Falling behind in your bills could mean being subjected to action taken by collection agencies. In fact, debt collection is big business in this country. Fail to settle with a collection agency and you could be looking at a court judgment. Despite what you may have heard, court judgments are separate from general debt collection.

You might also not be aware that unpaid debts do not have to go to collection agencies prior to a judgment being entered. Sometimes they go to collection agencies first, other times they don’t. It really depends on the individual creditor and its policies for collecting on bad debts.

When Bills Go Unpaid

Businesses of all sorts are forced to deal with customers who do not pay their bills. Nearly every business deals with unpaid debts at some point. Some debts are smaller than others, but all that go unpaid represent financial losses for the business in question.

Business owners have multiple options in relation to bad debts:

  • Write them off as a normal part of doing business
  • Attempt to collect on bad debts themselves
  • Turn bad debts over to a collection agency
  • Seek court judgments against debtors.

The first option is really only applicable to minor debts. If you are looking at a customer with a major outstanding balance, simply writing it off may cause a company significant financial harm. As for attempting to collect bad debts on their own, companies try it all the time and fail. Most of the time, failure is due to not having the resources to put into debt collection.

Sending Debts to Collection

In the business world, sending debts to collection means getting a collection agency involved. In some cases, collection agencies buy the debts outright. They pay significantly less than the debts are worth in order to ensure they make a profit. In other cases, collection agencies work on a fee. They agree to accept a certain portion of the total amount collected in exchange for doing the work.

Note that state laws limit what debt collection agencies can do and how they can do it. For example, most states prohibit collection agencies from calling debtors at certain times of the day. Collection agencies do not have access to a whole lot of tools for coping with debtors who know how to beat the system.

Obtaining Court Judgments

Yet another option for collecting on bad debts is taking the debtor to court and having a judgment entered against them. A judgment is a legal proceeding in which the court recognizes the legitimacy of a legal debt and the debtor’s obligation to pay what is owed. Unfortunately, courts generally do not enforce judgments.

After obtaining a judgment, a company can attempt to collect on its own. Some do while others leave the task to their attorneys or hire a specialized collection agency like Salt Lake City, Utah’s Judgment Collectors. Regardless, the one advantage of obtaining a court judgment is that it gives a creditor and its representatives additional tools to collect payment.

Those tools include things like wage and bank account garnishment, asset seizure, and skip tracing. Many of the tools available as a result of a court-ordered judgment are not available to the general debt collection sphere. A general collection agency without a judgment can’t garnish a debtor’s wages, for example.

You could make the case that collecting on judgments is a form of debt collection. However, from a purely legal and administrative standpoint, general debt collection and court judgments are completely separate entities governed by separate rules.