An unsecured loan is given after the borrower pledges to pay back the principle with interest in good faith. With this type of loan no property of the borrower is held as collateral for security purpose. Generally a lender assesses the creditworthiness of a borrower before tendering the loan and a stipulated time frame is agreed upon for the full repayment of the loan taken. If the debtor is unable to pay back on time, Federal or state law permits a debtor to rearrange his repayment scheme with a debt settlement company.

Now, in case the borrower defaults on the unsecured loan payment, it becomes difficult for any lender to recover his money.   In the absence of any collateral, the lender cannot obtain a court ordain so easily to attach lien on the borrower’s property. Therefore, the lender has to fall back on collection agencies or utilize his own collection unit to pursue the debtor to pay him back. Employing a collection agency for the sake of procuring your legitimate money is permitted by the rule of law if not used for harassment. A collector can contact a debtor via telephone, email or physically appearing before him.

But FDCPA laws are very stringent in America and demand complete adherence on the part of the creditors. These laws were initiated to maintain a transparent way of debt collection and intended to secure the interest of both parties. However, for the lenders who are operating their pursuit through a collection agency, they are made legally obligated to comply with the FDCPA laws (Fair Debt Collection Practices Act) even if the debtor defaults.

According to this law, using any profane language is absolutely prohibited, so the collection agent has to communicate with the debtor maintaining professional conduct. The agent cannot even contact the debtor further if he has forbidden him to do so by sending written letter. However, this does not in any way cripple the measures of a lender in his proceedings against the debtor. He can still try to gather information from the tax department or the employers of the debtor to get correct information about the debtor’s financial status. If it is found that the debtor had furnished incorrect documents in order to qualify for credit grant from the lender, the lender can sue the debtor.  I must say that this the biggest advantage for any unpaid lender. He will not only be able to sue against this debtor fraud but also get attorney fees and additional charges.

Another way out for any lender is to convert the unsecured debt into a secured debt. Some assets of the borrower are liquidated to reimburse the losses of the lender, but there is some non-exempt assets which cannot be repossessed like some portion of land equity, essential clothing, and money deposited in pension plan or other social security funds.  By filing a lawsuit against the borrower, the lender can obtain a lien on his property by the court, but if the debtor’s asset is already under tax liens, this asset will be exempted.

A credit company can also disclose the non-payment details to all the credit reporting agencies. This will lower the credit score of the debtor and impede him to get further credit in future. Sometimes the credit reporting agency may appoint registered collection teams to recover money.

Wage garnishment is another legal procedure that allows the creditor to get access to the debtors salary. With garnishment a certain percentage of the debtor’s wage will be deducted from their monthly salary to compensate the creditors.

There are many ways to collect on a unsecured loan when a debtor defaults that are found within the boundary of law.  This not only protects the debtor against creditor harassment but also shields the creditors from fraud cases.

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