What Are Your Rights
Debt collection calls are the cause of more complaints to the Federal Trade Commission than any other industry. Collectors in bad-faith have been known to harass consumers with phone calls and demand larger payments than what is legal, among other deceptive practices. Under a federal law known as the Fair Debt Collection Practices Act , this behavior is illegal.
The FDCPA gives consumers rights and protections when it comes to how an agency can conduct debt collection. The act protects consumers from abusive, deceptive and unfair debt collection practices such as limiting debt collection calls before evening hours, not allowing incessant calling or communication via postcard and prohibiting the use of violence or intimidating language from the debt collector.
Changes to the law are coming. In May 2019, CFPB Director Kathy Kraninger announced a proposal to change certain restrictions under the FDCPA, ranging from how collectors can contact consumers, when and how many times. In the future, collectors may be able to communicate via email and text messages, and would be limited to seven attempts of calls per week .
The proposal is described as an overhaul by industry experts with many different changes. Its expected to pass by the end of the year, so consumers should pay attention to the final changes.
What Rights Do Debt Collectors Have
Debt collectors have the right to contact you, but you have debtor’s rights, too. Debt collectors aren’t allowed to call you nonstop, insult you or make you feel lousy for not paying. They also aren’t allowed to call you before 8 a.m. or after 9 p.m. unless you somehow agree to it.If you’re being harassed by a debt collector, you can send a complaint to the Consumer Financial Protection Bureau or your state’s attorney general.
What Are The Consequences Of Collections
Having debts in collections can impact you financially. They can:
- Hurt your credit score: Your payment history makes up 35% of your score, so having an account in collections can have a big impact and for a long time, too. Collections can remain on your for up to seven years, FICO notes.
- Make it hard to take out loans, credit cards or other financial products: If you apply for a new loan or credit card, the lender or credit card company will look at your to assess your payment habits. If there’s an account in collections there, it could make them hesitant to approve you because it shows you might not pay your account on time.
- You could be sued: If you fail to settle your account in collections, the debt collector could file a lawsuit against you. If they win, they could garnish your wages or take funds directly out of your bank account to repay your debts.
If a debt collections agency contacts you, you have rights. Under the Fair Debt Collection Practices Act, debt collectors can’t contact you before 8 a.m. or after 9 p.m., nor can they call you at work if your employer doesn’t allow it. Additionally, if you ask the collector to stop contacting you or only contact you via certain methods they must comply.
Keep in mind: This does not prevent the collections agency from suing you, so consult an attorney before stopping all contact.
If you’re on the receiving end from debt collectors, consider consolidating your debt to get ahead.
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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.
Develop And Follow A Budget
One of the best ways to take back control of your financial situation is to develop a budget. Write down your income and expenses so you have a sense of your cash flow each month.
Start with fixed expenses, such as your rent or mortgage, utilities and car payment. Then create categories for fluctuating expenses, such as entertainment and clothing.
If you owe various loans, you can also determine how much you can afford to pay each month and which debts to prioritize.
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What Types Of Debt May Go Into Collection
Virtually any type of debt can be turned over to a debt collection agency today. The types of debt that these collection agencies take include:
Yes, even the IRS has turned over a large number of its delinquent accounts to aggressive debt collectors. This is in the hope that they can capture at least a portion of whatâs owed to them. Taxpayers who are delinquent can expect to hear from one of these agencies sooner or later.
Ask For A Validation Letter
One of the best ways to avoid debt collection scams is to request a written validation notice. Once a debt collector informs you about debt in collections, you can send a letter to the debt collection agency to request proof of the debt. The notice must include the debt amount, creditor, and a description of your rights under the Fair Debt Collection Practices Act.
What To Know About Debt Collection
What types of debts are covered under the law?
Your credit card debt, auto loans, medical bills, student loans, mortgage, and other household debts are covered under the FDCPA. Business debts are not.
Can debt collectors contact me at any time or place?
No. Debt collectors cant contact you before 8 a.m. or after 9 p.m., unless you agree to it. They also cant contact you at work if you tell them youre not allowed to get calls there.
How can a debt collector contact me?
Debt collectors can call you, or send letters, emails, or text messages to collect a debt.
How can I stop a debt collector from contacting me?
Mail a letter to the collection company and ask it to stop contacting you. Keep a copy for yourself. Consider sending the letter by certified mail and paying for a return receipt. That way, youll have a record the collector got it. Once the collection company gets your letter, it can only contact you to confirm it will stop contacting you in the future or to tell you it plans to take a specific action, like filing a lawsuit. If youre represented by an attorney, tell the collector. The collector must communicate with your attorney, not you, unless the attorney fails to respond to the collectors communications within a reasonable time.
Can a debt collector contact anyone else about my debt?
What does the debt collector have to tell me about the debt?
What if I dont think I owe the debt?
What are debt collectors not allowed to do?
Payment Plans And Partial Payments
There are a few different methods of lowering your debt that may be acceptable to a collector:
- Partial repayment. When dealing with a collection agency, start your negotiations low. Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.
- A payment plan. Spend some time laying out your monthly budget. How much money do you think you’ll be able to put toward a recurring debt payment? If you had difficulty making the payments under the terms of the original creditor, you may be able to negotiate a lower monthly amount with the collector.
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Create A Debt Repayment Plan
You can also ask the collector if you can pay what you owe back with a payment plan. With a short-term payment plan, youll pay your debt back on a fixed schedule with set payments. You could also consider a debt management plan, which helps set up monthly payments to be paid to your collectors. Make sure to consider debt management plan pros and cons to see if this is a good fit for you.
Paying A Collection Wont Improve Your Credit Score Immediately But Over Time
When a creditor sells past due debt to a collection agency, the collection agency becomes the owner of the debt. As a result, if the collection agency collects the debt, it may be able to add interest and fees to the balance in addition to the original amount written off by the creditor. If you pay or settle a collection and it reflects the zero balance on your credit reports, your FICO® 9 and VantageScore 3.0 scores may improve. Nonetheless, because older scoring models fail to pay collections, their scores will not improve. Debt collectors are unable to collect more than they are owed. A debt collector cannot compel you to pay $2,000 to settle a $500 debt that was only $500 in the first place. In this case, the FDCPA and RFDCPA have concluded that this type of conduct is not permitted. If you paid off your closed or charged off account, you should see results in your credit scores within a few days, but you can also see improvements over time.
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How To Pay Collection Debt
Like so many during the Great Recession, you lost your job and had to prioritize expenses. Maybe you had to break a cable contract so you could manage the house payment, or you had to defer paying medical bills until things improved. It wasnt easy not paying all your bills because you always had, but it was the right thing to do. You are working again. Maybe earning less than at the job you lost, still things are looking up. You received a nice tax refund that you prudently hung on to until you had a complete plan for it. Part of your plan is to pay off some of those bills that have turned into collection accounts. But, how do you do it? Where do you start?
Why You Should Never Pay A Collection Agency
If a debt collection agency contacts you, you should respond with a debt validation letter.
You may not want to pay if your finances are unclear or its too late for payments if you dont owe the debt if you want to settle for less, if the statute of limitations has expired, or if the collector doesnt own the debt.
Debt collectors can use a variety of unethical methods. They may begin with annoying phone calls and progress to worse things. However, you may never have to pay a debt collector, depending on your circumstances.
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Mistakes To Avoid When Dealing With Debt Collectors
Debt collection can be tricky, legally speaking. Make sure you know what not to say to debt collectors so that you dont accidentally sabotage your efforts when disputing a collection account.
Here are a few things you should avoid at all costs:
- Acknowledging that the debt is yours
- Agreeing to pay the debt
- Making a partial payment on an old debt
- Providing additional contact information
To avoid saying anything you shouldnt, its best to keep all your communications with your debt collector in writing if you possibly can. This also creates a paper trail, which will be very useful if your debt collector tries to violate your rights and your dispute ends up in the courtroom.
Takeaway: To dispute collections, send your debt collector a debt verification letter asking for proof that you owe the debt.
Youre A Victim Of Identity Theft
If debt collectors are contacting you about accounts opened in your name but you dont recognize them, then its possible that youve been targeted by identity theft.
In this case, its very important to dispute the debt with your debt collectors, original creditor, and the credit reporting agencies to set the record straight and clear your credit file.
Before you dispute the debt, file a police report and identity theft report with the FTC. Include copies of the reports when you send your dispute letters.
How to deal with time-barred debts
If youre asked to pay a debt thats too old to be legally collected , then you cant be forced to pay it. In this case, instead of disputing the time-barred debt, you can send the debt collectors a written request to stop all communications with you, and theyll have to comply. 2
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Set Up A Payment Plan
If you cant pay a large lump sum, you can ask the collection agency to create a payment plan that you can afford. Youll need to negotiate how many payments will be required before the debt is considered settled.
Negotiating medical debt
If you have medical debt, you may be able to negotiate interest-free payments with the provider directly. First, contact the billing office and ask if there are any programs you qualify for that can eliminate or reduce the balance.
Next, ask about your repayment options. If youre not getting anywhere, ask to speak to a manager.
What Debt Repayment Agencies Do
A debt repayment agency is a business that charges a fee to act for you in negotiating or making arrangements with creditors for you to pay what you owe. This is a voluntary agreement between the debt repayment agency and your creditors.
A creditor does not have to accept your payment proposal. Even if a creditor accepts your payment proposal, it can be cancelled if you do not abide by all the terms of the agreement. The creditor can then resume collection activity on your debt.
The agency must tell you within 30 days of being informed by a creditor that the creditor has decided not to participate in or has withdrawn from a debt repayment program.
For more information about how debt repayment agencies work, see the Bill Collection and Debt Repayment tipsheet.
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There’s ‘no Set Rule’ On How Long It Takes For Your Debt To Go To Collections
Six months is the general guideline, but according to Eweka there is “no set rule” on how many times you’ll get a phone call or letter before your debt is turned over to an agency.
“Sometimes, companies use collection agencies to service their debt collection process from the beginning, and other times it can take a longer amount of time,” says Eweka.
Check your at least once a year to reduce any surprise calls from collections, Eweka says. “Sometimes people do not even realize they have some of their debts.”
Make An Official Complaint
The first step with any debt issue is always talk to your lender or debt collector, or ask a free financial mentor to do this for you. If this doesn’t resolve your issue, you have options for taking it further:
- Financial dispute resolution scheme for complaints about your lender/debt collector, eg high fees or giving you a loan you could never afford.
- Privacy Commissioner for breaches of privacy, eg telling your family and employer about your debt without your permission.
- Commerce Commission for complaints involving the Fair Trading Act or the Credit Contracts and Consumer Finance Act. You can complain to the Commerce Commission and the financial disputes resolution scheme at the same time. The scheme will seek resolution for your specific problem, and the Commission focuses on the breaches in the law.
You can also get free legal advice from Community Law.
Our law centres Community Law Centres
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How To Pay Off Collections
10 Min Read | Aug 23, 2022
Dodging debt collectors can feel like youre on a high-speed chase, bobbing and weaving through traffic with the bad guy hot on your tail. Debt collectors are ruthless and relentless. Theyll stop at nothing to get you to pay up.
But what if all the phone calls, voicemails and letters stopped? What if you didnt have to hide inside your own life any longer? Understanding how to pay off collections takes a little research, but its worth every bit of effort. So lets get right to it.
Decide What You Want To Do
If you know the debt is yours, you do have the opportunity to negotiate a settlement. The CFPB recommends creating a realistic repayment proposal that is based on how much you can afford in payments each month, after accounting for bills, other debt payments and emergency costs. If the debt doesnt belong to you, you can dispute it.
Keep in mind that debt falls under a statute of limitations in each state. This means a collector cannot sue you for a debt that is older than a certain number of years, which the CFPB says ranges from three to six years, depending on the state. If the debt is close to the end of the limitations, the collector might be more willing to negotiate with you. If you are unsure of whether the statute of limitations has passed, the CFPB recommends contacting an attorney in your state.
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