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Collections

When a debt goes into default, or not paid according to the agreed upon terms, the account often goes to collection. Accounts receivable departments are usually the first line of collections for major debts. Grace periods are sometimes granted to allow the debtor to catch up. Timed payments are often established. A lender may work with a borrower to refinance the debt so that there is an easier payback schedule for the borrower. Fines and interest may be added to the debt. Debts to governments, banks, and other large financial institutions may take the form of a property lien or wage garnishment.

Collection services such as repossession specialists, or repo men, may physically take back the collateral against the defaulted debt, such as a car or large appliance. Homes and property can also be repossessed, and the occupants evicted. This collateral is then sold - often at foreclosure auctions - and the proceeds are applied to the outstanding debt.

Many collection agencies are hired to recover as much of the debt as possible, charging a percentage of the debt as a recovery fee. Some collection agencies purchase debts at a discounted price, and then pursue the debtor for the full amount. While some of these debt recovery companies are known to use harassment, many offer their own refinancing packages. Debt help, such as credit card consolidation, may serve to save or repair damaged credit scores.

Avoiding bankruptcy is very important. Because filing bankruptcy has been so abused in recent years, new government regulations have been created. Filing for bankruptcy today more often leads to a government-directed repayment plan rather than simply forgiving all or most debt. In any event, once bankruptcy has entered a person’s financial history, credit scores are substantially reduced. The bankrupt person may not be able to open a bank account, borrow money, or get certain jobs even many years after the bankruptcy has been discharged.