Collections Debt Collection Law & Legal Definition


Debtor-creditor law governs situations where one party is unable to pay a monetary debt to another. There are three types of creditors. First are those who acquire a lien through statute, agreement between the parties, or judicial proceedings against a particular piece of property. This property (or proceeds from its sale) must be used to satisfy the debt to the lien-creditor before it can be used to satisfy debts to other creditors. Once a lien has been created state statutory law governs how the lien is executed against the debtor's property. The sale of property subject to a lien to satisfy the debt is also governed by state statutory law. The type of property that may be used to satisfy a debt is governed by state and federal legislation, such as the Consumer Credit Protection Act. Secondly, a creditor may have a priority interest. A priority arises through statutory law. If a creditor has a priority his debt must be paid ahead of other creditors when the debtor becomes insolvent. The third type of creditor is one who has neither a lien against the debtor's property or holds a statutory priority.

Non-bankruptcy debtor-creditor law is governed mainly by state statutory and common law. Harrassment, defamation, or other unfair practices in attempts at debt collection may be curbed by tort claims in state court. States also regulate debt collection through statute. Congress has enacted the Fair Debt Collection Practices Act to regulate some debt collectors.

Creditors use judicial and statutory processes to have debts satisfied. Attachment is a limited statutory remedy whereby a creditor has the property of a debtor seized to satisfy a debt. Garnishment allows a creditor to collect part of a debt (for example wages) to satisfy the obligation. Replevin allows a creditor to seize goods, such as a security interest, that he or she has a property interest in, to satisfy the debt. Receivership involves the appointing of a third party by a court to dispose of the debtor's property in order to satisfy the debt.

A debtor may attempt to fraudulently convey a piece of property to keep it out of the creditos' hands. State laws seek to prevent this type of property transfer. Many states have adopted the Uniform Fraudulent Conveyances Act or its successor, the Uniform Fraudulent Transfer Act.

Every state has laws, which vary by state, governing the time in which a person or entity can file suit to collect a debt. Depending on state law and whether the debt is the result of a written contract, oral contract, open account,or promissory note, a creditor or debt collector gives up his right to file suit to collect a debt after a period of anywhere from 2 to 15 years from the time the debt became delinquent. Local laws should be consulted for specific requirements in your area.