If you’re a creditor who needs to collect on an outstanding loan or a debtor who’s been hassled by collectors or otherwise treated unfairly, then you may require representation. Representation is often provided by debt collection lawyers. These attorneys can represent both creditors and debtors, can handle complex credit collection scenarios, such as bankruptcies and commercial litigation, and differ considerably from the collection agencies that commonly represent creditors.
Collection Agencies as Representatives
A collection agency’s primary purpose is to take on the role of debt collection from a creditor who hasn’t been paid on the original schedule agreed to. Such agencies provide a valuable service because they adhere to debt collection laws and regulations and let the creditor focus on its core role as a lender. These agencies are often paid on commission, which is a percentage of the debt collected.
Collection Agencies as Debt Buyers
Alternately, a collection agency can be a debt purchaser. In this scenario, the agency agrees to purchase delinquent accounts at a discount. The creditor gets the benefit of money right now, and the agency is investing in the potential return. If the agency collects more than it paid for the accounts, it profits.
Debt Lawyers as a Debtor Representatives
As mentioned in the opener, debt collection lawyers can represent either creditors or debtors, but in practice, these lawyers tend to specialize in one side or the other. As a representative of a debtor, these attorneys can fight for the rights of a client who is being harassed, and they can negotiate a deal that is in the interest of the creditor while be financially practical for the borrower.
Debt Lawyers as a Creditor Representatives
Debt collection lawyers who represent creditors often do so on a large scale. In other words, they don’t attempt to sue individual private creditors because that process usually costs more than is worthwhile. Instead, they focus on commercial litigation, such as representing a client’s interest when a client business goes bankrupt or attempting to collect on large commercial accounts that have become delinquent because of a dispute or other business and market factors.
Why a Creditor May Choose a Lawyer over a Collection Agency
Choosing between a collection agency and a debt collection lawyer usually comes down to how much the principal is and how likely the debt is to be collected. If a commercial account represents a large portion of an organization’s business, then commercial litigation makes sense. If an account is small, it usually makes more sense to reclaim as much principal and interest as possible in a short time frame.
Elliot S. Birnboim is a lawyer at the firm of Chitiz Pathak LLP in Toronto, Ontario. He serves clients in Toronto, Mississauga, Brampton, Milton and elsewhere in the Greater Toronto Area (GTA) providing collections work across Ontario.