At home in the morning, you’re getting ready for work when the phone rings. You don’t sit there casually wondering who might call at such an ungodly hour; instead, you tighten up and start to sweat. You have a strong suspicion that it’s a debt collector calling.
When you became late on your auto payment a few months ago, everything went downhill from there. You tried calling the dealer to set up a payment plan, but debt collectors still kept calling even after you stopped making payments.
You are feeling totally helpless. But the debt collectors will not accept anything less than the full amount. Nothing you do seems to make them stop bothering you.
But in reality, you are not defenseless. In the event that you are unable to repay the obligation, you are still protected from harassment by debt collectors thanks to federal legislation. What debt collectors can and cannot do, as well as how to defend yourself, is outlined here.
The Process of Debt Collection
When you fall behind on debt payments, the lender typically waits before turning the account over to a debt collector. Instead of spending a lot of money on a debt collector, financial institutions would rather work things out with you personally.
In the beginning, you can expect phone calls and letters to remind you of the debt. They will work with you to establish a repayment plan if you are unable to pay the entire amount immediately.
They might even offer to cancel some of your debt as long as you pay off the rest immediately. Sometimes it’s more cost-effective for them to just give up some of the money than to hire a debt collector.
Nonetheless, if you don’t respond to the lender’s calls and letters, or if you agree to a payment plan but don’t stick to it, the lender may send your account to a debt collector. The average length of time bills go unpaid before this occurs is three to six months.
Different Kinds of Debt Collectors
Debt collectors can be classified into three categories:
- Collectors of internal debt. They are representatives of the business that provided you with the loan. The word debt collectors refer to those who collect debts on behalf of others, therefore technically speaking, they are not “debt collectors” at all. Due to the fact that they are internal, or “first-party,” debt collectors, they are not subject to the same restrictions on when they can contact you as other types of debt collectors. They aren’t necessarily more prone to be obnoxious or hostile because of this, though. Being polite is actually in their best interests because they don’t want to reflect poorly on the firm. You are most likely speaking with a first-party debt collector if you start receiving calls concerning a debt that is less than 90 days past due. The good news is that your account isn’t yet in collections, which is a relief. You can avoid having your debt reported to the credit bureaus and lowering your credit score if you can come up with a plan to pay off this debt with this person.
- Collection agencies. Your account will be turned over to a third-party collection agency if a lender and you are unable to reach an agreement. As a percentage of the money they recover, usually between 25% and 50%, these businesses charge lenders a fee to collect unpaid debts on their behalf. Because the more money they collect, the more money these businesses make, they will make every effort to gain money from you. It follows that they are more prone to be impolite and forceful. Positively, there are more guidelines for this type of collector to adhere to when dealing with you.
- Buyers of debt. A lender will frequently cut its losses by selling a loan to a debt buyer after making several attempts to collect the debt have failed. These businesses purchase large quantities of past-due debt for just pennies on the dollar, or, on average, $0.04 for every $1 in debt. They pay so little because they are aware that the majority of the debts they purchase won’t be recouped. But they can keep any money they do manage to amass. The fact that most of the debts debt buyers purchase are relatively old is an issue. They frequently have no idea where a debt originated or how old it is. As a result, individuals sometimes find up bothering the wrong people about bills they do not owe.
Debts That They Can Recover
Collecting debts of various kinds is a common service provided by debt collectors who partner with lending institutions.
There are a variety of reasons why a debt collector might contact you, including:
- Credit card debt
- Auto loans
- Mortgage or other home loans
- Personal loans, such as payday loans
- Business debts
- Student loans
- Medical debt
- Unpaid utility or phone bills
Credit card debt and overdue phone bills top Nolo’s list of debts most likely to be turned over to debt collectors. Utility payments, auto loans, and medical bills are three additional typical categories.
Your Legal Rights Against Debt Collectors
Debt collectors are subject to restrictions imposed by the Fair Debt Collection Practices Act (FDCPA). According to this law, anyone who routinely collects debts on behalf of another person qualifies as a “debt collector.” Thus, internal debt collectors are not subject to the law, only debt purchasers and collection firms are.
Activities of Debt Collectors
To collect a debt, debt collectors may:
- Speak with you at home. It is legal for debt collectors to get in touch with you via phone, letter, email, or text message in an effort to recover a debt. Any communication they send must, however, make it apparent that it is from a debt collector.
- Add Interest. In most cases, when you borrow money, you commit to return it plus interest. When they take over your debt, a debt collector is permitted to charge you the same rate of interest. They are not permitted to impose additional interest or fees that were not included in your initial contract.
- Go to court with you. A debt collector has the right to file a lawsuit against you if you don’t pay your obligation in full. You must appear in court to object to the lawsuit. If you don’t, you forfeit your opportunity to contest the case. The collector may obtain a garnishment order against you if they prevail in the legal dispute. With this order, your bank is required to release funds from your account to settle the debt.
- Your Pay Is Garnished. A debt collector might seek to have your wages garnished if you don’t have enough money in the bank to pay the debt. As a result, your company will have to deduct money from your paycheck and provide it to the debt collector. Debt collectors, however, can only do this following a successful lawsuit. Without a court order, they cannot simply seize your wages.
- Look for Old Debt Payments. There is a statute of limitations on debt in every state. The borrower is no longer obligated to repay the debt once it reaches a specific age, according to this rule. While the length of time is different from state to state, it typically ranges between four and six years. Debts that have reached this deadline are referred to be time-barred or zombie debts. Debt collectors are permitted to get in touch with you and ask for payment on zombie debts. Even if they can’t legally sue you to get the money, they can nevertheless exert pressure on you.
What Debt Collectors May Not Do
You are protected by the FDCPA from any abusive debt-collection tactics. Forbidden conduct includes but is not limited to the following:
- Don’t let you know anything. Any debt collector worth their salt will put what you owe and to whom in writing. You need to get this letter out no later than five days after you receive their initial contact. If you do not believe you owe this money, it must also explain what to do next.
- Please Call Me at Any Hour. Debt collectors can contact you, but only during certain hours of the day. Unless you give them permission, they cannot contact you before 8 AM or after 9 PM. If you tell them not to contact you at work, they are not permitted to do so, and neither can your employer.
- Do not stop contacting them even if you ask them to. To stop a debt collector from contacting you in the future, just put your request in writing. You have the option of telling them to cease contacting you altogether or to call your attorney. Certified mail with a return receipt requested is the best option; be sure to preserve a copy for your records. However, sending this letter won’t cancel the debt in any way. If you don’t pay, they can still file a lawsuit against you to get their money.
- Be persistent with your family members. Debt collectors are legally barred from contacting a borrower’s loved ones in an effort to coerce them into paying off the borrower’s debt. One and the only reason they’d talk to anyone else is to find out how to reach you. And if they don’t get their answers, they can’t get in touch with that person again.
- Use a fictitious identity. It is the law that debt collectors identify themselves and the purpose of the call. There’s no way they can credibly claim to represent law enforcement, the federal government, or a credit reporting agency. They also can’t pretend to be lawyers if they aren’t.
- Be dishonest with you or about you. There are various ways in which debt collectors are prohibited from deceiving you. They are prohibited from misrepresenting the existence or amount of any debt owed. You can’t be told that you’ve broken the law if you haven’t actually done anything illegal. Similarly, debt collectors are prohibited from spreading false information about you. Creditors are prohibited from providing credit reporting agencies or any other third party with inaccurate information regarding their clients’ debts.
- Caution you by threatening you. It is against the law for debt collectors to threaten criminal prosecution for nonpayment of debt. You can’t put someone in jail just because they owe money. Debt collectors can’t threaten you with legal action unless they actually intend to take legal action against you. No one has the legal right to threaten to garnish your pay or confiscate your property unless they have the intent to follow through on those threats. They cannot make any threats of physical violence either.
- Be disruptive to you. Creditors cannot contact you at work or use other forms of harassment to get what they want from you. There should be no use of profanity or threats in their communication with you. No one is allowed to phone you often merely to bother you.
- Share Your Financial Woes with the World. No debt collector can use your reputation against you in an effort to get you to pay. If you fail to pay your obligation, the creditor cannot use your name in any public forum, including threatening to do so. They can’t send you postcards, though, because those can end up in the wrong hands. Your creditors are only allowed to discuss your debts with you, your spouse, or your attorney. However, they might still notify the credit agencies about your overdue payments.
- To Bill You for the Debt of a Person Who Is Now Dead. No postmortem debts can be inherited. Debts incurred after death are paid from the decedent’s estate. If there isn’t enough money in the estate to cover the debt, it doesn’t get paid. In any case, it is not the fault of the family.
- You mistakenly applied your payment to the incorrect balance. Often, a single debt collector will pursue many debts on your behalf. In this situation, if you make a payment, you can specify which debt you’re settling. You should not expect the debt collector to apply your payment to something other than the debt you owe. They also cannot use it to settle a debt you dispute.
- Intercept Governmental Transfers. When you owe money and can’t pay it, debt collectors might take money directly out of your paycheck. But in most situations, they can’t seize your federal benefit money. Benefits such as Social Security, Supplemental Security Income, Veterans’ Benefits, Disabled Persons’ Benefits, and FEMA Disaster Assistance are included.
Debt Collection Scams
If a debt collector contacts you, chances are good that they have genuine reasons to do so. The Fair Debt Collection Practices Act will protect you then. You have legal recourse if the debt collector violates the law.
However, there are occasions when callers only claim to be debt collectors. They’re fraudsters who pose as collection agencies in order to scam people out of money. Here’s how to recognize and deal with scam bill collectors.
Understanding Debt Collection Scams
Sometimes it can be difficult to distinguish between a legitimate debt collector and a scammer. Scammers oftentimes have access to sensitive information, including bank account numbers. On the other hand, there are some red flags that can help you identify a scam debt collector.
If any of these apply to the caller:
- Someone is trying to collect from you for a debt you don’t recall accumulating.
- They either don’t provide a phone number or mailing address at all or provide information that is obviously wrong.
- A person’s credit card number, social security number, and bank account information are all examples of the kinds of financial data that these people try to get from you.
- They try to intimidate you by making draconian threats, like having you arrested.
What to Do About Scam Debt Collectors
Here’s what you can say if you’re not sure if the debt collector you’re talking to is legitimate:
- Seek Out Means of Communication. Collect contact information including name, company, address, and phone number. True debt collectors are obligated by law to provide their identity and contact details. If the individual you’re talking to is unwilling to provide all of this information, you should be wary.
- Put It In Writing. Get a caller validation notice by asking for one. This is a letter detailing the debt you owe, the lender’s information, and your protections under the FDCPA. Any legitimate debt collector must provide you with this disclosure. If they persist in calling about the debt, tell them you won’t talk about it until you get paid.
- Cut all ties immediately. If you are able to obtain the caller’s postal address, you may reply to the call by sending a letter explaining that you no longer wish to receive calls from that number. This is a request that must be honored by any legitimate debt collector. It’s a forgery if it doesn’t, and you should proceed with caution.
- Get in touch with your debt collector. Even if the debt is legitimate and you owe money, the debt collector you’re talking to can just be a con artist who wants to steal your money. Get in touch with the original lender if you identify the debt but have doubts about the collector. Relay the information regarding the calls and inquire as to whether or not the debt collector you spoke with was contracted by the company.
- Keep your money. Don’t send any money to a collector unless you can verify their legitimacy. In certain cases, not even paying off a scammer’s “debt” completely will get them to leave you alone. To extract even more funds, they will often create fictitious debt.
- Confidentiality is essential, so please don’t provide any private details. Fake debt collectors can still profit from you in some way, even if you don’t pay the phony bill. They can steal your identity by tricking you into giving them your financial details, such as your bank account or credit card data, or even your Social Security number. They can use your personal information to commit identity theft by, for example, making unauthorized purchases on your credit cards, writing bad checks, or opening new accounts in your name. Never give this information out to a debt collector, legit or not, to protect your identity.
- Don’t ignore the call; report it. Call the FTC and your state’s attorney general if you receive a suspicious call and suspect it may be from a scammer (AG). The National Association of Attorneys General can direct you to your state’s attorney general’s office.
How to Secure Yourself
A debt collector’s legal status is no guarantee that they will follow the regulations when attempting to collect a debt. Even so, proceed with caution when interacting with them. Take these precautions for your own safety.
1. Gather All the Data
It’s best to receive a validation notice before engaging a debt collector in conversation. The debt collector is required to send you this by law, but they often forget until you follow up with them.
Put off making any decisions until you’ve read this letter. After all, debt collectors’ records about your monetary obligations aren’t usually accurate. You shouldn’t guarantee repayment of a debt that may not be yours.
2. Challenge the Debts You Do Not Owe
Once you receive the letter, you should review it to determine whether or not the obligation is one that you recognize. Mistakes are unfortunately common as debts are passed from one buyer to another.
Debt collectors often pursue payment of debts that have previously been repaid or that never existed, to begin with. A debt that actually belongs to someone with a similar name can be pursued against you as an example.
You have the right to challenge a debt if a debt collector tries to collect money from you that you do not owe. If you don’t owe this money, you have 30 days to send a letter disputing the amount. Do not forget to include any supporting documents, such as a copy of the canceled check showing that the debt has been paid in full.
Certified mail with a request for a return receipt is the way to go. So, if the debt collector says they didn’t receive the letter, you have proof they actually did. Make sure you save a duplicate for your own files.
3. Examine Your Credit Report.
Credit reporting agencies may receive information about overdue accounts from debt collectors. This means that errors made by debt collectors might negatively affect your credit score. On the flip side, identity thieves can use your personal information to get a loan in your name and then default.
A debt collector will contact you when this occurs. Examine your credit record if a debt collector calls you about a debt you know you don’t owe. You should contact the credit reporting agency if you discover an error.
4. Consult A Lawyer
Debt collectors shouldn’t always believe you if you tell them the debt isn’t yours. If they want to prove that you owe the money, they can send you a copy of a bill in your name or something similar. Even if you insist that you didn’t sign the law, doing so may be difficult.
Seek the advice of an attorney if this situation arises. Most debt collection attorneys offer free initial consultations. If the lawyer believes the debt collector has broken the law, they may even offer to take your case pro bono. They can take the money from the plaintiff if they win the lawsuit.
If you decide to seek legal representation, you should inform the debt collector of your decision. From that point on, they are required by law to communicate only with your lawyer, and not with you. You won’t have to field phone calls or mail letters any more thanks to this.
5. Make Conversations Brief
Unfortunately, dealing with a debt collector on your own may be necessary. If you don’t want to, though, you don’t have to subject yourself to a lengthy interrogation. John Ulzheimer, a consumer educator, advises Bankrate readers to say as little as possible while communicating with debt collectors.
Debt collectors may try to get you to reveal sensitive financial information, but you can refuse to cooperate.
Geri Detweiler, another specialist, emphasizes the significance of maintaining composure and concentration. Sometimes debt collectors will use threats or other forms of coercion to get what they want from you. Debtor advise from Detweiler; be a broken record. Don’t give them any additional information; just keep restating the basics.
6. Maintain Documents
It is recommended that you document everything you discuss with debt collectors in writing. You can then use the documentation as proof that the debt collector violated the law. Use a clearly designated master file to store all of your records. Then, if you ever need them, you’ll know just where to look.
Keep copies of all correspondence between you and the collector, including letters and replies. Note down everything that is said on the phone as well.
Make sure to record the name of the debt collector who contacted you, the date and time of the call, the total amount they claim you owe, and a brief synopsis of the conversation. Don’t forget to keep any voicemails they may have left you.
7. Attempt to Bargain
You can expect a debt collector to demand immediate payment in full when they initially make contact with you. And if you can’t, they’ll usually settle for less anyhow. This is especially true for the debt purchasers who acquired your loan for a fraction of its original value.
It’s not necessary to get their money back in full for them to make a profit. Even third-party debt collectors, however, often prefer to settle for a portion of the money upfront rather than drag the matter through court.
Ulzheimer recommends making a low initial offer. You should let the debt collector know that you are willing to pay 10% to 15% of the total amount owed. They probably won’t take that, but they might agree to accept 30%-50% of the total owed.
Another option is to propose a pay-for-delete settlement, wherein you pay off the debt in full in exchange for the collection account being removed from your credit report. The debt collector will communicate with the credit reporting companies to dispute the negative information. This is a viable option for dealing with a valid bill that was misplaced or forgotten.
Not all debt collectors will engage in this strategy due to the disapproval of credit reporting agencies. But there is no legislation prohibiting this. This kind of arrangement might be very beneficial to your credit score if you are able to pay off the entire loan.
8. Pay Attention to Your Payments
It’s important to put any agreement you reach with a creditor into writing. Please wait to send any money until you have this written confirmation. For a delete-for-pay arrangement, this is crucial. The creditor’s promise to take no further action once the debt is paid is also significant.
Send the money after you have a written contract. Avoid using a personal check in favor of a cashier’s check. That way, the debt collector won’t have any information they can use to drain your account. If your bank offers an online bill pay option, you can utilize that instead.
The debt collector will likely propose having payments taken automatically from your bank account if you have agreed to make installment payments. This solution seems hassle-free because they will automatically collect the payments when they come due.
Experts Credit.com consulted, however, all agreed that this was a lousy plan. There is nothing prohibiting a debt collector from immediately withdrawing the whole amount owed once they have access to your account.
Debt collection agencies often propose sending postdated cheques as a means of payment. With this method, they may make timely deposits. Postdated checks can’t be cashed by a debt collector before the date on the check, according to the law.
While this may seem like a good deal at the time, experts warn that debt collectors are not always honest and trustworthy. It’s important to keep track of your payments as you make them toward debt repayment.
Be sure to acquire a receipt proving complete payment when you’ve made your last payment. In this way, the collector won’t be able to come after you again in a few months demanding payment of interest and late fees.
9. Pay Attention to Court Summons
If you ignore a debt collector’s attempts to negotiate a payment plan, they may send you a court summons instead. Don’t throw it away, even if you’re sure it’s already evident you don’t have to pay.
The sending of a phony court summons is one tactic used by unscrupulous debt collectors to coerce people into paying. If you ignore a valid wage garnishment notice, however, you waive your right to challenge the action.
But that doesn’t imply you should blindly obey a summons that looks shady. Rather, you should verify the authenticity of the summons. Instead of just calling the court at the number or address listed on the summons, try contacting the court system in some other way. This data is likely fabricated along with the forged summons.
You should find the court’s contact details on your own. Then, get in touch with them personally via phone or mail to verify the notice’s accuracy. If this is the actual deal, you should consult legal counsel.
10. Call out Debt Collectors Who Break the Law
If a debt collector is harassing you, you can file a complaint with the FTC and your state attorney general. Debt collection is governed by the Fair Debt Collection Practices Act (FDCPA), but many states have their own legislation. Inquiring with your state’s attorney general’s office will help you understand your legal options.
You can file a claim against the debt collector in either state or federal court if you discover illegal activity on their part. The statute of limitations for filing a claim of this kind is one year from the date of the alleged violation.
If you prevail in court, the judge will likely order the collector to reimburse you for any financial losses you incurred as a result of the lawsuit. The court may award you up to $1,000 even if you suffered no actual harm from the collector’s actions. Furthermore, it must cover the costs of hiring an attorney and going to court.
A collective action is an option if it becomes clear that many people have been wronged by the same debt collector. Up to $500,000 or 1% of the debt collector’s net wealth, whichever is less, can be awarded as compensation.
To be clear, filing a lawsuit against a debt collector will not erase your outstanding balance. As long as the debt exists, you are obligated to pay it, regardless of whether or not the debt collector followed the law when attempting to collect.
Having to deal with debt collectors is a huge pain. If they resort to questionable methods, it’s even worse. However, having a debt in collections is onerous even when one plays by the rules. Your credit score will take a serious hit as a result.
Preventing a debt from entering collections is preferable. Don’t merely keep your fingers crossed that your lender will be understanding if you fall behind on payments. You should make direct contact with the creditor. If you can’t get a refinance, then you need to come up with a plan to pay off the debt.
A bill can go to collections if the debtor is unaware that they have outstanding financial obligations. This is especially common with medical expenses. Keeping a tight eye on your mail is the easiest approach to avoid this issue. If you receive a bill that doesn’t seem correct, open it right away and give the sender a call.