A delinquent debt has a handful of potential outcomes. It may be collected, or the creditor and debtor may negotiate a settlement. In the case of a secured debt, the security may be recovered. Some debts are written off, or packaged and resold. Many, if they are deemed worth the effort and expense, go to litigation.
Debt litigation, as with any legal matter, is most successful when the creditor’s case is thoroughly prepared and researched. The research phase itself can be thought of as a useful stage in the collections process. Information uncovered at that stage may result in pre-legal collections, eliminating the need to proceed with a suit. Failing that, in-depth preparation improves the likelihood of successful litigation.
In this article, we’ll explore ways to shore up that research process, including how improved search tools can empower preparatory research when made available to the collections team. Let’s get into it.
Preparing for Debt Litigation
The prospect of debt litigation is not necessarily appealing for the creditor. It can be costly, the debtor may file a countersuit (extending the process and raising the cost), and even after successfully securing a judgment extra steps may be required to finally secure repayment.
Thorough preparation improves the likelihood of a creditor achieving desirable outcomes such as a settlement before litigation or during its preliminary stages, a favorable decision from the court, or a successful final collection after winning a judgment.
The path to one of these successful outcomes incorporates both debtor research and proactive steps taken within the creditor’s collections team. Let’s look at a handful of steps that can be adapted to most pre-litigation scenarios.
Ensuring the Completeness of Your Case
An important starting point is assessing and documenting the validity and completeness of your case. Consumer-oriented sites encourage debtors to routinely scrutinize creditors’ communications for any discrepancies that could lead to a successful challenge of their debt in its entirety or a reduction in the amount of debt they must repay. Proactively assembling all of the necessary documentation and ensuring its completeness is important in that context.
Documentation should include copies of all previous communications with the debtor. If those communications were verbal, a recording or transcript (if available) should be included. Failing that, written notes from the agent placing the call can be helpful. Third-party collections professionals may need to retrieve some of this data from the original creditor, one of many complications arising from Regulation F.
Verify That the Debtor Can be Located and Served
The contact information available for the debtor may not be current or complete, even when contact has successfully been made somewhere in the collections process. First-party creditors and legacy financial sector data providers often have dated information on file. While it is possible to communicate with a creditor if even one piece of information — such as a phone number — remains viable, updated data may be needed to successfully serve notice of the lawsuit.
This is a strength of Spokeo for Business. Spokeo searches starting from any piece of data in the agency’s or original creditor’s files (such as an SSN, full name, or email address) can uncover a debtor’s current address, additional phone numbers or email addresses, and a great deal of other useful information to help make contact with the debtor (we’ve covered Spokeo’s benefits as a skip tracing tool elsewhere on this blog).
In the case of commercial collections, this can be more complicated. If the company owing the debt is no longer in operation, it may be necessary to turn to your state’s corporate registry to uncover the names of its principals. With that preliminary step accomplished, Spokeo’s search tools can then be deployed to determine their contact information or physical location.
Locating Collateral or Other Forms of Security
In the case of secured loans, the location of the collateral may be unclear. Spokeo for Business’s social media expertise can often help locate physical assets used as collateral, as debtors often self-report the location of vehicles and other assets in public posts.
Non-tangible forms of security used to take on debt, such as the equity in an insurance policy or a piece of real property, or the income from a property, can potentially be concealed or obfuscated by a debtor. In consumer debt situations, a co-signer may prove difficult to locate. Here again, Spokeo can provide invaluable assistance in locating a co-signer through its advanced people-search tools.
To learn more about the role of social media in asset collection, check out our full guide here.
Check for Liens and Other Creditors
The steps we’ve outlined so far in this article can help identify resources that may potentially be tapped to achieve a recovery of the debt, but the existence of a prior or higher-priority creditor could potentially torpedo that strategy. Unpaid property taxes or federal income taxes usually trump first- or third-party creditors. For most other debts, creditors are typically prioritized in chronological order: debts are paid off in the order that the liens were secured.
Have a Legal Professional Review the Case
Before making a final commitment to debt litigation, it’s important for creditors to have a debt litigation specialist review the strength of their case. Some first- and third-party creditors may have this expertise available in-house, while smaller creditors may need to turn to outside counsel.
These specialists can offer an informed opinion on the likelihood of success through litigation or whether it might be more fruitful to pursue arbitration, mediation, or a negotiated settlement. They’re also able to accurately assess the potential cost of the litigation, especially if the debtor should file a counterclaim. In some cases, if the risk or cost of recovery is high enough relative to the amount of the debt, proceeding with litigation may not be justifiable.
Capitalizing on Your Research for Pre-litigation Collections
The more complete and accurate the preliminary research, the more leverage a creditor holds in seeking a resolution. The benefits of a detailed picture of the creditor’s circumstances include:
- The insight necessary to dismiss inadequate or bad-faith settlement offers from the debtor.
- The opportunity to suggest payment avenues that may genuinely not occur to the debtor, such as drawing on the accumulated equity in a property or financial product.
- Locating tangible assets or collateral for repossession may eliminate the need to proceed with debt litigation.
- Establishing a clear enough case that the judge may issue a summary judgment in your favor.
- If the case proceeds to the discovery stage, and the creditor’s case is sound, the debtor’s counsel may advise settling (and avoiding additional costs) after seeing discovery materials.
It’s important to note that while successfully securing a judgment against the creditor is a crucial victory, the necessity of collecting on that judgment remains. A debtor may have assets outside of the jurisdiction of that court, for example. They may also have income streams, such as “gig work,” that aren’t visible through reports from legacy financial data providers, and therefore can’t be garnished as straightforwardly as wages.
Spokeo’s searches can help trace assets throughout the United States (which is crucial in cases where a debtor has assets outside of the county or city where they currently live), streamlining the post-judgment recovery process. They can also uncover public social media posts that may reveal the presence of a debtor’s gig work, exposing those income streams to scrutiny and potential collection.
In some instances, creditors may win a judgment only to discover that the debtor is “judgment proof,” or lacking the assets or income to repay the debt. It may be worth maintaining a file on those cases and periodically revisiting them to see whether the debtor’s circumstances have changed. Depending on how long a judgment remains in force in that specific jurisdiction (in Texas, for example, that period is 10 years), an opportunity to recover the debt may present itself in the future.
Leveraging Modern Social Media and People Search Tools
The collections industry has been in a state of flux in recent years, adapting to the impact of Regulation F and new restrictions governing the collection of medical debt. The growing number of unbanked and underbanked individuals – approximately 1 in 5, according to an FDIC survey – poses another challenge, given the difficulty of tracing them through legacy data sources.
Spokeo for Business can be an invaluable tool for collections professionals seeking to maintain or improve the cost-effectiveness of their operations in the teeth of those headwinds. That holds for all collections, whether or not they are destined for the courts.
To learn more about how Spokeo can enhance and empower your collections, or to arrange a demonstration of the product or a hands-on trial, contact us through the information on our Collections and Skip Tracing page.
Sources
Nerdwallet: Sued for Debt? Here’s What to Expect
American Bar Association: Six Things Creditors Should Know About the New Federal Debt Collection Rule
American Bar Association: You Have a Judgment. Now What? Mastering the Art of Judgment Collection
Texas State Law Library: Debt Collection: For Creditors