Tips on Dealing with Debt Collection
Maybe you have been going through a rough patch financially, and you have fallen behind on your bills. Or perhaps you have simply forgotten about an overdue account. Either way, you should not be surprised if your phone starts ringing off the hook.
Debts which are overdue may sometimes be sent to collections. The goal of collections is simple: to get a consumer to pay up as quickly as possible in full.
What is Debt Collection?
Debt collection is a process whereby a creditor attempts to get a customer to square away an overdue debt. There are two types of collectors:
- Internal collections departments
- External collections agencies
How Does it Work?
Usually, a creditor will attempt to collect an overdue bill on its own before sending it to an external collections agency. This is because third-party collections agencies charge a fee for their services.
So for the first 90-180 days of delinquency, you will likely be dealing with the internal collections department. Past that, there is a chance the creditor will forward the debt to an independent collections agency.
In some cases, they will pay a fee only if and when the agency succeeds in collecting your debt. In others, the creditor may literally sell your debt to the agency. At that point, the creditor is out of the picture. By the time this has happened, it will reflect negatively on your credit report.
When Do Debts Get Sent to Collections?
Every company has its own policies for handling overdue accounts. Many for example will charge late fees first. Once an account is 30, 60 or 90 days past-due, the collections process may begin.
Remember, the first collections staff you deal with will probably work directly for the creditor. No one wants to lose money they do not have to, so the creditor will usually attempt to work with you before turning to an outside agency.
How the Debt Collection Process Works
Here is a quick rundown of how debt collection works:
- A consumer is overdue on an account. Some creditors may report this to credit bureaus immediately.
- After some period of time (i.e. 60 days of delinquency), the account is transferred to the internal collections department.
- The internal collections agents ask the consumer to pay up.
- If the consumer is still delinquent after a specified time period (i.e. 180 days), the creditor sends the account to an external collections agency. This also reflects on a borrower’s credit report.
- The collections agency begins contacting the customer demanding payment.
- Some consumers live in states where wage garnishment is allowed. If this is the case, the collections agency may resort to it.
NOTE: A debt collections agency can charge interest and fees. But these cannot exceed the amount which you agreed upon when you first took on the debt.
Your Rights and Responsibilities
As a consumer, you doubtless have a lot of questions regarding what collectors can and cannot do. So, let’s go over your rights and responsibilities.
Collections agencies are limited in their scope and actions through the Fair Debt Collection Practices Act (FDCPA). They can ask questions to try and track the borrower down. But they cannot discuss the borrower’s debt with anyone except the borrower, the borrower’s lawyer, and sometimes the spouse. Moreover, they need to prove the debt is yours only upon your request. Moreover, you must do this in writing. If the agency cannot prove that the debt belongs to you, they cannot legally pursue you for it. This process is referred to as “Debt Validation.”
If you ask yourself what types of debt can be processed through collections, the answer is simple: any. Any type of personal debt is allowed. This could include personal loan debt, payday loan debt, overdue credit card payments, utility bills, mortgage or auto loan payments, and more.
If you wish to stop the endless phone calls you may submit a written request to the collections agency asking them to cease and desist with the phone calls. The agency can then only call to notify the borrower of a lawsuit or an end to the collections process.
A collections agency can not attack a consumer’s credit rating. Just having an account sent to collections however will show up on your credit report, and will damage your credit score. Late payments will also ding your score. To make sure whether wages can be garnished or not, you need to look up the laws for your states, as it depends on where you live.
Remember: A debt collector absolutely can not harass or threaten a borrower. If you are being harassed or threatened by a collections agency, you may want to contact a lawyer. You may have a case.
What To Do If Your Bill Is Sent to Collections
Here are some general tips for dealing with collections:
If possible, try and stop a creditor from sending your debt to an external agency. Stay communicative, and negotiate for more time if you can and make an honest effort to pay off the debt. If you are planning to apply for a new loan or line of credit (perhaps to consolidate), do so before your debt goes to collections, not after. If you do it after, it may be seen as a fraudulent act.
Avoid their phone calls. Conduct all communications in writing. But do not ignore the agency outright (that is a good way to get sued). If for whatever reason you feel you must talk on the phone, record the conversation. Do not assume that all collections agencies are honest or operating legally. Collectors have been known to bluff so, always request validation if you feel it is necessary.
Do nothing else until this process is complete. Do not pay the debt which has expired under an applicable statute of limitations. If the debt is yours, you are responsible for paying it. It’s better to work with the agency to come up with a payment plan. But do not abuse the debt collectors. Resist the temptation to hide your assets. If you do, you may be accused of fraud.
If you believe the agency is violating the law, file a complaint with the FTC. You can also check the list of banned agencies. If a debt which isn’t yours shows up on your credit reports, file disputes with the relevant bureaus. Use a money order or bank check to make your payments and keep your banking information confidential. Seek legal advice from an attorney if you need it.
Conclusion: It Is Important to Try and Keep Debts Out of Collections
If a debt is sent to collections, it is not necessarily the end of the world. In many cases, the annoying phone calls and letters are just that: annoying. Still, nobody wants a hit to their credit. And in some states, wage garnishment is a real concern.
For that reason, you should always try to pay off your debts as quickly as you can. Doing so will also minimize interest, fees, and hassles. If you do have bills in collections, hopefully after reading this, you feel better prepared to deal with them. When your accounts are back in the clear, do what you can to keep them there.
1. Bill Fay. What Is Debt Collection? Debt.Org. Available at https://www.debt.org/credit/collection-agencies/debt-collectors/
2. (2010). Fair Debt Collection Practices Act. Ftc.Gov. Available at https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text
3. (2017). Debt Validation Process. Creditwarriors.Org. Available at https://www.creditwarriors.org/debt-validation-process/
4. (2017). What is Harassment by a Debt Collector? Consumerfinance.Gov. Available at https://www.consumerfinance.gov/ask-cfpb/what-is-harassment-by-a-debt-collector-en-336/
5. Lauren Ward (2017). How to Request Debt Validation from Debt Collectors. Crediful.Com. Available at https://www.crediful.com/debt-validation/
6. Filing A Complaint. Ftc.Gov. Available at https://www.ftc.gov/news-events/media-resources/identity-theft-and-data-security/filing-complaint
7. Find a Lawyer and Affordable Legal Aid. Usa.Gov. Available at https://www.usa.gov/legal-aid