Jaburg Wilk


The Civilized Way To Collect Debt

Categories: Collections, Article

How to collect debt

Collecting past-due balances is one of the most agonizing tasks in business. In many large companies, the accounts-receivable department or credit manager handles collections. If your company is small, you might handle collections yourself. But whether your company is big or small or in between, you'll want to collect debts diplomatically and tactfully to preserve your good reputation.


The Fair Debt Collection Practices Act (FDCPA), administered by the FTC, regulates third-party collection activities throughout the country - including collection agencies and law firms that provide collection services. Although the FDCPA doesn't apply to in-house collections, the act provides a set of prudent guidelines. Here are the most important FDCPA-established rules:

  • Contact debtors by mail (but not by postcard), telegram, e-mail or fax at any time, but by phone only between 8:00 a.m. and 9:00 p.m.
  •  Contact debtors at a reasonable place - such as at home - unless they authorize you to call at work.
  •  Disclose your true identity. Don't misrepresent yourself as an agent of the government or a credit bureau. Never use a false name. In fact, don't lie in any respect.
  • Don't threaten debtors with jail if they don't pay. Don't imply that they have committed a crime. But if a debtor's check bounces, you may contact authorities because that may be a criminal offense under state law
  • Don't reveal information about a debt to anyone else - except a debtor's attorney. If a debtor has moved, you may contact third parties to "trace" the debtor's new address and phone number, but don't discuss the debt itself with outsiders.
  • Avoid profanity, threats of violence or other verbal abuse.
  • Don't threaten to take further legal action - such as filing a lawsuit - unless you intend to and it is legal to do so.
  • If a debtor owes you for more than one transaction, and sends you a payment for a particular transaction, apply the payment to that transaction.

Other rules apply, and we can advise you on them.

Judgment and Enforcement

If your collection efforts are unsuccessful, you'll need to consider filing a lawsuit in state court. If a debtor lives in or operates a business in another state, you may have to file in that state. State law typically allows you to file suit either where the defendant resides or where the transactions arose. In a legal action, sometimes the easiest part is convincing a judge that a debtor owes you money. Often more difficult is actually collecting a debt when a court rules in your favor. If a debtor still fails to pay after being ordered by a court, we can ask the court for further relief, including:

  • Information subpoenas and discovery orders that require debtors to disclose their identities, location and status of bank accounts, personal property, employers, income and other assets.
  • Attachment that compels law enforcement officers to seize and sell a debtor's property or other assets to satisfy a debt.
  • Replevin that compels law enforcement officers to recover and return to you goods you sold to a debtor that the debtor hasn't paid you for.
  • Distraint that allows a landlord to seize property - such as furniture or appliances - of tenants who haven't paid rent.
  • Levy that compels a police officer to take possession of and hold a debtor's property until a debt is paid.
  • Garnishment that requires a debtor's employer to pay salary - or a portion of it - to you to satisfy a debt.
  • Receivership that designates a third party to sell a debtor's seized property to satisfy a debt.
  • Lien that attaches an ownership interest in a debtor's property in your behalf. If the debtor sells that property, you can share in the proceeds. But beware: Filing erroneous liens can lead to civil or criminal sanctions against you.

These are often complex legal proceedings and require professional legal assistance.

State by State

Each state has statutes governing the relationship between creditors and debtors. Become familiar with yours, as well as the FDCPA (online at www.ftc.gov), before you take aggressive collection action. Aside from laws and rules concerning collection activities, you should proceed professionally to preserve your reputation and business relationships. And call us for information.


Dealing With an Insolvent Debtor Trying to collect a debt from a thriving business can be difficult enough. But financially distressed or insolvent debtors present a completely different ball game. In a slow economy, you may encounter more of these situations than usual. If you believe that a debtor is in financial difficulty - and you think the business is likely to recover - you'll probably want to preserve the business relationship. In that case, you may wish to negotiate more liberal credit terms, including giving you a security interest in the debtor's assets. You'll have to decide, based on the risks involved, whether to continue shipping goods or providing services to the debtor during this period.

If a distressed company files for bankruptcy, you'll have to get in line with other unsecured creditors to try to collect what you're owed. Exercising lien rights - if you have them - can convert your status from unsecured creditor to secured creditor. You may want to continue doing business with a company in Chapter 11 reorganization under new credit terms - such as cash on delivery - depending on prospects for a long-term relationship with the company. But keep in mind that most Chapter 11 bankruptcies fail. Please consult us for advice on dealing with debtors in bankruptcy proceedings.

Founded in 1984, Jaburg Wilk offers extensive experience, diversity in practice areas and the ability to think like a business owner. We are an Arizona mid-sized AV rated law firm, the highest rating that a law firm can receive. Our attorneys, paralegals, and other support staff meet our clients' diverse legal needs and provide exceptional service through our 21 Fundamentals which comprise The JW Way.