When a debtor fails to pay his or her debts, the creditor, or the person or business to which the debt is owed, has several available remedies to help collect the money. These methods include non-judicial self-help remedies and remedies that involve the courts. Self-help remedies include simply contacting the debtor directly and demanding payment. If such informal attempts fail, the creditor may transfer the debtor's account to another business whose focus is debt collection, usually called a collection agency.
Creditors may also repossess or foreclose on goods if a debtor defaults on loan payments. The goods that may be repossessed are those that are pledged as collateral for a secured debt. The creditor can take back the property, sell it, and apply the proceeds to pay off the debt. If the sale price is not enough to cover the full amount owed, the debtor may still be liable for the remainder. Typical types of secured debts that may be collected via repossession include:
Foreclosure, like repossession, involves the taking back of property that is secured by a loan, but foreclosures generally involve real property, such as a house or cabin. Foreclosures may be either non-judicial remedies or involve the courts, depending upon the exact agreement between the lender and the borrower.
Two other common judicial remedies are replevin and attachment, which like repossession, involve taking back property, but with the court's help.
If all of these remedies fail, the creditor can sue to collect the debt. The creditor will be entitled to an enforceable judgment if it proves its case or if the debtor fails to contest the claim. If even that tactic is unsuccessful and the debtor owes a substantial amount to several creditors, the creditors may be able to initiate an involuntary bankruptcy proceeding.