Debt collectors contacting you to collect past-due debt can cause anxiety, especially if you can’t pay off the debt. It’s important for you to know your rights and understand how to handle them.
This article will give you some tips on how to deal with debt collectors when they contact you, what your rights are, and how to be on the lookout for scams.
Debt collectors are expected to follow consumer protection rules and guidelines laid out by the Fair Debt Collection Practices Act (FDCPA). Debt collectors can call you, contact you via text message, email you, and even send private messages to your social media, but there are limitations to when and how they can contact you. That’s why it’s essential to know your rights.
Federal law requires a debt collector to give you a debt validation letter within five days of their first contact with you about a debt. This letter must contain the following information and notices:
Don’t let a debt collector intimidate you into making a payment. There’s a potential downside to doing so before you negotiate a settlement: collection agencies have a limited number of years to ask you to pay before the debt becomes “time-barred.” But if you make a payment after that clock starts ticking, it can be reset and start all over again.
If you can’t pay your debt all at once, you may want to negotiate with the collector and try to reach a settlement. This is far better than simply ignoring the debt because interest can continue to accrue, and worse, the collector could take you to court and win a judgment against you. In that case, they might be able to collect what the court says you owe by garnishing your bank account or by wage garnishment. However, this may depend on the type of debt you have as well as state laws.
Negotiations can lead to several different outcomes you may wish to explore:
Once you’ve reached an agreement, be sure you get the terms of the settlement in writing so you have documentation.
You may have a number of questions about how debt collection works and what your options are. We’ll guide you through commonly asked questions.
The following types of debts can be sent to collections:
Note that the list includes both loans and bills you’ve failed to pay. Failure to pay what you owe can reflect negatively on your credit history, as missed payments are reported to the three major credit bureaus and can remain on your credit history for seven years.
Medical bills are a little different. Starting July 1, 2022, the three major credit bureaus will discard medical debt sent to collections from credit reports once it has been paid off. Additionally, unpaid medical debt will appear on your credit reports after a year has passed, instead of after six months. And beginning in 2023, medical debt below $500 will no longer appear on credit reports.
Negotiating with creditors and bill collectors is a good option, but what if you still can’t pay off your debt? First, consider how long you’ll be unable to pay. If it’s short-term, you may have room to negotiate with creditors and come up with a payment plan.
If you don’t know when you’ll be able to pay and feel like you’re out of options, consider credit counseling. Make sure to weigh any fees and do what you can yourself. Counselors can help you come up with a debt management plan for debt that is not charged off and may give you solutions you weren’t aware of. However, keep in mind that the debt management plan would appear on your credit report for lenders to view and your score may drop at the start of the plan, but should improve over time.
If you have multiple accounts in collections, you may want to seek out legal help from a bankruptcy attorney. Bankruptcy can eliminate most of your debts and give you a clean slate, but it won’t eliminate all debt – you’ll still be on the hook for tax debt, some student loans, and spousal/child support. But bankruptcy can stay on your credit report for seven to 10 years and make it difficult to obtain credit, so it’s good to view it as a last resort.
The FDCPA is a federal law that lays out what debt collectors can and cannot do. The law, passed in 1977, covers the collection of mortgage, credit card, medical, and other personal debts by a collection agency, debt buyer or lawyer who collects debts. It does not, however, cover collections undertaken by the original creditor, and it does not cover business debts.
Under the FDCPA, debt collectors must:
If you believe a debt collection agency is acting illegally, you can report their activity to the Consumer Financial Protection Bureau. If you file a complaint, it helps to include important dates and communications you’ve had with the company and attach documents supporting your claim.
The CFPB will share your complaint with the company so it can respond, as well as with federal and state agencies to facilitate monitoring and enforcement.
To dispute a debt, you’ll want to:
- Bankruptcy paperwork showing your debt has been discharged. - A copy of a police report or Federal Trade Commission (FTC) report if you’ve been the victim of identity theft. - Canceled checks that confirm you’ve paid what you owe. - Deferment or forbearance documents.
You can also dispute a debt you don’t believe you owe with the three major credit bureaus, either online or by mail. This can ensure your credit doesn’t suffer as the result of a debt that’s been resolved or wasn’t yours in the first place.
You can’t go to jail for not paying a personal debt. However, you may have your wages or bank account garnished. A few debts can result in prison time, such as failure to make child support payments or deliberately failing to pay the taxes you owe.
In most states, debt doesn’t have an expiration date. Debt collectors are entitled to continue asking you to pay the amount you owe. However, debt collectors have a limited number of years under state laws — known as statutes of limitations — to file a lawsuit to try to collect that debt.
The statute of limitations time frame depends on the type of debt and state laws for your state. After that, your unpaid debt is considered “time-barred” meaning a debt collector can no longer attempt to collect on your debt.
Yes, an account that goes to collections can lower your FICO® score once it gets reported to the credit bureaus. Past due accounts can be sent to collections when they’re 120 days past due.
A legitimate debt collector will have an online presence with a name, address, and phone number. You can identify a scammer by these red flags:
If you’re having trouble putting together a workable budget and are behind on many of your debts, a nonprofit credit counselor may be able to help. Reputable credit counselors can help you with many aspects of your personal finance, including money and debt management, dealing with debt collectors, consolidating your debt if appropriate, and understanding your credit score.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).