Creditors who are owed money by debtors have the right to collect what is owed them under creditor's rights law. When a debtor doesn't pay what they owe, due to bankruptcy or for any other reason, a creditor may choose to deal with it inside or outside the courts. A creditor may hire a creditor's rights attorney that specializes in lawsuits against debtors. Most creditors try to contact debtors through notices asking for payment and then hire a collection agency to try to collect the debt through both letters and phone calls.
Collection agencies are governed under the Fair Debt Collection Practices Act (FDCPA). They must follow specific laws when collecting debt for their creditor clients and this includes not abusing or harassing debtors. Under the FDCPA, collection agencies may repeatedly telephone and send demand letters for payment to debtors. The letters must be in envelopes that don't mention a collection agency and phone calls by collectors that are answered by someone other than the debtor can not mention any information about the debt. Rather, the collector must only say that he or she is calling about an important business matter.
Creditors have the right to file a lawsuit against a debtor and they have specific bankruptcy creditor's rights. For example, creditors have the right to share in the debtor's bankruptcy estate and this may include tax refunds and stock options. Creditors don't have the right to 401(k) plans and some retirement savings plans. A creditor's rights attorney can advise creditors in each state or country because exact bankruptcy laws and rights of creditors vary.
Exact creditor's rights also depend on whether the debt is secured or unsecured. Basically, secured debt always involves property, whereas unsecured debt doesn't. Secured debt means that a loan included collateral to secure it. For instance, a car loan agreement may specify that the creditor has the right to take back the rights to the vehicle if the debtor doesn't make the agreed payments. Unsecured debt refers to monies owing that included no collateral to secure it such as credit card debt.
Creditor's rights in secured debts are well exemplified by mortgages. A mortgage secures the home loan because if it's not paid by the debtor, the creditor can take back the house. Unsecured debt is often more difficult to collect. This type usually involves the creditor sending notices, hiring collection agencies or choosing to file a lawsuit.
