Many of us will, at one time or another, get behind on a debt payment or two. It happens. If you are able to quickly catch up, you can treat it like a learning experience and take steps to handle things better in the future. However, if you wind up in a situation where one missed payment leads to several missed payments, you may find yourself talking to a collection agency and taking a hit on your credit score. What should you do when a bill collector contacts you, and what laws are in place to protect you from getting ripped off?
This guide will give you all the information you need to handle bill collectors, including how to recognize when you are talking to a legitimate collector and when someone is just trying to scare you into giving them money. I also include steps to take to get your credit score back in shape after you have had one or more debts go into collection.
Methodology: To give you the best information on debt collection, I read over a dozen articles and books on the intricacies of debt collection laws. I spoke with Lynette Khalfani-Cox, also known as the Money Coach, and author of several books, including Zero Debt: The Ultimate Guide to Financial Freedom (2009, Advantage World Press) and Gerri Detweiler, credit expert and co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights (2016, Ultimate Credit Solutions, Inc.).
How does debt collection work?
Debt collection happens when consumers neglect to pay their debts on time. Some creditors employ in-house debt collectors, but generally the debt collectors who call consumers work separately from creditors. These debt collectors purchase unpaid debt from creditors, generally at a low price of pennies on the dollar, and then independently call consumers to have them repay the debt. They are not hired by the creditors, so once your debt has gone to a collection agency, it is usually pointless to call the actual creditor to sort out payments.
In some cases, companies will send a debt to a collector primarily to get the attention of the consumer. Some debt collectors do not report to credit reporting agencies. If you are contacted about a debt, you might be able to pay it without taking a hit on your credit score. Ask the debt collector whether or not they report to the credit reporting agencies.
How to deal with bill collectors
When you are dealing with debt collectors, the most important thing to know is that, while you might owe money, you never deserve to be harassed, threatened or made to feel uncomfortable. These practices are illegal, yet they are so common most people don't report the abuses.
How a bill collector can contact you
A collector may contact you in person or by mail, telephone, telegram or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you explicitly agree to be contacted during off hours. A debt collector may not contact you at work if the collector knows that your employer disapproves of such contacts.
Debt collectors sometimes contact consumers about old debts, and, while this is technically legal, every state has a statute of limitations for how long a consumer can be held accountable for a debt. Make sure to check with your state’s laws. You might not be legally obligated to repay the debt.
Who else can be contacted about your personal debts?
If you have an attorney, the debt collector must contact the attorney rather than you. If you do not have an attorney, a collector may contact other people - but only to find out where you live, what your phone number is and where you work. Debt collectors should only contact your relatives if they genuinely do not know how to reach you personally.
Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.
One caveat to the above information is that a debt collector can speak to your spouse about a debt, even if that debt was acquired before you got married and/or if your spouse did not co-sign for the debt.
What to do when a bill collector calls you
According to Detweiler, the biggest mistake consumers make when they get a phone call from a debt collector is panicking and paying it immediately. Consumers are never legally obligated to pay a bill collector immediately, even if the collector is applying immense pressure and making threats.
Another big mistake consumers make when talking to a bill collector is talking too much. Detweiler explains that in speaking too openly to a debt collector, “You may unintentionally reactivate the statute of limitations on an old debt.”
If you are contacted by a bill collector, ask for a record of the collection in writing. Within five days after you are first contacted, the collector must send you a written notice telling you the amount you owe, the name of the creditor to whom you owe the money and what action to take if you believe you do not owe the money. Any collector who demands immediate payment over the phone is acting illegally and might not be a legitimate debt collector.
Know your legal rights
The Fair Debt Collection Practices Act (FDCPA) was passed by Congress in 1978 to protect consumers when they are contacted by debt collection. This act applies mainly to household and individual debts, such as mortgages, auto loans, student loans, medical debts and unpaid utility bills.
Many entities are not covered by the FDCPA. For instance, creditors who use in-house employees to collect debt from their customers are not covered under the law, nor are federal and state government officers who collect debts for a government agency. The law also does not apply to nonprofit credit counseling organizations.
Detweiler notes, “Attorneys who regularly collect consumer debts are considered debt collectors under the FDCPA, and that means they must abide by the requirements of the FDCPA.” This is why you might receive a letter from an attorney representing a creditor. Detweiler encourages consumers not to panic if they receive a letter from an attorney and to read the letter thoroughly to make sure the attorney is following the law. According to the FDCPA, any collection letter that comes from an attorney must accurately describe the attorney’s role in the debt collection and what consequences will result if the consumer does not make a payment.
Bill collector laws
In general, legitimate debt collectors will act courteously and professionally when they contact consumers about a debt they owe. There are some bill collectors along with a number of scam artists posing as debt collectors, though, who illegally harass and threaten consumers into paying their debts immediately. The following debt-collection practices are illegal:
- Using or threatening violence
- Using obscene or profane language
- Publishing a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or others with a legitimate need to know
- Advertising the sale of any debt to coerce payment of the debt
- Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse or harass any person at the called number
- Placing telephone calls without meaningful disclosure of the caller's identity
In addition to the above, debt collectors must accurately represent themselves any time they contact a consumer about a debt. They may not:
- Falsely imply they are attorneys or government representatives
- Falsely imply you have committed a crime
- Falsely represent themselves as working for or operating a credit bureau
- Misrepresent the amount of your debt
- Indicate that papers being sent to you are legal forms when they are not or indicate that papers being sent to you are not legal forms when they are
- Claim you will be arrested if you do not pay your debt
- Say that they will seize, garnish, attach or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so
- Claim that actions, such as a lawsuit, will be taken against you when they do not intend to take such action or when taking such would be illegal
- Give false credit information about you to anyone, including a credit bureau
- Send you anything that looks like an official document from a court or government agency when it is not
- Use a false name
Illegal unfair practices for bill collectors
In compliance with the law, debt collectors cannot commit unfair practices, including the following:
- Collecting any amount greater than you owe, unless your state law permits a special charge for such collections
- Depositing a post-dated check prematurely
- Using deception to make you accept collect calls or pay for telegrams
- Taking or threatening to take your property unless this can be done legally
- Contacting you by postcard
How to manage your debt payments
If you are contacted by a debt collector for a valid debt, you should pay it if you can afford it. You can try to negotiate the debt to lower the amount you pay. The older the debt, the more luck you may have negotiating down a lower payment. If you are unsure whether or not you should pay the debt, it is in your best interest to consult with an attorney who can advise you and represent you if you do wind up in court.
Know that if you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe. Debt collectors do not need to have any of your financial or personal information according to the FDCPA, so you are under no obligation to give them your credit card or banking information, even if you are feeling pressured.
When you make your debt payment, Cox advises using money orders to ensure security and accuracy, while Detweiler suggests loading the exact amount of money you owe onto a prepaid card so you do not have to give your bank or credit card number to the debt collector. Both methods offer an additional level of protection and security. Speak with your attorney to determine the best method of payment for your debt.
What to do if you get sued by a bill collector:
If you refuse to pay a debt, whether or not it is one you legally owe, the debt collector has the right to sue you. In this case, the first step you should take is to hire a lawyer who specializes in handling debt collection cases. Your lawyer can help you determine whether or not the debt is still valid based on its statute of limitations, and they can negotiate a smaller payment for you.
The next most important thing to do if you are sued by a bill collector and asked to present your case in court is to show up. It sounds simple enough, but the fact is too many consumers lose their cases simply because they do not show up in court. If you do not show up in court, you have no chances of winning your case. If you do show up in court, you might be able to have your debt dismissed or at least brought down to a lower payment.
How to tell if a debt collector is legitimate
Unfortunately, there are a lot of scammers out there who illegally profit by threatening consumers with unpaid debts. They can get their hands on your information easily, even if you have already paid a debt. This means it is crucial for consumers to understand the differences between legitimate debt collectors and scam artists to protect their personal information.
Here are some ways to tell if the bill collector contacting you is legitimate or a scam artist:
- Demeanor: A professional debt collector should not use threatening or aggressive language when speaking with you
- Action: A professional debt collector knows the law and will agree to send you written notice of your debt within five days of your conversation
- Harassment: A professional debt collector will not call you during times you specify as unsuitable
- Information offered: A legitimate debt collector will be open about the debt they are calling you about, while a scam artists might use vague terms or even claim they are calling about a debt you never owed
- Payment: A scam artist could ask for odd forms of payment, including gift cards, which cannot be traced. A legitimate debt collector will accept multiple forms of payment, including credit cards, debit cards or money orders
To find out for sure whether or not you are speaking with a legitimate debt collector, contact the creditor. The creditor will be able to tell you who has been authorized by them to collect payment for your debt.
If the information doesn’t match up, you can submit a complaint with the Consumer Financial Protection Bureau (CFPB) or your local Attorney General’s office.
How to improve your credit score once your bill goes into collections
Unfortunately, having a debt in collection lowers your credit score by up to 100 points, even if you pay it. Taking immediate action is the only way to try to prevent a negative hit on your credit score once you have been contacted by a legitimate debt collector.
If you have recently been contacted by a debt collector, first ask for it to be removed from your credit score. Know that their contracts dictate they are not supposed to pay for removals, but in certain extenuating circumstances they might be able to bend the rules. This doesn’t work for most situations, but it’s worth a phone call to see if it can work in your case.
Medical bills make up over half of all debt collections. If you find yourself with a medical bill in collections, contact your medical provider to see if they can pull it back from collections so you can pay the provider directly and not have a collection on your credit score.
If you are not able to have your collection removed from your credit score, know that the impact it has will minimize over time and eventually disappear after seven years. In the meantime, take steps to ensure you pay your bills on time so you do not wind up with another debt going into collection and impacting your credit score.
Bottom line: Anyone can end up with a debt in collections. Take the time to research your debt to see if it is still under your state’s statute of limitations. Understand the law so you can recognize whether you are dealing with a scam artist or a legitimate bill collector, and take action if you are the victim of a scam by contacting the CFPB.