A collection agency works with a contingency rate. This means that you pay no money up front. Your collection agency makes money when they get you paid. Therefore, many collection agencies want only the newest files, the lowest hanging fruit. These files are the easiest to collect. I certainly have some “fresh” files in my book. However, what about older files, files that are one or more years old? What about court judgments?
Statute of limitations may limit recovery.
The statute of limitations is the maximum date that you can legally collect a debt. In Maine and in many states it is six years. However, each time your collection agency gets a payment, the statute begins anew.
One way to lengthen the statute of limitations is to litigate and obtain a court judgment. Judgments are normally good for between 10 and 20 years. So, if your customer has no assets today, they may have assets a few years from now. A judgment gives you the right to attach those assets.
How does a collection agency find assets?
A collection agency performs a service called “skip tracing” to locate information on debtors and their assets. When I skip a debtor, I put pieces of a puzzle together. I use some specialized subsciption services, but also search the internet, including social media sites, court and land records.
What about bankruptcy?
Some people may seek protection from collection with the federal bankruptcy laws. Once you learn a customer has filed for bankruptcy, you must let your collection agency know immediately. You and your collection agency must immediately stop all contact and efforts to collect. In some cases, the debt will be discharged, which makes the debt not collectible, and there is no chance for recovery. Sometimes, the debtor will enter into a repayment plan and you will get some or all of your money over time. In other cases, the debtor will not comply with the law, and the case will be dismissed. If a case is dismissed, you are free to pursue the debt once again.
So when can you recover a “cold case file”?
It all comes down to two factors. First, are assets available? There has to be something to get. Secondly, your collection agency must be willing and able to dig into an older file. Some agencies only want the newer, fresh files, so make sure to ask.
It is going to cost you more money – higher contingency rate- to collect an older file. Accept the reality that you have nothing and that anything you recover is gravy.