fall under the definition of debt collection agencies (DCAs). They specialise in the area of delinquent amounts and reduced or late payments. After the original creditor has written off bad debts, he will most likely choose to use debt companies to recover his debt amounts. In this case it is said that the debt has been “passed” to a collection agency. This doesn’t mean that the debt has been cleared; the indebted individual still owes the same amount. But when the collection process continues with debt companies involved, the debtor might have to pay additional charges. After the default profile has been passed to a DCA, the agency will start the recovery process using prior tracing of the debtor, pre- legal collection methods, legal actions and court proceedings, if necessary. Debt companies perform the whole debt collection, operating with phone calls, oral and written reminders, usage of legal representatives, bailiffs and enforcement agents; in- house visits, where the debtor can be offered a negotiable and more convenient payment plan; sending various law letters, etc. The last resort of the collection process is beginning legal actions. They are used as a final option, when all other methods of recovery are unsuccessful.
Debt companies & Debt management
Debt management and more specifically debt management plans are suggested and created in United States. It is later accepted in UK and many other countries as well. In UK DMPs (debt management plans) are regulated by the Financial Conduct Authority; in Australia debt management is connected to the Bankruptcy Act 1966 (http://www.comlaw.gov.au/Details/C2014C00413).
Some debt companies have their own debt management departments and offer convenient DMPs for debtors in difficult financial state. Such plans represent unofficial written agreement between the subject of debt and the creditor, prepared by the DCA, representing the original lender. By using DMPs consumer’s debt is divided into several smaller monthly sums to be paid at a specific date. These amounts are sent to the debt companies, which after that are transferred to creditor’s account. Sometimes a creditor can decide to freeze all additional costs and fees applicable to the debtor, but it is an optional decision.
There are also agencies, which do not provide collection recovery, but only prepare such plans. Such institutions are called management debt companies and specialise only in working out debt management plans. Such debt companies are hired by the debtor in order to suggest convenient payment plan for his default amounts.
The main purpose of debt management plans is to help debtors in clearing their debts faster. There are some debt companies, which not only act on behalf of the creditor and in his interest, but also try to assist the subject of debt. They use specialised debt management techniques in order to support the debtor to handle his late payments.
Debt management can be provided also by private institutions, operating separately from debt companies. They work in return of payment from the debtor and provide special debt settlement plans to handle defaults more effectively. Debt management plan generally restructures the debt in such way, that it can be easier to settle for the subject of debt.
Debt companies and statute barred debts
Debt companies usually collect unsecured commercial and consumer debts. They are lawfully authorised to perform legal collection process, unless the debts are statute barred. If the limitation period has passed, the debt amounts are considered to be unenforceable. This means lenders and debt companies do not possess the legal right to force debt collection process. A debt is considered to become statute- barred, if during the limitation period neither creditors, nor debt companies have tried to contact the consumer regarding his default payments. This means: when the debtor does not receive any written or oral reminders during the limitation period, or if the lender does not retrieve a court order (Country Court Judgement- in UK, a decree- in Scotland, etc.) against the debtor within the same debt limitation period.
Statute barred debts have different limitation period in different countries. They also depend and comply with local laws. In Scotland the time limit is up to 5 years (according to Prescription and Limitation Act 1973- http://www.legislation.gov.uk/ukpga/1973/52/contents). In Wales and England the limitation period is 6 years for unsecured debts and 12 years for secured debts, and comprise with the Limitation Act 1980- http://www.legislation.gov.uk/ukpga/1980/58/section/35; in US the statute limitation is from three to fifteen years, depending on the state; etc.
Unenforceable means the creditor cannot force pre- legal debt actions. Debt companies, operating on behalf of original lenders also do not have the right to claim payment from debtors with passed statute barred debts. Chasing time- barred debt, after the time limit has passed, is considered unfair and harassing and is punishable by law.
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