It is clearly within the best interests of both creditor and debtor to resolve the matter “internally.” Depending on whether the creditor is a general or secured one, the options available are broad. Generally, however, most consumer debt (other than for houses and automobiles) is unsecured, and creditors are general creditors whose collection activities are more limited prior to obtaining an actual judgment against a debtor.
Depending upon the debtor’s prior payment history with a particular creditor, no action may be taken at all, other than a friendly “reminder” letter, if a monthly payment is missed on an installment agreement, revolving credit account, or credit card account. Creditors are happy to charge late fees, add accrued interest to the new balance, and double the amount owed for the following month. However, after a certain number of days without payment (again, depending on the debtor’s prior history), creditors will contact the debtor, usually by correspondence and telephone. If there is no satisfactory payment or arrangement made, most major creditors will turn the account over to an internal collections department.
Typically, letters from the internal collections department of a creditor will ask the debtor to send payment or contact the creditor immediately. The creditor will attempt to collect at least the past due payment prior to the end of the month (irrespective of the original payment due date) in order to avoid reporting the late payment to a credit reporting bureau or agency. The creditor will also attempt to secure a payment over the telephone, and preferable secure staggered payments, using postdated checks, for the next three payments. At this point, it behooves the creditor to work with a debtor, because if it must turn the account over to a collection agency, it will only be paid a percentage of the amount collected from the debtor after the collection agency has been paid its share.