Business Debt Collection Rights: Everything You Need to Know
Business debt collection rights give businesses in debt legal protection against unfair debt collection practices.3 min read
2. Debt Collection Agencies
3. Debt Collection Process
4. Debt Collection Rights
Business debt collection rights give businesses in debt legal protection against unfair debt collection practices and defend the rights of creditors and collection agencies. Debt collection laws also regulate collection agencies' actions during the debt collection process.
Business debt, also known as commercial or corporate debt, is a monetary liability for a loan granted by one company to another business entity. Business loans are binding business credit contracts that carry strict terms.
Borrowers must recover the amount lent before the deadline passes. If the borrower can't repay the sum in time, they become a debtor and the creditor may undertake certain measures to recover the debt.
Commercial debt is defined as any debt that a business or commercial venture owes. It differs from consumer debt in that it funds:
- Business expenses.
- Business asset acquisition.
- Business improvements.
Businesses often rack up commercial debt when they are first starting out. Instead of declaring bankruptcy, businesses that are struggling with debt that is past due can turn to commercial debt counseling, consolidation, and settlement.
If your business is having difficulty repaying commercial debt, a lawyer can help reconfigure business debts by negotiating with creditors to potentially waive part of the debt.
During the debt collection process, the debtor and the creditor have certain specifically defined rights. There are also practices that are forbidden by the law. A creditor collecting a debt usually has different rights during the recovery process.
Debt Collection Agencies
A creditor can pass the debtor's default profile on to a DCA (debt collection agency) after writing a letter informing the debtor. The DCA can then legally initiate a collection process on past-due debts. However, there are laws that block creditors from charging the debtor the DCA's collection fee.
When the DCA sends written reminders, letters of demand, or letters before legal action, these letters must contain true and verified information. Any false information is considered illegal and punishable by law.
Creditors and DCAs can seek professional help from debt solicitors or bailiffs, both of whom can call for the seizure of the debtor's property or transfer the case to a local or international court. The lender can ask for a court order to seize the debtor's property. A legal representative can also call for the confiscation of office equipment.
Creditors and collection agencies can't ask for the debtor's arrest, and generally, a person can't be put under arrest for being in debt or failing to pay bills. Collection agencies can't make false threats (wage garnishment, seizure of debtor's property, etc.) to businesses if a legal process can't or won't take place.
Debt Collection Process
The creditor who initially made the loan to the business will attempt to recover the debt before sending the account to a collections agency.
If businesses don't pay outstanding debts within 90 to 120 days, the creditor may assign, sue, or sell the debt to a commercial DCA. Assigning means that the creditor has an agreement with a third-party agency and the third party is authorized to collect the debt on the original creditor's behalf.
Commercial DCAs will buy the debt that the business owes to the creditor at a fraction of the amount that is actually owed and take on the responsibility of collecting the debt from the business.
Some collection agencies will purchase debts from other businesses. Some of these debts are old enough that they no longer affect your credit score.
DCAs only make money if the debtor pays. Because of this, these agencies are known for being very aggressive. The DCA will try to get in touch with the debtor by phone and through mail. If the agency isn't able to contact the debtor after repeated attempts, it could file a lawsuit.
Debt Collection Rights
There are certain rights established under the Fair Debt Collection Practices Act (FDCPA) that protect consumers dealing with collection agencies. However, this law does not apply to businesses.
Fortunately, there are other ways that businesses can protect themselves against overly aggressive collection agencies.
DCAs will call and contact debtors repeatedly, however, if they threaten the debtor, it may be in violation of state law. Along those same lines, if the debtor requests that the DCA call only at certain times or on a certain number, repeated or relentless calling can be considered harassment.
Debtors could go as far as getting a restraining order against collection agencies to stem the relentless flow of calls.
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