If a collection agency is unable to secure payment or contact with a debtor, the next step in usually litigation. Once the debtor’s account file has been turned over to an attorney for litigation, the debtor’s chances of negotiating payment or settlement with the creditor are slim to none. Moreover, once the matter has gone this far, the debtor will most likely be responsible for the payment of all attorney fees and costs associated with collection efforts, in addition to the original debt owed. Importantly, attorneys or law firms that regularly engage in the collection of debts are subject to the provisions of the Fair Debt Collection Practices Act (FDCPA) as are collection agencies.
At this stage (even though it can legally be done at an earlier stage), the creditor, or attorney acting on its behalf, will invoke any “acceleration clause” that may be in the original loan or credit agreement. These clauses are common, but usually not acted upon until a debtor fails to pay the delinquent amounts or falls seriously behind in payments. If a debtor defaults on payments, an acceleration clause, to which the debtor has agreed in the original paper-work for the credit or loan, “accelerates” all future payments so that the entire loan balance (not just the payments in arrears) is immediately due and payable in full. If a debtor has not already received notice that the creditor is demanding the entire loan balance, an attorney will be certain to do this prior to filing suit against the debtor.
Of course, if the debtor was able to pay off the entire loan in question, he or she would not be in default in the first place. Even if the attorney makes one last settlement offer of a percentage of the entire balance, the likelihood of the debtor being able to pay is nil. This, then, is a very serious stage of default that will most likely result in a lawsuit being filed against the debtor.