Debt collection in the USA refers to the actions taken by an agency or person to recover funds owed by debtors. Usually, a bill remains unpaid for a considerable time before being handed over to a collector. Then debt collection agencies in the USA are giving chase to repayment of money owed by individuals or businesses. Below, you can find the key points of how this process works offered by our company formation agents in the USA.
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Who regulates the debt collection process in the USA?
Debt collection companies in the USA use the primary mechanism by which creditors attempt to collect money owed. The debt collection process is highly regulated by the Consumer Financial Protection Bureau (CFPB) and the Fair Debt Collection Practices Act (FDCPA), providing the degree of protection for your company’s financial interests.
Our team of company formation agents in the USA can provide the assistance needed in order to better understand the regulations imposed by the American authorities in relation with debt collection in this country.
Subjects of debt collection in the USA
Various forms of debts may fall under the debt collection umbrella, including:
- credit card debt;
- unpaid debts in business relations;
- federal and private student loans;
- personal loans from private lenders;
- utility bills;
- medical expenses etc.
Given the often lengthy and challenging nature of collecting unpaid debts, lenders may opt to hire American debt collection agencies. These often purchase the rights to collect outstanding debts from the original creditors.
Creditors that handle their own debt recovery efforts generally include: banks, federal or private loan providers, credit card issuers, utility companies, and healthcare facilities. On the other hand, third-party debt collectors are usually independent firms specializing in retrieving specific types of delinquent payments.
Regardless of the debt collection subject that you or your company are facing, find support from our professional team of company formation agents in the USA to make this process as efficient as possible.
The debt collection process in the USA
Gaining a clear understanding of how debt collection works in the USA can make the process easier to follow. Below you can find the debt collection steps to consider before starting this procedure:
1. When debt becomes delinquent
A debt becomes delinquent when payments are missed, such as on credit cards or medical bills. This status arrives after you are given a grace period to make the necessary payment. While you may face some financial penalties during this time, the length of the grace period varies. Private debts often have shorter windows, typically around 90 days, whereas federal debts may take up to nine months to be seen as delinquent.
2. Initial contact from debt collectors
Once your debt is delinquent, a contact from a debt collection company in the USA should be expected. This can come in the form of a phone call, an email, or a physical letter. The collector’s primary aim is to inform you about the situation with details such as: your identity and address as the debtor, the creditor’s name seeking repayment, the original creditor’s name, relevant account numbers linked to the debt, etc.
3. Engaging with the debt collector
Individuals or companies in the USA have options at this stage. The collector can be asked to validate the debt, check its accuracy, or dispute any inaccuracies. If a negotiation is on the table, its outcomes could include: settling for a lesser amount, arranging payment in a lump sum or installments or negotiating the removal of negative records from the credit report.
4. Legal action by the debt collector
If creditors cannot collect the debt, they may pursue legal action to obtain a judgment against a person or a company. This can lead to various consequences, such as: a lien might be placed on the company’s assets or funds of the company’s bank account could be frozen and withdrawn to satisfy the debt.
5. Concluding the collection process
The debt collection in the USA wraps up when the debt is either settled or paid in full. It is advisable to retain proof of repayment in case of future disputes. Additionally, it is important to request a satisfaction letter from the debt collector agency in the USA that states your obligation has been fulfilled and that they will inform credit bureaus of this update.
Timeline for debt collection in the USA
When it comes to the period of time to end a debt collection process in the USA, it can generally vary depending on the case and if it was sent to the court. After the application is submitted to the court, it is possible to secure an interim charging order in as little as 2-4 weeks, with a final charging order potentially following within another 4-8 weeks, provided there are no disputes. However, the timeline may change if the debtor raises an objection or if the court schedules a hearing for the case.
If you need to start a debt collection process in USA for your company and you need assistance in a debt collection case that you are personally taking part of, our team of specialized agents in the USA can provide relevant support.
Data on debt collection in the USA
As official data mentions, debt collection in the USA is a common response to financial issues happening in this country:
- In 2023, there were 6,431 debt collection agencies registered in the USA;
- The main industry from which debt collection agencies take revenue is the financial one, with 37% of the total collected revenues;
- 27% of the complaints registered to the Consumer Financial Protection Bureau (CFPB) are related to the debt collection accounts, representing the highest category in this matter.
Given the high prevalence of debt collection in the USA, with this number of agencies operating and financial institutions contributing significantly to their revenue, it’s clear that managing financial matters can be complex. This way, starting a business in the USA can be a challenging process, but it is possible to achieve with the right assistance. You can rely on the services provided by our company formation agents all over the USA and you can benefit from the support in a variety of business services, such as setting up an LLC company in Delaware, for example.
Furthermore, after setting up a branch in the USA, getting the needed information about the debt collection steps might prepare the company for unpleasant situations and help to avoid them. Our USA professionals in company formation can offer relevant support in this matter. Our team has a wide expertise in different business circumstances all around the USA area, such as opening a company in Delaware. More than that, it can be useful to fully understand the debt collection process in relation with USA company formation.
Do not hesitate to contact us if you are looking to obtain more information about debt collection in the USA and other business-related issues.