Hiring a debt collector to enforce loan to friend, family

Uncle Joe borrowed big and stiffed you? For a fee, collection agencies go after him for you


How to hire a debt collector Juan Rodriguez/


How to hire a debt collector Juan Rodriguez/


Would you sic a debt collector on a friend or relative? Despite the emotional cost, some people do, and there’s a small sector of the debt collection industry willing to tackle this ugly job.

While there are no firm statistics on how often private individuals turn to debt collectors to collect on interpersonal loans, problems are common with loans to friends and family. One such form of lending is co-signing, commonly used when an individual agrees to be the backup on a loan for a friend or relative. A 2016 poll found almost 4 in 10 co-signed deals go bad, leaving the co-signer on the hook for repayment. About a quarter of co-signers say their experience damaged the relationship with the person they co-signed for.

If a personal loan that has gone delinquent, and appeals for repayment have gone unheeded, where do you turn? Some debt collectors will take on small jobs.

Friends and family loans common, but risky
Barbara Brown, a stay-at-home mom from Chicago, found herself nearly out $32,000 after lending money to a family member. “My sister begged me to help with back mortgage so she didn’t lose her house,” says Brown. “I couldn’t say no to her in that situation. I had her write me a promise note that said she would give me back everything from her husband’s bonus that he was getting in six months.”

I don’t know what they said, but I’m glad I did it. No regrets. I could not afford to lose that money.

— Barbara Brown
Chicago stay-at-home mother

The due date came and went. “I found out they paid other people back, not me. I didn’t even know there were other people!” Brown tried to set up a payment plan with her sister and brother-in-law, but her “zillions” of phone calls, texts and emails were left unanswered. “I knew they had money because they had so much stuff – like three cars – and he has a very good sales job. I couldn’t sleep at night I was so mad and upset. That money was supposed to go for my own kids’ college. After nine months of not even a penny, my husband convinced me to get a collector.”

The Browns hired a law firm specializing in debt collections. After what she says were just a few calls, she received everything her sister borrowed, minus a $500 fee from the law firm. “I don’t know what they said, but I’m glad I did it,” says Brown. “No regrets. I could not afford to lose that money.”

The swift resolution Brown experienced is not surprising, says Jared Schiff, president of Schiff Debt Recovery Group, out of Columbus, Ohio. “In my experience, a collector’s phone call is a lot more successful than when we send a letter. It gives thrust. You get the debtor on the phone, you see what’s going on, and a give a ‘Hey, by the way, if we don’t collect we will take it to court. We don’t want to go down that road and you don’t either because of attorney and court costs.’ It’s called a talk-off; an industry term for the rap.”

To those considering hiring a debt collector, Schiff has a warning: Don’t delay. A collector’s success rate depends largely on how quickly the claim is placed.  “It’s never too early to place a claim,” says Schiff. “When it’s placed quickly, we have a 60 to 70 percent success rate.”

Hiring a collector versus small-claims court
Jocelyn Nager, a partner in a New York City law firm devoted to collecting bad debts, says the best venue for an individual who is owed money might be small-claims court. However, if the amount exceeds the monetary threshold for their state (typically between $3,000 and $5,000), and the person who loaned the money can’t get the borrower to do the right thing, seeking a trained collector is wise. That might be a collection agency that offers debt collection services and sometimes has attorneys on call, or a law firm that focuses exclusively on debt collection.

Both are effective, but what is most important is to find an agency or firm that is ‘turnkey,’ says Nager. It should be able to take the process from ‘demand’ (when the collector requests payment with verbal and written correspondence), to a lawsuit, and then on to forcing a judgment, which might include wage garnishment and the claiming of assets.

Mind that services aren’t free, so cash-strapped individuals must weigh the benefits of working with a collector against what they may have to pay.

The standard contingency fee, says Nager, is 15 to 20 percent of the amount collected (and can go higher), but there could be other costs involved: “You should not have to advance money because the collector will take the fee from the debt when they get it, but if it goes to court, the attorney may request money upfront to handle a lawsuit.”

The fee generally has to be worth the collector’s efforts. Mohammad Bahmani, a San Francisco college student, loaned $900 to an acquaintance who had arrived in the United States from Pakistan and needed a down payment for an apartment. The borrower then left the city for San Diego, without paying him back.

The sum was enormous to Bahmani, so he contacted a collector, but was turned down because the debt was too small. He suggested small-claims court, which wasn’t practical. “I was so busy, working two part-time jobs and going to school,” says Bahmani. “When was I going to do that?”

It’s never too early to place a claim. When it’s placed quickly, we have a 60 to 70 percent success rate.

— Jared Schiff
President, Schiff Debt Recovery Group 

Bahmani took matters into his own hands and had another friend call, posing as a debt collector, saying that he would file a lawsuit against the young man if didn’t send a check to Bahmani immediately: “The dude was great! Got my $900 the next week.”

Smart? No. Just lucky. “I’ve had people  ask why they just do that, make the calls themselves, but there’s a liability factor,” says Schiff. “Technically, that kid was a third party, so he could be sued for not following the Fair Debt Collection Practices Act. You can’t just give an empty threat.” The FDCPA is a federal law that prohibits all third-party debt collectors from using abusive, unfair or deceptive practices when attempting to collect on a debt. One of its many stipulations is that collectors can’t tell someone they will sue them when they have no intention of doing so.

What to look for in a collector
“When it comes to collection attorneys, generally, you want to hire where the borrowers’ assets are, which is usually where the borrower lives,” says Nager. So if a lender resides in New Jersey, but his deadbeat cousin lives in Nebraska, look for assistance in Nebraska. This is not a problem, Nager says, as people don’t need to meet the collector in person. The hiring can all be arranged over the phone.

For those leaning toward hiring a law firm, Nager warns against selecting a collection attorney whose firm has many areas of practice. Instead, debt collection needs to be its primary function. When interviewing, she recommends asking if the attorney is rated highly by the peer review company Martindale-Hubbell, and requesting references and testimonials from past clients.

Especially important, says Nager, is for potential clients to make sure the attorney they’re working with “has more than just a working knowledge of the Fair Debt Collection Practice Act.” When proficient with it, they’re more likely to stick to the letter of the law. For extended protection, consumers ought to expect the collector to have errors and omissions insurance. This type of insurance shields individuals in case the collector does not follow the FDCPA guidelines.

As for collection agencies, make sure they can do more than just place demanding phone calls and write firmly worded letters, says Schiff. If you don’t know the debtor’s current address or other vital contact information, the agency needs to possess skip-tracing capability. It locates a person by a variety of methods, including scouring phone number databases, checking consumer credit reports and researching utility hookups.

The agency should also conduct a thorough asset and liabilities background check on the person who borrowed the money. “The debtor has to have assets to make it worthwhile for everyone,” says Schiff. “If they’re up to their necks with medical debt or school loans and have nothing in the bank, we’ll find out and tell you if it’s worth it.”

While hiring a collection agency or lawyer to collect on a debt isn’t always the right way to go, for Brown it was. “I’d have paid twice what I gave the collector. And I am one of those, ‘Oh I wish I had never gone down that road and lent my sister any money’ people. Looking back, it was a huge mistake that could have been a lot worse if I never got my money.”

See related: If loan to friend or family goes bad, you can take a tax deduction, Lending to friends and family: A 4-step guide, 8 ways to get friends to repay a personal loan

Published: July 29, 2016

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Updated: 10-27-2016

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