Debt collection is an essential service, especially in situations where your client doesn’t pay in advance. Most, if not all, businesses will utilize a debt collection service to pursue payment owed by individuals or businesses. In New York, there are differences between commercial vs consumer debt. This article will explain the differences between the two as well and highlight some of the different rules that apply to collecting both New York commercial and consumer debt.
Type of Debt
Debt needs to be identified as consumer or commercial. Although, in some scenarios, a hybrid situation can occur, understanding the definition of consumer debt and commercial debt is key. Consumer debt refers to any debt incurred for personal, family, or household purposes such as credit card debt and medical bills. Commercial debt refers to debt incurred by businesses for items like unpaid goods or credit lines.
Legal Requirements
The legal requirements for collecting consumer debt and commercial debt in New York State differ significantly. Generally, the requirements are as follows.
Consumer Debt: The Fair Debt Collection Practices Act (FDCPA) regulates consumer debt. New York state and New York City enacted additional laws to further protect residents from harm, real or threatened, by unruly debt collectors. These laws provide guidelines for how, when, how often, and who can be contacted by debt collectors regarding consumer debt. Strict adherence to federal, state, and city laws is required to collect consumer debt in New York State.
Commercial Debt: The consumer protection laws referenced above do not apply to commercial collections. Other state rules apply with a lot of attention to the New York Uniform Commercial Code (UCC). Although there aren’t any rules against harassing a business, it is best to remain level-headed, professional, and firm rather than risk damage to your company’s reputation.
Debt Collection Process
The debt collection process differs depending on the type of debt. There are vast differences in the length of time one can collect consumer claims as opposed to collecting commercial claims in New York.
Commercial Claims: The debt collection process is often more straightforward for commercial debt. If the debtor has not paid the invoice or account balance, the creditor may send a demand letter requesting payment, send an email, fax, phone call or, if preferred, just file for mediation, arbitration, or a lawsuit straight away, as outlines the underlying agreement.
Consumer Claims: For consumer debt, most debt collectors begin by sending a written notice to the consumer informing them of the debt with the requisite FDCPA language. If the debtor does not respond, the debt collector may attempt to contact them by phone or email to negotiate a payment plan or settlement. If the claim is disputed, the debt collector will need to respond to the dispute as required by federal, state, and local laws. Assuming the claim is valid and the required documentation provided, the debt collector may recommend a lawsuit to collect the debt.
Commercial vs Consumer Debt Enforcement
New York remains the most liberal state as far as judgment enforcement. That being said, The enforcement of a judgment differs when dealing with consumer or commercial debt.
For example, New York State recently changed the enforcement laws of a consumer judgment obtained for medical expenses thereby limiting the enforcement process.
For commercial debt, the creditor has carte blanche and may choose to pursue a myriad of legal remedies to collect the debt, all without court intervention.
Check out our previous blog posts to learn more about the differences between commercial and consumer debt.
