How Often Do Debt Collectors Take You to Court?

The fact is that no one likes getting a call from someone that says you failed to make payment and are now in debt collection. 

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Maybe you’ve looked at your phone and wondered, “what is Midland Funding?” only to discover you’ve been contacted by a debt collector. Perhaps you missed a payment, maybe a bill went to the wrong address and didn’t get paid, or maybe it's a complete mistake. The fact is that no one likes getting a call from someone that says you failed to make payment and are now in debt collection. 

This article will examine how debt collection works as a business, as well as how and when a debt collector may try and take you to court over your debts. We’ll also look at what can be done to correct erroneous items on your credit report through the use of credit repair services in Austin, Texas.

How Does Debt Collection Work?

When a company is owed money that has not been repaid, and it feels that either the amount is insignificant, and or the person who borrowed the money is difficult to locate, it will often pass the debt to a collection agency, such as Ad Astra Recovery Services. It's the collection agency's job to locate the debtor and collect the debt. 

Collection agencies work in two ways–first, they can purchase the debt from the bank. Let’s use an example of the bank being owed $500 the agency does not believe will be repaid. The collection agency offers the bank $25 in exchange for transferring the $500 of debt to the collection agency. Now, if the collection agency can get the entire $500 from the debtor, it’ll make a huge profit. 

The second way collection agencies make money is to locate and convince borrowers to repay the debt to the bank. Through this method, the collection agency charges a fee to the bank in the form of a percentage of the amount recovered. If it recovers $500, it could be paid a fee of 30%, or $150. 

When Would a Debt Collector Take Me to Court?

Fortunately, for smaller amounts owed, it's rare for a debt collection company to file a lawsuit–court fees are rather expensive and often aren’t worth it for small amounts. However, once a debt is sufficiently large enough, it can absolutely make financial sense for a collection agency to take the debtor to court. 

Receiving notice that a lawsuit has been filed against you is a serious matter. If you do not show up in court to plead your case, you will automatically lose by what is known as a “default judgment.” This is the worst possible scenario–if the court finds you liable for the debt owed, it can also lead to a host of negative outcomes, such as:

Garnished Wages

The court will order that a percentage of your paycheck be held each pay period until the debt is paid. 

A Property Lien

A lien is a mark on the title to your home or car that states if the home or car is sold, the institution you owe money to will be paid before you receive any of the money from the sale. 

Asset Seizure

This is rare and is only used in egregious cases, but if you don’t show up to court or are in contempt of court orders, the court may rule that the debt collector can seize your personal property so it can be sold to repay the debt. This may include any items of value such as a home, automobile, bank accounts, and other property that the court or collection agency is aware of. 

What if the Debt Isn’t Mine?

If you receive a call from a debt collector and you are sure it's an error, you can dispute the debt. Sadly, this process can take months of back and forth with banks and collection agencies to clear up–this is where the process of credit repair comes in. A seasoned and trusted credit repair company, such as The Phenix Group, can work on your behalf to clear up any errors that may exist on your credit report and can provide advice on how to improve your overall credit profile. This way, you won’t have to spend hours on hold with banks and can focus on what matters most to you.

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