How to Get Debt Back From Defaulters Effectively

by Fraser Sherman; Updated September 26, 2017
Young man with pockets turned inside out

The first step to collecting overdue bills or loans is to ask for the money. After 30 days, contact the defaulter with a polite letter and ask if he's having trouble making payment. If he has just forgotten, that may be all it takes. At 60 days, make a phone call. If you hit 90 days with no money, you can either write the debt off or take action: You can negotiate a payment plan, hire a debt collector or go to court.

Negotiate a Deal

If your debtor is having financial problems, talk to her about setting up a payment plan, with interest added for the late payment. It takes longer to get the money this way, but it's less trouble than hiring an attorney or a collection agency. If the two of you can't agree on a reasonable plan, contact a mediator or arbitrator. They specialize in helping opposing sides work out a common agreement. This can be a good solution if you want to preserve your relationship with the debtor.

Hire a Pro

Professional debt collectors make a living convincing defaulters to pay what they owe. It's not free: In a tough case, the agency may charge as much as half of what it collects. However, debt collectors can afford to take the time, and they have experience seeing through plausible-sounding excuses. Don't hire an agency expecting it to threaten or harass anyone into paying. Federal and many state laws place strict limits on collection-agency tactics.

Getting a Judgment

Instead of hiring a debt collector, you can sue the defaulter. You can do this without a lawyer in small-claims court if you have the time and if the debt isn't too large. State small-claims maximums range from $2,500 to $25,000. If the debt is larger or you're too busy, you can hire a lawyer, though that costs more. Winning the case doesn't force a debtor to pay you, but it gives you the right to levy a bank account, place liens on the debtor's property or tap whatever cash the debtor has available on his company's premises.

Extreme Measures

Once you have a lien on the debtor's property, you can use it to foreclose, then collect your debt out of the proceeds. This doesn't always work, as the property may not be worth much, and any earlier liens will be paid off first. If you're really determined, you can contact some of the defaulter's other creditors and together request that a court force the debtor into bankruptcy. This forces the defaulter to pay at least some of the bills, even at the price of shutting down her company.

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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