Debt collectors are a necessary evil in the U.S. credit system, but in some cases, their tactics can be predatory or even illegal. If you’ve been contacted by a debt collector for a past-due balance, going into the process blindly can give the collection agency the upper hand.
Instead, educate yourself about your rights and how to work with debt collectors without allowing them to take advantage of you.
Why People Are Contacted By Debt Collectors
There are two situations where you may end up speaking with a debt collector. One is when a creditor uses its in-house debt collectors or hires a debt collection agency or a lawyer to collect a past-due debt on its behalf.
The second is when a debt collection agency buys a past-due debt from a creditor at a discount, with the hopes of collecting the full amount from you.
“Usually the first thing that’s going to happen is that the creditor itself is going to contact you to try to get payment,” says Robert Foehl, executive-in-residence for business law and ethics at Ohio University. “But if too much time has passed, that’s usually when they will turn to the services of a third-party debt collector.”
With medical bills, however, Foehl says that health care providers aren’t as well-equipped to act as a creditor. So you may be working with a third-party collector from the beginning.
Tips for Dealing With Debt Collectors
Regardless of how you came in contact with a debt collector, the more you know about the process, the less painful it will be. Follow these tips to avoid making things worse with debt collectors:
— Don’t ignore them.
— Know your rights.
— Watch out for old debts.
— Get everything in writing.
— Avoid giving too much information.
— Watch out for scams.
— Try to negotiate.
— Consider other ways to pay.
Don’t ignore them. The debt collection process can be painful, but it only gets worse if you act like it isn’t happening. Ignoring phone calls and hanging up on collectors won’t make them go away. Let the debt sit unpaid long enough, and the debt collector may sue you for the balance.
Know your rights. The Fair Debt Collection Practices Act dictates what debt collectors can and can’t do when working with consumers.
“Your creditors have the right to be paid and can take steps to collect from you,” says Cara O’Neill, bankruptcy attorney and legal editor and writer at Nolo, a website that helps consumers and small business owners navigate the law. “However, federal law prohibits a debt collector from engaging in abusive, unfair or deceptive practices. Your state law might have similar protections, too.”
While legitimate debt collectors typically comply with federal and state laws, plenty of scammers and shady collectors are less inclined to follow the rules. Debt collectors aren’t allowed to:
— Call you before 8 a.m. or after 9 p.m. in your time zone.
— Contact you at work if you’ve told them verbally or in writing that your employer doesn’t allow such calls.
— Contact a third party for any reason other than to get your contact information.
— Harass you or anyone else they contact about you.
— Lie about what you owe.
They also can’t use deceptive methods to collect, including:
— Posing as law enforcement.
— Claiming that you’ll be arrested if you don’t pay.
— Threatening to seize your property or garnish your wages without the legal right and intention to do so.
— Giving false credit information about you to anyone else.
— Using a fake company name.
Note that you can also request in writing for the debt collector to stop contacting you and that company will have to honor the request. That said, stopping the calls won’t stop your liability, so they can still report the collection account to credit bureaus or sue you for the debt.
If a debt collector violates any of your federal or state rights, O’Neill recommends finding a consumer protection lawyer who can file a lawsuit on your behalf. “If you can’t find someone to take your case and you don’t want to fight the violation yourself, another option is to seek help from a government agency” like the Consumer Financial Protection Bureau, she says. In addition to filing a complaint with the CFPB, you can contact your state’s attorney general.
Watch out for old debts. States typically have a statute of limitations on certain types of debt, after which they’re no longer collectible. These balances are often called zombie debt. That won’t stop some debt collectors from trying to get you to pay, though.
If you acknowledge the debt is yours or make a partial payment, it could reset the statute of limitations and you’d be on the hook for it. So make sure you know the law for your state and ask for verification of the debt instead of acknowledging it.
Get everything in writing. When debt collectors first contact you, they’re required to give you certain information about the debt, including the name of the creditor and how much you owe. They’re also supposed to inform you that you can dispute the debt and that you can request the name and address of the original creditor, if applicable.
If you don’t get this information in the first call, they’re required to send it to you in writing within five days. Even if they do provide it upfront, still ask for written verification of the debt.
O’Neill also recommends asking collectors to put any promises they make to you on paper. If, for instance, a collector agrees only verbally to settle your debt for less, you may not have any legal recourse if he or she tries to collect the remainder after you’ve paid the agreed-upon amount.
If you make any requests, put them in writing and keep a copy for yourself in case you need them later on. Also, consider recording phone conversations to be safe.
Avoid giving too much information. Any information you give to a debt collector can be used to help collect the debt, says Foehl. For example, don’t pay with a check or give out your bank account information, especially if you think the collector may not be legitimate. Instead, use a money order or a third-party payment service. Even providing bank statements without an account number can tell the collector how much money you have.
Watch out for scams. Legitimate debt collectors try to comply with federal and state laws, says Foehl. But scammers have no intention of following the rules.
“We all hear about the horror stories of so-called debt collectors doing terrible things and abusing people,” he says. “But those aren’t legitimate debt collectors.”
To spot scammers, Foehl recommends getting their address and phone number and looking them up online. A legitimate debt collector will have a verifiable online presence. So if the collector is reluctant to provide that information, you may be dealing with a scammer.
Also, watch out for collectors that blatantly disregard your rights and ask for bank account or credit card information for immediate payment. They may just be looking for an opportunity to drain your account or rack up more debt on your card.
Try to negotiate. If you don’t pay your debts, you open yourself up to damaged credit and a lawsuit. That doesn’t mean you should agree to pay the balance in full, though — at least, not at first.
Instead, offer to pay a fraction of what the collector is asking for as a lump sum. Start low because if you do settle, it will likely be for more than your initial offer.
How much you can settle for can depend on the situation. A medical debt collector with a recent bill, for instance, will likely be less lenient than a collection agency that bought the debt from your original creditor at a discount.
“Just keep in mind that you’ll get taxed on any forgiven amount over $600,” says O’Neill.
Another thing to keep in mind is a debt that’s marked settled may remain as a blemish on your credit report for up to seven years.
Consider other ways to pay. The sooner you deal with your debt, the sooner both you and the debt collector can move on. If you can’t afford to settle, here are a few alternatives:
— Work with a credit counselor. A credit counselor can get you on a debt management plan, which allows you to pay off your debt over time and possibly at a lower interest rate. If you go this route, be sure to work with a nonprofit credit counseling agency. You can find one through the National Foundation for Credit Counseling or the Financial Counseling Association of America.
— File for bankruptcy. Filing for bankruptcy immediately halts all collection attempts. Depending on the type of bankruptcy you choose, you can eliminate all of your debts by liquidating some of your assets and distributing the proceeds to your creditors, or get on a payment plan with affordable payments over the next three to five years.
[Read: Best Secured Credit Cards.]
Avoid Debt Collectors If You Can
In an ideal world, you’d be able to stay on top of your monthly payments and avoid debt collectors in the first place. But if it’s already too late for that, knowing your rights and how to deal with debt collectors can make it easier to spot predatory practices and pay off what you owe quickly.
Once you’ve accomplished that goal, make every effort to avoid having to deal with debt collectors again. Not only will it be better for your credit and finances, but it will also help you sleep better at night.
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