A Look at Your Protections and What Creditors Can and Can't Do
Debt collectors may contact you by mail or email, but many will call you to ask — and in some cases, demand — that you pay up. Whether or not you acknowledge this debt as yours, you need to know your rights beforehand. Your response (or lack of response) could end up costing you even more and may ultimately rob you of your peace of mind. This guide will help you to navigate the debt collection process, including the laws and protections in place for you, the consumer, and what resources are available to help.
How Your Debt Gets to a Collection Agency
For the first few months after you are delinquent on a bill, a creditor or lender usually will tap its internal collections department to retrieve the money.
If you still fail to pay, they must decide whether to turn your account over to a debt collection agency, with a contract to collect, or to sell the debt outright to a collection agency.
Every creditor may handle this differently — some begin after only a few months while others may wait 180 days to initiate the collections process. "That is why it's always a good idea to review your credit card statement, medical bill or loan agreement closely to know what timeline you are being held to," says Atlanta-based credit expert Andrea Hopwood.
Debt collectors generally will contact you using the information they have on file
Under the federal Fair Debt Collection Practices Act, or FDCPA, they must identify themselves as debt collectors, tell you the name of the creditor they represent, inform you of the amount you owe and explain how to dispute the debt if you believe you do not owe it.
Every collector must send you a written "validation notice" within five days of establishing contact with you (and, yes, this includes telephone calls, too), which outlines this same information. At that time, you may request that the debt be verified. No collection activity may take place until the collection agency provides proof that the debt is legitimate.
If their attempts to reach you fail, collectors may report bad debts to one or all three major credit bureaus, which negatively affects your credit score
If your contact information isn't up-to-date, you may never receive notification about any delinquent debts. That's why you should check your credit report regularly for any changes or errors.
When debt collectors are unable to reach you, they may contact your relatives, friends or neighbors to verify your contact information. It is illegal, however, for them to contact any of them more than once or to disclose any information about the debt in question.
Also, note that when a debt is sent to collections, a new record will appear on your credit report if the collections agency reports it
This collection record may remain on your credit report for seven years from the date the original creditor first reported the debt as delinquent, even if the debt is sold to a collection agency.
In some cases, if you pay off the balance or a portion of the balance quickly, you may be able to prevent a collection agency from reporting your bad debt to credit bureaus. If you pay it off later, you can write the credit bureaus to request that your records be updated. "It's important to know that if this happens, with time, you can fix it," says Deberah Williams, CEO and founder of A Fresh Start, a Fairburn, Georgia-based credit education and rebuilding company.
Debtor Harassment Red Flags
Examples of harassment, as prohibited by the FDCPA, include:
Repeatedly causing the phone to ring or calling you repeatedly with the intent of annoying, abusing or harassing you.
Calling you at inconvenient times of day, especially before 8 a.m. and after 9 p.m.
Calling you at work after you've informed them you do not wish to receive calls there.
Leaving threatening phone messages.
Using profanity and/or hurling insults.
Employing scare tactics, including threatening to report you to a law enforcement agency or sharing information about the alleged debt with your friends and employer.
Making false claims and accusations.
Debtor Harassment and the Law
The Federal Trade Commission (FTC), the nation's consumer protection agency, enforces the FDCPA, a federal law prohibiting debt collectors from harassing, oppressing or abusing you or any third parties they contact. This law applies to collection agencies, lawyers who collect debts on a regular basis and companies that buy delinquent debts and then try to collect them.
Under the FDCPA, collectors must disclose that they are debt collectors and that any information shared will be used to collect the debt. They may not call before 8 a.m. or after 9 p.m., unless you have explicitly given them permission to do so.
"I have heard of cases where a debt collector called someone as many as 200 times and 90 times within an hour," says Hopwood. "That definitely constitutes harassment and is absolutely against the law. Harassing behavior should not be tolerated."
It's also illegal for collectors to use obscene language; to threaten, abuse or deceive you; or to imply that they represent a government agency. They also may not say that you have committed a crime. If a debt collector engages in harassing communication, you can submit a complaint to the Consumer Financial Protection Bureau or contact your state's attorney general.
What Can You Do?
Hire an attorney
If the harassment persists, consider hiring an attorney to pursue monetary compensation on your behalf. Many experienced consumer lawyers offer their services free of charge and are paid by debt collectors as an additional penalty.
Send a cease and desist letter
If you don't want the collector to contact you again, send a "cease and desist" letter via certified mail (keep a copy for your records), and pay for a return receipt so you'll be able to confirm that the letter was received. "If they continue to contact you, you are now putting them in the position of facing a possible lawsuit for violating the law," Hopwood says.
Upon receipt of the letter, the collector may only contact you again to inform you that there will be no further contact or to let you know that the agency plans to take a specific action, like suing you.
Note that sending this letter won't make the debt go away; it just stops collectors from communicating with you about it. Some credit experts warn that doing so may even expedite legal action being taken against you.
Communicating with Creditors: Do's and Don'ts
Ask the debt collector for information
A legitimate debt collector should be more than willing to share his or her name and the name of the company being represented, along with other contact information such as a direct phone extension and the company's mailing and email addresses.
Ask for a verification letter
Under federal law, collectors are required to provide truthful information. Hopwood suggests that if the information they provide is wrong or incomplete, rather than correcting them, request that they send a verification letter to the address they have on file. Let them know you will respond accordingly once the letter is received. Then hang up.
Negotiate a payment plan
Should you decide to pay the debt, you'll need to negotiate a repayment or settlement agreement with the debt collector. After learning about the debt, the CFPB advises developing a realistic repayment or settlement proposal and then presenting it to the collector, making sure to be upfront about your financial situation. If you and the collector come to an agreement, get it in writing.
Give away your info first
Don't speak with any debt collector unless he or she can provide you with detailed information about the past due account and your name and address. "Beware of someone 'fishing' for information," warns Hopwood. "They should know who the creditor is and whom they're calling. If they don't, you should consider that a red flag."
Admit to the debt too quickly
Remember that most debt collection calls are recorded, so anything you say —- and even what you don't say —- may be held against you legally. For example, in some states, if you verbally admit to the debt, that recording could count against you.
"Never admit to the debt up front, even if you believe it is yours, because in some states you may be legally bound [to that debt]. You should say, 'I'm not sure if this is my account, and you are more than welcome to correspond with me by mail,'" Hopwood says. "Try to remain calm when communicating with collectors and avoid getting emotional."
Statute of Limitations on Debt
All consumer debts — from credit card balances to medical bills —- have limits on the number of years in which creditors have a legal right to sue you for payment, but that doesn't mean it just goes away. The statutes of limitations vary by state and type of debt — for example, whether the account is considered a contract or a negotiable instrument.
After that legal time period passes, the debt is considered "time-barred" and you can't legally be sued, but some collectors may still try to get you to pay. Williams says this is why it's important to look closely at the age of the debt you are being contacted about and familiarize yourself with the laws in the state where the debt originated. "You might have to seek legal help — hire an attorney — to help you out," she says.
Even if you are no longer legally obligated to pay the older debt, it may still be reported to the three major credit bureaus and it can remain on your credit report for future creditors to see for years. That may make it harder for you to secure new lines of credit, and you'll likely have higher interest rates on the credit lines you secure in the future.
In some cases, paying even a portion of the debt before the statute of limitations has expired can start a new statute of limitations period. That means the collector may now sue you to collect the full amount of the debt, including additional interest and fees.
Debt and Deceased Relatives
They say, "You can't take it with you," but when it comes to debts and the deceased, that isn't necessarily true. Although several things may factor into this, including your state's laws and whether anyone else's name is on the account, "usually, when you die, your debt dies with you unless someone else's name was on the account," Williams says.
In most states, relatives whose names are not on the deceased's accounts cannot be held personally responsible for debts left behind and creditors cannot legally force someone else to pay them. However, in community property states such as Arizona, California, Louisiana, Nevada, New Mexico and Texas, spouses can be held responsible for paying such debts, even if they are not named on the accounts.
When a person dies, his or her estate generally pays off the balance on any outstanding debts. The administrator or executor of the account will take inventory of all assets and debts and determine in what order bills should be paid. If the assets don't cover the bills, creditors should be notified in writing. From there, the collection agency usually writes the debts off and that's the end of it.
If you are not the executor of a deceased family member's estate, but debt collectors are contacting you, refer the creditor to the executor. If it doesn't stop, send a certified "cease and desist" letter stating that the person is deceased, you are not responsible for paying the debt and therefore you should no longer be contacted.
"It's a good idea to send the creditor a copy of the person's death certificate and attach a copy of the letter you received requesting payment," says Williams. "From there (the debt collector) may decide whether to pursue payment from the deceased person's estate." Bottom line: Don't be intimidated into paying a bill for which you are not responsible.
Identifying Debt Collection Scams
Anyone can fall prey to debt collection scams. Fraudulent debt collectors are everywhere and they can use your information to steal your identity and open accounts in your name. It is up to you to protect yourself.
- The collector can't or won't provide specific information to you about the collection agency he or she represents or the delinquent account in question. "In some cases, they appear to be fishing for information; they don't seem to really know who you are and what you owe," says Hopwood. "Do not let them proceed with the call without providing that information."
- The collector provides inaccurate or nonfunctioning telephone numbers or demands that you give your credit card number or banking information to avoid arrest or to capitalize on a settlement offer.
- The collector requests sensitive personal or financial information.
You may refuse to discuss any debt until you receive a written validation notice via mail, email or fax. By law, it must be sent to you within five days of their first contact with you and should outline how much you owe, the name of the creditor and how to proceed if you don't think you owe the money.
Report all suspicious debt collection calls to the FTC. This will help ensure that the fraudulent activity is investigated and protect other potential victims.
If you feel you have fallen victim to a debt collection scam or harassment, or if you need some help with debt management, there are many organizations and agencies available to help. You may start with the governor's office of consumer affairs in your state. Following are some additional resources to consider:
National Association of Attorneys General
Visit the NAAG site to find contact information for your state attorney general's office. Your local AG website can provide information about the laws specific to each state or enable you to file a complaint concerning debt collection, credit and finance.
Federal Trade Commission
You may file a complaint online with the FTC, which aims to prevent business practices that are anticompetitive, deceptive or unfair to consumers and to enhance informed consumer choice.
Consumer Financial Protection Bureau
Through educational materials and a tool for filing complaints, the CFPB seeks to provide a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace. The CFPB also works to make credit card, mortgage and other loan disclosures clearer, so consumers may better understand their rights and responsibilities.
Visit this site to obtain your annual credit reports from all three major credit bureaus and review them for changes and updates. You are entitled to one complimentary report each year from each of the bureaus. You may also purchase additional copies for a fee.
Visit this nonprofit consumer education and advocacy group's website for tips on protecting yourself from credit card fraud, identity theft, home equity loan fraud, credit repair scams, insurance fraud and telemarketing scams.
Better Business Bureau
Get helpful consumer tips, and check a company's history and file complaints about a business through this nonprofit organization, which is focused on advancing trust in the marketplace.
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