Mortals Collecting Debts

August 12, 2023

Certain states, for example California, do not currently require one to be an attorney or have a collection agency license to collect most debts or to recover judgments they own. Can a regular (non-lawyer) person start a business collecting debts that are not yet judgments? Yes, however it is much harder to make a profit doing this than most people would believe.

This article is my opinion, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer. Entrepreneurial debt collectors usually have creditors assign their debts to them with signed contracts in place, and then they either attempt to persuade the debtors to pay using the telephone and/or letters, or they sue them in court to try to get a judgment based on that debt.

There is at least one web site selling a product to help people become their own collection agency, using only the web. The problem with this product and concept is that most debtors and judgment debtors do not respond to letters sent to them. Debts that are not yet judgments cannot be recovered through the courts. Without having a judgment, one cannot have the Sheriff levy the available assets of their judgment debtor.

Be aware that if you collect pre-judgment debts you buy them outright or on a future-payment basis, you are collecting debts, not final judgments; and you will be a third-party collector subject to the FDCPA laws, and in California, the Rosenthal restrictions.

If you are not an attorney, you cannot represent others in any court matter, unless you are a collection agency; in which case you represent only someone’s right to attempt to collect that one judgment or debt. While California does not currently require a collection agency license, most states require people to be licensed and bonded to collect judgments and/or debts.

Whether your state requires licensing and/or bonding or not, each debtor situation must be scrutinized and screened, to get any chance to make a profit. Without a judgment, you will not be legally permitted to pull a debtor’s credit report, and debtors can file for bankruptcy at any time. You can use professional databases to screen the debtors of your potential creditor customers, to help minimize your financial risks.

When the debtor does not respond to telephone calls and letters, the answer may be to sue them to attempt to make them a judgment debtor. The expense and hassle of suing a debtor only makes sense if they seem to have assets. In most states, including California, this cannot be done in small claims court, so this can be expensive.

While a small percentage of debtors might pay you without suing them, you may have to sue most of them. In California, it usually costs between $275 to $500 to sue someone in civil court, including serving your debtor notice of your lawsuit, and much more if you hire a lawyer. If the lawsuit is not contested, there will not be any more lawsuit costs; however if they contest your lawsuit, the costs can be enough to make you want to dismiss your lawsuit. Can you make money collecting debts? The answer is perhaps.

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