Debt and Collection Agencies
What Happens When Debt Goes Into Collections?
When a debt goes unpaid a creditor will likely seek the assistance of a collection agency to collect on the unsettled debt. If a creditor resorts to this step it will have a significant impact on your credit score and limit your ability to obtain new credit.
We will take a closer look at the debt that has landed in "collections", clarifying the process and how to resolve the issue to the best of your ability.
WHAT IS A DEBT COLLECTION AGENCY?
Simply put, a debt collection agency is a company that, on behalf of a creditor collects past-due funds. Some creditors will use a third-party while others will use an internal company.
When a bill is in collections you will no longer be contacted by the creditor or be able to pay them directly as the collection agency will now reach out to you to secure payment. While some debt will only go to collections after attempts have been made to contact you some debts can be sent to collections without notice.
WHAT DOES IT MEAN TO HAVE DEBT IN COLLECTIONS?
Once your debt has been passed to a collection agency they can follow-up, persistently. If a collection agency contacts you be sure to protect yourself by gathering information about your debt as well.
Avoid sharing information until you are positive that this is a debt you owe.
Ask for information such as the collector's name, address, and the debt amount owed. This will allow you to identify if this is legitimate debt owed to help you avoid a possible debt collection scam.
Identify the last date when the last payment was made. Once you determine the age of debt you can determine if the debt is beyond the statute of limitations, time-barred meaning you cannot be sued for the debt.
Be sure to get all agreements in writing.
WHAT DO I DO NOW?
If you find yourself dealing with a debt collection agency you may be tempted to ignore letters, phone calls, and emails, don't. Ignoring this debt does not eliminate it from your credit report and will cause a significant drop to your credit score as well as appear on your credit report for seven years after the delinquency.
While collection agencies can seem intimidating the Fair Debt Collection Practices Act (FDCPA) protects you from unfair practices, intimidation, and other regulations to protect consumers. Such as:
You cannot be contacted by a collection agency between 9 p.m. and 8 a.m.
You can request not to be contacted at an inconvenient location, such as work, regarding the debt.
They cannot use threats of violence, obscene language, or excessive contact to harass you.
Cannot threaten repossession, legal action, or arrest.
Cannot make false claims to be a government representative or attorney.
Cannot lie about the debt owed
They are unable to add interest charges or fees not allowed in your state or specified in the contract with your creditor
Cannot garnish your wages unless ordered by a court.
They cannot inform anyone other than your spouse, guardian, or attorney about your debt.
YOUR DEBT AND THE COLLECTION AGENCY
If you have been contacted by a debt collection agency stay calm and go over your finances. You have two options for settling this matter.
Option 1 is disputing the debt if you can prove that it is not your debt. To do this:
Send a written dispute letter. Once you have received notification that you have a debt in collection respond immediately, at least within 30 days of the notice. In this letter, request that the agency stops contacting you unless they can provide sufficient proof that this is your debt. You can use this sample letter from the CFPB.
Keep a copy for your records. Be sure to save a copy of the dispute letter in case you do go to court.
Wait for verification. Once you have sent this letter by law the debt collector must stop contacting you until they can verify the debt in writing.
However, if the debt is yours then Option 2 would be contacting your debt collector directly to work out details for absolving your debt.
Pay in full. The most direct resolution would be to pay the debt in full. This removes the need to negotiate the debt and could help you return your credit score to healthy standing. Depending on your financial standing this may not be a feasible option.
Debt Settlement. Your debt collector will look to recoup as much of the owed debt as possible, however many will be willing to work with you. A debt settlement agreement may have negative effects on your credit report so work with the debt collector to ensure all negative information is removed from your credit report as part of the settlement and be sure to get it in writing.
Payment Plan. Depending on your financial situation you may not be able to afford a lump sum payment, but there is still an option. The debt collector is likely to offer an option that allows you to pay off your balance over a fixed period with fixed payments. Be sure to have this agreement in writing and that your debt will be reported as "paid in full" once your last payment is received.
Be cautious of old debt that may have passed its statute of limitations in your state meaning you are no longer legally obligated to pay the debt. However, if a single payment is made this could reset the cycle allowing the debt collector to take you to court to collect the full amount that is owed.
When it comes to working with debt collection agencies, stay calm, review your debt, know your rights, weigh your options, reevaluate your budget, and just breathe. It is easy to be upset or troubled by threatening phone calls about the debt you may or may not know about but there are solutions to this situation where professionals can help you get back on path and plan for the future.