What to Do About Bill Collectors

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By Janet Berry-Johnson, CPA

If you’ve fallen behind on your bills and can’t pay your debts, chances are you’ll start hearing from debt collectors.

It’s a debt collector’s job to get as much money from you as possible. Unfortunately, that sometimes means they go to great lengths: threatening, shaming, tricking, or harassing people into making a payment toward their debts.

If that’s the kind of debt collector or collections agency you’re dealing with, it’s important to know your rights.

Here’s a rundown to help you out…

In this article

What is debt collection?

Debt collectors come in many forms. This includes private debt collection agencies, lawyers who collect debts as part of their business, and companies that buy past-due debts from other companies and then try to collect on them.

Lenders, credit card companies and other creditors might even have their own in-house bill collectors.

If a debt collector is calling you, it’s likely because they believe you are past due on a debt. That can be a credit card, auto loan, medical bill, student loan, mortgage and just about any type of debt you might owe.

Companies have several legal debt collection strategies. They can:

  1. Contact you via phone, email or text, leave voicemails, send notices through the mail and email
  2. Contact other people to find out your address, home phone number, and where you work, as long as they don’t tell the person they’re calling about a debt
  3. Come to your home to try to collect a debt
  4. Charge interest and fees if you are behind on your payments
  5. Call you at work, unless you’ve notified the debt collector that your employer does not allow such calls or state law prohibits it
  6. Report your delinquent debt to the credit reporting agencies
  7. File a lawsuit against you to have your wages garnished

Learn more about wage garnishment HERE.

While there are many legitimate debt collectors, there are also scammers who may take advantage of you by trying to get you to make payments on debts you don’t owe.

The Consumer Financial Protection Bureau (CFPB) recommends watching out for unfair debt collection practices like:

  • Withholding information. Debt collectors are required to let you know how much you owe, the name and address of the original creditor, and what to do if you want to dispute the debt. If the debt collector refuses to provide this information, it could be a scam.
  • Pressuring you to pay via money transfer or prepaid card. Debt collection scammers prefer these payment methods because the money is difficult to trace, and it’s nearly impossible for you to get your money back.
  • Threatening you with jail time or posing as a government official. Making such threats is illegal unless you owe criminal fines and restitution (and not paying could result in your arrest).
  • Threatening to tell your family, friends, or employer. Debt collectors are not allowed to discuss your debt with anyone but you, your spouse, or your attorney.
  • Trying to collect on a debt that doesn’t belong to you. If you believe you don’t owe the debt, tell the caller you will send a written request to dispute the debt or ask them to send you more information about the debt. Make sure you actually owe the money before giving the caller any information or making a payment.
  • Asking for sensitive personal information. Never give out information such as your Social Security number or bank account information to a debt collector unless you are sure they are legitimate. Scammers may pose as debt collectors to get this information and then commit identity theft.

What rights do you have if a debt is sent to collection?

Despite the long list of tactics debt collectors have at their disposal, they are strictly regulated at both the federal and state level.

At the federal level, the Fair Debt Collection Practices Act (FDCPA) limits what debt collection companies can do when collecting certain types of debt.

Here are __8 ways debt collectors are regulated. __

1 - Debt collectors aren’t allowed to contact you before 8 a.m. or after 9 p.m.

They can’t try to contact you at an unusual place either. If you’ve let them know that you’re not allowed to receive calls at work, they’re not allowed to contact you there.

2 - Debt collectors cannot harass you or your family members.

Whether via phone or another contact method, debt collectors are not allowed to harass you or your loved ones.

They cannot threaten violence or harm, use obscene or profane language, or call you repeatedly to annoy you.

3 - They can’t lie to you about certain things

Debt collectors can’t lie to you about how much you owe, claim to be an attorney or government official, or falsely threaten arrest or seizure of your property unless it can be done legally.

4 - If a debt collector knows you’re represented by an attorney, they must stop contacting you and contact your attorney instead.

5 - If you tell a bill collector in writing to stop contacting you, they cannot contact you again.

There are a few exceptions, though. A debt collector may contact you to confirm there will be no further contact or to notify you of their intent to take legal action, such as filing a lawsuit against you.

6 - Any debt collector who contacts you is required to let you know certain information.

This information includes how much you owe, the name and address of the original creditor, and what to do if you want to dispute the debt. If they don’t provide this information when they first contact you, they’re required to send you this information in writing within five days of their initial contact.

7 - If you dispute all or a part of the debt in writing within 30 days of receiving the required information, the debt collector cannot contact you until they’ve provided verification of the debt in writing.

8 - Debt collectors cannot discuss your debt with anyone but you, your spouse, and your attorney.

The FDCPA doesn’t cover business debts. It only applies to collection agencies, debt buyers, and lawyers. It doesn’t apply to your original creditor.

If you believe a debt collector has violated any of these rules, you can submit a complaint to the CFPB. You can also file a complaint with the Federal Trade Commission.

Most states have their own laws about debt collection practices that are similar to the FDCPA. Contact your state attorney general’s office to find out more about the debt collection laws in your state.

What are your options when a debt goes to collection?

The easiest way to deal with a debt collector is to pay what you owe (once you’ve verified that the debt is legitimately yours). Of course, there are times when that’s just not an option.

In that case, you might want to negotiate a settlement or repayment agreement.

Before getting into a negotiation, the CFPB recommends thinking through the logistics of repaying the debt.

Be honest about how much you can afford to pay. Whether you want to settle the debt with a lump sum payment that’s less than the full amount you owe or make monthly payments, consider how paying off this debt will impact your overall finances.

Falling behind on your rent, mortgage, or other debt payments could cause you more problems.

You might also consider creating a budget that includes the amount you want to pay each month. Be sure to leave yourself some wiggle room to cover unexpected expenses and emergencies.

Once you’ve decided on the total you’re willing and able to pay, discuss your proposed repayment plan with the debt collector. If you’re not comfortable handling these negotiations on your own, enlist the help of a credit counselor or an attorney.

Be sure to get any settlement agreement or repayment plan in writing before making a payment. Make sure the written agreement states that any remaining amount of your original debt will be forgiven once the negotiated amount is paid in full.

Does debt have an expiration date?

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 – known as the statute of limitations – to file a lawsuit to try to collect that debt.

After that, your unpaid debt is considered “time-barred.” The statute of limitations varies by state, but they usually apply three to six years from the date you failed to make a payment.

Time barred debts can be tricky because that clock can be reset, starting the statute of limitations all over again. In some states, making a partial payment on an old debt or sending a written statement acknowledging you owe the debt can restart the clock.

That’s why it’s important to contact your state attorney general’s office or an attorney to find out about the statute of limitations where you live.

If you believe a debt collector is calling you about a time-barred debt, ask them if the debt is beyond the statute of limitations. The law requires them to answer truthfully, although some might decline to answer.

Keep in mind that a statute of limitations doesn’t apply to federal student loans. Creditors have the right to pursue legal action against defaulted federal student loans indefinitely.

How does debt collection impact your credit?

Having a debt go into collection has a significant negative impact on your credit score. The actual effect it has depends on your score when the collection agency reports the debt.

If you have a high score, having just one debt in collection can cause a significant drop. If your score has already taken a beating due to late and missed payments and other collections, the change may not be as significant.

Collection information remains on your credit report for seven years from the original delinquency date. That’s the date your account first became delinquent and was not brought current. However, the older a collection is, the less of an impact it has on your score.

Paying off or settling the debt can help. The collection will remain on your credit report for seven years. Still, it’s better for your score than doing nothing and waiting for the collection to drop off of your record.

When negotiating with the debt collection agency, ask them to put it in writing that the debt will be reported as “paid in full” or “paid as agreed upon” after you’ve paid the negotiated amount.

This is less of a red flag than having the account show up as “settled” or “account paid in full for less than the full balance.”

What about medical debt?

Some good news: medical debt has less of a negative impact on your credit score than other types of debt that might be sent to collections. There are three reasons for this:

  1. Experian, TransUnion and Equifax now employ a 189-day waiting period before adding medical debt to your credit history. This six-month grace period is designed to give you more time to correct errors or pay your bill before medical bills negatively impact your score.
  2. Under newer credit scoring models such as FICO 9 and Vantage Score 4.0, medical debts are given less weight than other types of collections. However, not all creditors use these scoring models, so medical debt can still negatively impact your ability to get credit.
  3. Medical debts are removed from your credit report once it’s been paid.

Paying off other collection accounts is a good idea, but medical debts are the only ones that are automatically removed from your credit report once they’ve been paid in full.

For other types of debt, the status of the account on your collection report should be updated within a month or two. If this doesn’t happen, file a dispute with each of the three credit bureaus to have your record corrected. You may need to provide proof of payment, such as a canceled check.

Legitimate collection accounts can’t be removed from your credit report before the seven-year waiting period ends. However, you can start taking steps to improve your credit and offset the damage those collections had on your credit score.

The bottom line

It can be stressful to get a call or letter from a collection agency. But don’t let an unscrupulous bill collector pressure you into paying debts you don’t owe or can’t afford to pay.

Take a deep breath, collect the information you need to confirm the debt collector and the debt are legitimate, and make a plan to deal with it.

Knowing your debt collection rights is always a good first step when a bill collector comes calling.

About the author

Janet Berry-Johnson is a Certified Public Accountant and freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Freshbooks, The Penny Hoarder, and several other major outlets.

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Written on August 4, 2020
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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