Now that you are in collections, what to do?

I have previously discussed how to manage household finances as well as provided tips on management of household debt. This paper will cover how to manage delinquent accounts that have been sent to a third-party collection agency.

Being in debt is upsetting and dealing with debt collectors can be difficult. The main purpose of this paper is to provide information regarding that process.

In the United States, the Fair Debt Collection Practices Act (FDCPA) regulates the actions and behaviors of third-party debt collectors in order to protect debtors from harassment and underhanded collection tactics. The Act outlines specific practices that are disallowed in collection efforts. It does not apply to a creditor’s in-house collectors, but most States have passed their own debt collection regulations which are often more restrictive than the FDCPA. So now that you understand the old days of debt collectors having free reign to do whatever they feel is necessary to recover a delinquent debt, I will explain at a high level the current collection environment.

What a Debt Collector Can do

A debt collector can ask you to pay the debt, assuming they’re not violating the FDCPA. And they can offer payment plans or settlements in order to resolve accounts in collection. If the debt is less than 7 years old, the debt collector can also report the debt to credit bureaus — meaning it will likely show up on your credit reports and factor into your credit scores. Even if you pay off that debt, it may stay on your credit reports for up to 7 years.

What a Debt Collector Cannot Do

The FDCPA limits the methods that a collector can use to contact a debtor. They can only call between 8a and 9p., and not a times deemed inconvenient to you, the consumer, unless you have given them permission to call you at other times. They cannot call repeatedly in a short period of time in order to harass you. A debt collector cannot threaten that you will go to jail or that they will make the debts public. They also cannot call your employer about your debt, unless it represents unpaid child support. If you tell a debt collector not to call you again, they are legally not allowed to do so, but their collection efforts can continue.

If a debt collector intends to garnish your wages or take other personal property to satisfy the debt, they must sue you in a court of law and obtain a court judgment. The federal government is one of the only creditors allowed to garnish without such a judgment. An example of this would be debt owed as a result of delinquent federal student loans.

What types of debt does the FDCPA cover?

The FDCPA covers the collection of mortgages, credit card debt, medical debts and other debts mainly for personal, family or household purposes. The FDCPA does not cover business debts, and it generally doesn’t cover collection by the original creditor to whom you became indebted. In other words, it’s limited to debt collectors and debt collection agencies to whom the original debt has been sold.

What are your Rights?

“There are a lot of components, legally speaking,” says Dan Dwyer, attorney in the division of financial practices at the Federal Trade Commission. For one, your rights may vary depending on where you live. The Fair Debt Collection Practices Act, or FDCPA, affords you some crucial protections at the federal level, and most states have laws about debt collection practices. This paper doesn’t include an exhaustive list of all your rights, and you shouldn’t hesitate to consult a legal professional if you need further clarification. 

The Fair Debt Collection Practices Act is not your only protection.  As the Federal Trade Commission notes, many states have their own debt collection laws that differ from the FDCPA and even offer additional protections for consumers. If you’re curious about your state’s debt collection laws, reach out to your state attorney general’s office.

What does “proof of the debt” mean? Well, the FDCPA gives consumers the right to have the following information in writing within five days of the initial communication from the debt collector, unless the information is contained in the initial communication or the consumer has paid the debt:

  • The amount of the debt.
  • The name of the creditor to whom the debt is owed (more on this in the next section).
  • A statement that, unless the consumer disputes the validity of the debt, or any portion thereof, within 30 days after receiving the notice, the debt will be assumed to be valid by the debt collector.
  • A statement that, if the consumer notifies the debt collector in writing within the 30-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer. The debt collector must mail a copy of this verification or judgment to the consumer.
  • A statement that, upon the consumer’s written request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Protecting Your Rights

Always confirm with the original creditor to whom you incurred the debt that it has been sold or sent to a third-party agency for recovery. Never pay any entity that you have not verified as legitimate. Lastly, you may reference the Better Business Bureau (BBB) or other rating authorities in order to determine that the Collection Agency with whom you are dealing is reputable.

Debt collectors are also required to furnish the name of their company or agency. Legitimate collectors should be perfectly willing to provide their business address and contact information. You can use this to learn whether the collector is legitimate, says Bruce McClary, spokesman for the National Foundation for Credit Counseling.

Debt collectors must identify themselves.  The FDCPA mandates what industry insiders call a “mini-Miranda,” or an initial communication in which debt collectors must reveal to you that they’re attempting to collect a debt and that any information you give will be used to collect that debt.

Statute of Limitations

Looking at the age of your debt can help you determine if you still have legal liability. Once the statute of limitations passes you can no longer be sued to collect the debt, unless the debt is revived. Each state has its own statute of limitations that determines how much time a debt collection agency has to take legal action, but for many states it ranges from three to six years. If you have questions about whether you’re still liable for your debt, it can be helpful to consult with a credit counselor or legal professional. You may also want to review the rights afforded to you by the FDCPA.

Summary

The many protections afforded the consumer also exist to protect the debt collector. Rules and regulations provide a fair balance that enables the debt collector and consumer to communicate effectively in a safe environment to resolve outstanding delinquencies. The more informed that you are, the easier it will be for you to navigate the collections environment and develop an effective solution to repay your debt(s) in partnership with the debt collector to who your delinquency has been assigned.

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