Work Out What You Can Afford To Pay
Use our budget planner to work out what you can afford to pay. Calculate your income and expenses to work out how much, if anything, is left over.
If you can’t afford to pay anything, call the National Debt Helpline on 1800 007 007 for free, confidential advice about what to do. The helpline is open Monday to Friday, 9:30am to 4:30pm.
How Does Debt Collection Work
No matter how you spin it, debt stinks. When it starts piling up beyond what you can control, its easy to lose hope and wonder if youll ever get ahead. And somehow, its around this time that an alarm sounds at your nearest debt collectors office alerting them that youre losing hope and its prime time to start hounding you. And hound you they will. Daily phone calls, weekly letters, and many threats later, theyve gotten good at scaring you into giving them money.
If youve ever been sent to collections, this story sounds pretty familiar. Youre not alone. In fact, Dave himself knows what its like to be hounded by debt collectors. He knows what its like to lose hope, and even the embarrassment of not being able to afford to gas up his Jaguar. Yuphe lost everything . . . and then some.
But that wasnt the end of his story. He also knows what its like to punch fear in the face, confront debt collectors one by one, and settle his debts until the numbers on all of his accounts turned from red to black. And you can too.
Expert Insight On Dealing With Debt Collections
What’s the best way to handle debt collectors? There is no one right way, but it can pay to listen to the experts. MoneyGeek spoke to Byron Moldo, a bankruptcy attorney who is immersed in the debt world, and Rakesh Gupta, a professor at Adelphi University who developed and has taught Your Money and Your Life, a personal finance seminar for college students.
Associate Professor of Management and Decision Sciences at Robert B. Willumstad School of Business at Adelphi University
Read Also: Are Tax Debts Discharged In Bankruptcy
Ask The Debt Collection Agency To Validate Your Debt
As mentioned above, you have the right to get all the information pertaining to the debt. Within 5 days of contacting you, the debt collection agency has to verify details around the original debt like the name and address of the original creditor, amount, date incurred, etc. They should also have your correct contact information connected to the debt to make sure that its actually yours.
If you dont believe the debt is yours, you have up to 30 days to dispute it. While the collector is confirming the validity of the debt, they cant engage in any collection activities. If the debt cant be verified, the collection agency has to stop collection activities and remove it from your .
Need help coming up with the best letters to communicate with debt collectors? The Consumer Financial Protection Bureau has a number of debt collection letter templates you can use to send to the collection agency.
Think About Hiring An Attorney
If the situation with a debt collector gets messyparticularly if the debt collector is suing youthen you might want to hire an attorney to represent you. Once you hand the matter over to an attorney, all communication must be between the debt collector and the attorney.
Another option: Ask for help from a nonprofit credit counseling service. A credit counselor can work with you on a debt payment plan and a household budget. Don’t delay in seeking help, though, as waiting too long could land you in court.
Recommended Reading: How Long After Bankruptcy Does It Take To Rebuild Credit
Who A Debt Collector Can Contact
A debt collector can only contact your friends, employer, relatives or neighbours to get your telephone number or address.
This does not apply in the following cases:
- the person being contacted has guaranteed your loan
- your employer is contacted to confirm your employment
- you’ve given your consent to the financial institution that they can contact the person
If you gave consent orally to your financial institution, you must receive written confirmation of your consent either on paper or electronically.
What Are Collections Agencies
Collection agencies are companies that collect debts for companies that are owed money. How the collection agency gets paid can differ by the company and state laws. In some cases, if an agency collects money from a debtor, it will take 25% to 50% of the amount collected as a commission. Some debt collection companies purchase delinquent accounts from the original creditors for pennies on the dollar of the amount owed and keep 100% of whatever they collect.
Recommended Reading: Will Filing Bankruptcy Clear A Judgement
What Is A Collections Agency
“A collection agency is a company that is hired by lenders, creditors, medical providers and federal and local governments to get you to pay or make arrangements to pay what you owe them,” Eweka tells Select.
The most common types of debt that go to collections are credit card balances and medical bills, but there are many other reasons why people go into debt. Rent, student loans and tax debts are other examples of what can get passed on to a collections agency.
According to Debt.org, there are three phases to debt collection:
What Is The Fdcpa
In 1977, Congress passed the Fair Debt Collections Practices Act in response to consumer complaints regarding unfair debt collection communications. The FDCPA became effective in March 1978.
The FDCPA covers personal financial debt and requires debt collection agencies to refrain from unfair and deceptive practices. Debt collection agencies must identify themselves when contacting a consumer. They must also provide written verification of the debt at the consumer’s request.
Congress tasked the Federal Trade Commission with enforcement of the FDCPA.
Recommended Reading: Do It Yourself Bankruptcy Chapter 13
How To Spot Debt Collection Scams
Scammers prey on the vulnerable. If you have several debts, you may be vulnerable to thinking a con artist is a real debt collection agency. Red flags include calls after 9 p.m., being asked to pay a debt you don’t recognize and a debt collector requesting payment with a money transfer or prepaid debit card.
If you suspect a scam, ask for the debt collection company’s name and do some research online. If you smell a rat, you’re probably dealing with one.
Respond To The Summons On Time
Dont make the mistake of not responding to your summons on time. You will generally have between 14 to 30 days from the date you are served with the summons to file an answer with the court. Even if you cannot pay the debt you owe, you have options you can explore to resolve your debt in a way that works for you.
Recommended Reading: How Bad Does Bankruptcy Ruin Your Credit
Stop And Take A Deep Breath
Tayne says a lot of her clients panic after receiving a debt collection letter. Many want to immediately pick up the phone and call the creditor to explain the debt, but she says this isnt in their best interest. According to Tayne, collectors are well-trained and have the advantage in the situation, whereas consumers are disadvantaged and may be cornered into an obligation to pay the debt in full.
Instead of immediately calling to try and resolve the issue, she recommends consumers take a moment to evaluate the situation and the path of resolution they want to go on. Think about the letter you received, Tayne says. Ask yourself, Do I owe the money? What financial position am I in to pay this debt? What am I prepared to discuss on the phone?
How To Deal With Debt Collectors On Your Own
If the collection agency contact is by phone call, you may request the debtor send you a debt validation letter to verify the amount the debt collector says you owe. The validation letter must also tell you the name of the original creditor, what goods or services the debt bought, and the name of the debt collection agency. They have five days to send this to you.
Once you review the validation letter, or if you do not request the validation letter, you have choices. If you believe you owe the debt, you can pay the amount and tell them not to contact you anymore.
If you do not believe you owe the debt, you may tell the collection agency to stop communicating with you. The law requires them to stop, but it does not stop them from filing a lawsuit against you for the money owed.
You can tell the collection agency how you want them to contact you. For example, you may tell them you only want them to talk to your lawyer. Or you can tell them they are not permitted to call you at work. Or you may specify certain phone numbers and times of day they may call.
How A Debt In Collection Affects Your Credit
In general, collections will remain on your from the point the account originally became delinquent. The exception is medical bills that go into collections but are later paid by an insurer those drop off your credit reports upon being paid.
Some of the newer scoring models such as VantageScore 3.0 and FICO 9 ignore collections that have been paid. But FICO 8 credit scores, the ones most widely used in lending decisions, will consider even paid-off collections if the original debt was over $100.
Like other negative marks, collections showing on your credit reports will hurt your credit, but the effect will lessen over time. There are a few ways to get a collections account off your credit report, however.
When Do Accounts Get Sent To Collections
If you dont pay a bill, the clock starts ticking on the debt being turned over to a collections agency. The amount of time that passes before the debt is released to collections depends on the type of loan. Unpaid credit card debt, for example, is typically turned over to an in-house collections agency after more than 30 days of remaining unpaid. According to Experian, this typically occurs within a few months of the original delinquency date. Foreclosures, or unpaid mortgages, can take much longer and are dependent upon laws in the state they were issued.
After the company makes its own efforts to resolve the debt, it will eventually turn it over to a debt collections agency and be reported to the credit bureaus as a charge off, meaning the original creditor has ceased efforts to recover the debt.
Also Check: Liquidation Lots For Sale
Fair Debt Collection Practices Act
This federal law applies only to collectors working for professional debt collection agencies and attorneys hired to collect a debt. It is similar to Texas law, but also prohibits:
- “Unfair or unconscionable means to collect or attempt to collect a debt”
- Any conduct to harass, oppress, or abuse
If you are being subjected to harassing, abusive, or fraudulent debt collection tactics by professional debt collectors and you want to stop further contact with you notify the collector in writing. Keep a copy of your letter and send the original to the debt collector by certified mail.
Know Your Rights With Debt Collections
Theres not always a simple path to answers for consumers, other than to exercise your rights under the FDCPA, Detweiler says.
The Federal Debt Collection Practices Act sets strict rules for how collectors can behave. It includes regulations concerning the validation of your debt, collector harassment, and more.
Recommended Reading: Who Can File Chapter 7 Bankruptcy
If The Debt Should Be Less
You may accept that you owe the debt but disagree with the amount.
Ask for an itemised statement of your account that sets out:
- the amount and date of the alleged debt
- how it has been calculated
- details of all payments made and amounts owing. This should include principal, interest, fees and charges.
Provide The Collector With Your Current Address
While it might seem counterintuitive, its often a good idea to give collectors your address if they ask for it. Hiding your location won’t stop a collector from trying to collectit will just mean they might contact others to ask for your location information, like for your address, phone number, or place of employment. But if the collector already has this information, then talking to your employer, family members, or friends is illegal. Also, you’re more likely to find out when a collector files a lawsuit against you if they have your current address.
You May Like: How Long Will My Bankruptcy Stay On My Credit Report
What To Do If Debt In Collections Goes To Court
Here’s what not to do: Nothing. If you dont go to court, the judge will find you at fault. If that happens, anything can happen. You could see your wages garnished, a lien placed against your property and your bank account frozen.
You may want to contact a lawyer for advice, especially if you plan on going to court. You will probably find that if you pick up the phone and call the debt collector, you can set up a monthly payment plan or negotiate a settlement. If the debt truly is not yours, it’s best to contact an attorney and go from there.
What Debt Collectors Can And Cant Do
If you owe money on an old bill, it only makes sense that someone might want to know when you can pay on it. And you should. But we both know that collectors are going to use any means they can to get you to pay.
What happens if you dont pay a debt collector? They do have a few legal options. But there are also limits. Thats exactly why you need to know what collectors can and cant do when theyre after your wallet. In fact, the Federal Trade Commission has a list of rules under the Fair Debt Collection Practices Act that protects you from shameless debt collectors.2 If youre being harassed by a debt collector, youll want to commit these to memory:
Also Check: How Does Bankruptcy Affect Student Loans
Get Everything In Writing
Before fulfilling any payment agreement you negotiate with a debt collector, make sure you get the terms in writing. Then, after your debt is paid off, request a written confirmation that you have settled your debt. Occasionally, a paid debt can resurface with another agency calling to collect. Having documentation that you’ve already settled the debt can save you a lot of time and potential stress.
Settling Your Debts On Your Own
If youâre not afraid to bargain, you can negotiate with your creditors. Just donât expect it to be easy or be done with a single phone call. First, make sure you know the maximum amount you can afford to pay and the exact date you can make your payment. Preparation is the first step to a successful negotiation. Donât start negotiations with your maximum payment. Knowing that most settlements are between 50% and 80%, it wonât hurt to start with 10%-40% of your debt. Itâs also important to know when to stop. You donât want to promise to pay 80% if you can only afford 50%.
You can call your creditor or debt collection agency directly, or you can just answer next time they call. Write down the date and time of the call, and the name of every person you speak with, in the order that you speak with them. Ask each person you speak with if they have the authority to accept a debt settlement agreement. Tell the debt collector that youâd like to settle your debt and you can pay 10% and tell them the date you can make your payment. This could take several days.
If they accept your offer, they may ask for your bank information. Donât give it to them. Simply tell them that youâll send them a letter with the details and then confirm the company name and mailing address. After the conversation, write the letter with the details of the agreement, the date the agreement was made, and the name of the person that sealed the deal. Be sure to include your account number.
Don’t Miss: Can Only 1 Spouse File For Bankruptcy
Debt Collectors Cant Take Your Home Or Your Wages
In Texas, if your residence has been declared a homestead, it cannot be taken to pay a debtexcept for debts taken for the purchase of the home , for home improvements, for home equity loans or to pay certain taxes.
- Learn more about .
Wages may be garnished only to pay debts related to court-ordered child support, back taxes, and defaulted student loans. Debt collectors cannot garnish wages for repayment of consumer debt.
If a debt collector threatens to take your home or garnish your wages, you may be the victim of a debt collection scam. File a complaint with us immediately.