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Collecting bills can be tricky. Push too hard and your business can wind up paying money rather than receiving it. For example, in Maryland, a jury awarded


Jan 20, 1997 12:00 PM,
BY FRED S. STEINGOLDSteingold practices law in Ann Arbor, Michigan.

Collecting bills can be tricky. Push too hard and your business can wind up paying money rather than receiving it. For example, in Maryland, a jury awarded $64,750 to Sharon Hamilton and her mother, Verna, because a creditor harassed them while collecting a $4,300 debt. In Texas, John Wilson and his air conditioning company won a $2.5 million judgment against a creditor who went to outrageous lengths to collect a $9,500 debt.

Of course, damages awarded in a typical case of collection abuse are likely to be much lower, but even a $5,000 or $10,000 award against a small business can hurt. Therefore, you need to know which of the many collection practices are safe and which are most certainly not.

Several states have laws dealing specifically with debt collection. Such laws set guidelines on when you can call a debtor or contact the debtor’s employer, for example. If a creditor violates one of these laws, the debtor can be awarded damages, which may include money for emotional distress.

If a state doesn’t have a specific debt collection law, it will likely deal with collection abuses through a consumer protection statute – a law that prohibits businesses from acting unfairly or deceptively.

Suing someone who owes money to your business is always a safe option, but it’s usually not practical to take every debtor to court. Most businesses use a lawsuit as a last resort, trying less formal collection techniques first.

But as Alan D. Reffkin, a collection law expert, warns: “The best collection technique in the world will be counterproductive if it results in a costly legal battle.”

To aid businesses, Reffkin has explained debt collection pitfalls in a helpful booklet, “27 of the Most Dangerous Traps for Creditors and Collectors,” distributed by Western Union Priority Services.

Some of his points are summarized here.*Workplace contacts. Calling or writing a debtor at work is risky, especially if you have reason to believe the employer frowns on communications that are not work related. If you do call on the telephone, never reveal to the debtor’s boss or co-workers that you’re calling about an unpaid bill. When sending a letter to a debtor at work, mark the envelope “Personal and Confidential” so it’s not opened by others.

*Postcards. Using a postcard to remind a debtor of an unpaid bill is quick and cheap, but legally prohibited. The reason: other people can easily see the collection message on the card, so it’s an invasion of the debtor’s privacy.

*Threats. Be careful when you tell a debtor what will happen if the debt isn’t paid. Don’t threaten to turn over the account to a collection agency or start a lawsuit unless you really plan to do that. And don’t say that “nonpayment will affect your credit rating” unless you intend to report the account to a credit reporting bureau.

*Imitating court papers. Some debt collectors have discovered the persuasive power of papers that resemble legal papers or court documents. This tack is clearly illegal. Never try to collect a debt by simulating court documents or making papers look like they’re from the government.

*Ignoring the debtor’s lawyer. If a consumer owes you money and has a lawyer, don’t contact the debtor directly. Deal only with the lawyer – unless, of course, the lawyer says it’s OK to speak with the debtor. However, if you call or write the lawyer and don’t hear back within a reasonable time, you can call or write the debtor. It’s probably safe to do so if a month has passed and you haven’t heard from the lawyer yet.

*Inconvenient calls. Don’t call a debtor before 8 a.m. or after 9 p.m. And don’t call at any other time if you know it may be inconvenient to the debtor. For example, if you know a debtor works a night shift and sleeps every morning, don’t call until the afternoon.

*Persistence. When consumers write saying they won’t pay a debt or that you should stop communicating with them, be very careful. It’s best to make only one more call or send one more letter to inform the debtor of what specific action you plan to take. Keep the call or letter strictly informative. Avoid saying anything like “last chance to pay” that might viewed as a further attempt to collect the debt.

*Contacting third parties. You can contact third parties to learn the debtor’s address and phone number and place of employment. Don’t mention the debt. That would invade the debtor’s privacy. State that you’re confirming where the consumer lives or works.

*Concealing your intentions. When you contact a debtor, make it clear that your purpose is to collect the debt. Let the debtor know that any information you receive will be used for that purpose.

*Collection charges. Don’t add collection charges unless there’s an agreement with the debtor that such charges are allowed, or state law allows such charges without an agreement.

By carefully following these tips, you can avoid being indebted to your debtor.

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