Bankruptcy Basics and Alternatives

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Bankruptcy Basics and Alternatives
Debt recovery is the act of collecting on an outstanding debt from a debtor. A debtor can either be an individual or a business. In general debt collection is carried out by a recovery company or by the business to whom the debt is owed. What usually occurs is that if a company is unable to collect on a debt themselves, then they will turn it over to a debt recovery company. However, there are a number of types of recovery companies around and employing the best one will identify how much or how little of the debt you will eventually recover.

A first party recovery company is one that is really a subsidiary of the company to which is owed the debt. The company essentially has a recovery branch in order to preserve the cordial terms of the business relationship that they have with their clients. When a business operates a debt collection division, they will normally get involved in the defaulting process much earlier on and will try to work out a solution or a compromise so that they get their money and maintain their client.

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A third party debt recovery company is a collections company that had nothing to do with the original contract between the debtor and the company to which they have the money. The third party recovery company is normally employed on a consignment basis, for a percentage of the debt owed or for a small charge. The percentage owed if the debt is collected can range between 10 percent and 50 percent depending on the company employed and the type of techniques being utilized to collect on the debt. Although many of these contracts are based on a "no-collection, no-fee basis", many of them will demand a payment if the company decides to cancel the contract before the debt has been collected.

Another typical practice and one that is increasing in popularity is the sale of debt to a debt recovery company. What normally occurs in such a case is that the company will sell the debt to the company at a fraction of the cost of the debt. The company then absolves itself from the debt owed. The debt collection agencies, if they are able to collect on the debt stands to make a neat revenue. However, the sale of debt has resulted in some rather dishonest collections techniques that have required the writing of laws to govern the fair collection of debt. In the United Kingdom debt collection falls under the Consumer Credit Act while the in the United States the law governing debt collection is aptly titled the Fair Debt Collection Practices Act.

Debt recovery is important to businesses that would otherwise lose out on millions every year through defaults. Although a business might not recover every penny that they are owed by utilizing a recovery company, they are at least guaranteed of getting back some money. The only challenging part to debt recovery is knowing when to cut your losses and pass on a delinquent account to the debt collection company.