The Debt Collection Process and Protecting Yourself Against It
Written by Fiona Gu
How Debt Collection Works
Not everyone can always pay their debt on time, or even at all. When you fail to repay your debt before the deadline, the process of debt collection begins. This can be scary, especially for the first-timer, so you need to know how the process is supposed to work, your rights against debt collectors, and what you should and should not do.
Stage 1: Calls and inquiries from your original creditor
When you first miss the deadline to pay back your bill, your original creditor will start to give you friendly reminders through phone calls and letters. Eventually, you will realize that there are extra fees on your next bill. These additional fees could be a late fee, over the limit charge, and/or a 29.9% interest rate. With these extra costs, you will definitely not forget about your debt. If your bill continues to be unpaid for six months, your original creditor may charge off your account, and sell it to a debt collection agency. This means that your original creditor has given up on collecting your debt, so you will soon receive calls from a new debt collection agency. When this happens, your credit report would be negatively impacted.
Stage 2: Calls and inquires from the collection agency
Generally, independent debt collection agencies only pay a few cents for every dollar’s worth of debt they buy. This is how they can make money. After the collection agency has bought your debt, they will notify you by mail to tell you that they are now in charge. Normally, you would have thirty days to dispute the accuracy of your debt (this is usually written in fine print or at the bottom of your letter). You could delay the debt collection process when you dispute the accuracy of your debt (this is legal). The result from the confirmation request may range from the elimination of your debt collection to a letter from the collection agency stating that your debt is indeed valid. You could also receive information of all your past statements, credit applications, and card member agreements.
Once your debt is proven valid, you will receive phone calls from the collection agency asking you to pay back the debt. These callers could be nice (if you’re lucky) or extremely harsh (if you’re unlucky). Debt collection agencies’ callers work on commission, so they would definitely want you to pay back your debt as soon as possible.
Stage 3: Legal process (Note: this stage is not for everyone)
Your collection agency could tell you that they’re going to sue you, under the circumstances that they do have the intention and ability to do so, and not as a threat. If, however, your collection agency does not have the ability or the intention to sue you, but still tell you that they are going to, then you could file a claim against them. If you do receive a legal document from the collection agency, you should definitely read it. Ignoring any legal documents would be a huge mistake. Below are some words that could help you to further understand your legal document.
Arbitration: A forum where a dispute could be settled without a trial.
Complaint: A legal document that states the specific charges against you in a lawsuit. This is usually the first document you would receive once you’ve been sued, along with a summons.
Garnishment: A way for someone who has a judgment against you to collect. Often, this is in the form of wage garnishment. After a judgment is made against you, your creditor would file garnishment papers with the local Marshall. If you are employed, the local Marshall would notify your employer, and he or she would hold back at most 25% of your net earnings and send it to the Marshall. The Marshall would then forward the money to your creditor. Based on your financial needs, you could have the garnishment removed or reduced.
Interrogatories: Questions provided to you in writing before the trial. This often happens when you file an answer to the complaint. Your case would then be put into the legal record and your creditor’s attorney would be notified if you have a legal defense. Interrogatories are long and detailed. If you don’t answer the questions, the other side could ask for a summary judgment. If this happens, you are most likely to lose the case.
Judgment: A ruling in a lawsuit. If the judge believes you do owe your creditor money, then a judgment would be setup against you. Your creditor would now need to figure out how to collect your money. You would not be arrested if a judgment is made against you. However, when judgments remain uncollected (usually because people really do not have the money to pay back the debt), you creditor can go back to the court and file for a garnishment, a lien or a levy.
Levy: Your creditor could (with a court order) go into your bank accounts, such as checking or savings, and take money from there. This can only happen if a judgment has been made against you, and they know where your accounts are located.
Lien: Your creditor could (with a court order) to collect on a judgment by putting lien on a property, such as a house. In cases with large amount of money, a lien would not be paid until the house is sold or refinanced. Most creditors believe lien is a guarantee for them to get your debt payment, regardless of how long it takes.
Summons: This is how the court tells you of what’s coming up, whether it is to appear at a trial or hearing. You would receive summons along with your complaint.
The laws vary among the different states. It is highly recommended that you speak to a local lawyer if you are sued. The above is only a general description of the legal process.
Your rights against debt collectors
The Fair Debt Collection Practices Act prevents debt collectors and collection agencies to execute harassment and other unethical practices when collecting debt.
The debts that are covered include personal, family, and household. This could include money owed from buying a car, paying a medical bill, or credit cards.
Your collector could contact you in person, mail, telephone, or fax. Unless you agree, your collector can not contact you before 8 am or after 9 pm. Your collector cannot contact you at work if he or she knows that your employer disapproves.
You can stop your collector from contacting you by writing to the collection agency. Once the collection agency receives your writing, they could no longer make any contacts but may tell you if your debt collector or the creditor intend to take some specific action.
If you have an attorney, your debt collector could contact him or her, and only contact him or her. If you do not have an attorney, you debt collector could contact other people for the sole purpose of determining where you live and work. Collectors are usually not allowed to contact third-party people more than once. Most often, your debt collector would not tell anyone else of the existence of your debt, except to you and your attorney.
Within the first five days after which you have been contacted, your collector must send you a written notification stating the total money owed, the name of your creditor, and what to do if you believe that you do not owe the money.
Your collector cannot contact you if you send the collection agency a letter stating that you do not owe money within 30 days of when you are first contacted. However, your collector could resume collection practices if you are given proof of your debt (i.e. a copy of a bill for the owed amount).
The following is a list of the prohibited debt collection practices (the list is taken from BCS Alliance):
Use of threats of violence or harm against the person, property, or reputation.
Publishing a list of consumers who refuse to pay their debts or advertise your debt (except to a credit bureau) or give false information about you to anyone.
Repeatedly using the telephone to annoy someone or telephone people without identifying themselves.
Falsely implying that they are attorneys or government representatives or misrepresent the involvement of an attorney in collecting a debt.
Falsely implying that you have committed a crime and will be arrested if you do not pay your debt.
Giving a false name when they contact you or falsely represent that they operate or work for a credit bureau.
Misrepresenting the amount of your debt or claim 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.
Indicating 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 or send you anything that looks like an official document from a court or government agency when it is not.
Claiming that actions, such as a lawsuit, will be taken against you, which legally may not be taken, or which they do not intend to take.
Collecting any amount greater than your debt, unless allowed by law.
Using obscene or profane language.
Depositing a post-dated check prematurely.
Taking or threatening to take your property unless this can be done legally.
Making you accept collect calls or contacting you by postcard.
Calling your employer, neighbors, friends and relatives and revealing your delinquency to them [A delinquency can be revealed to a co-signor].
Note:The Fair Debt Collection Practices Act does not apply to your original creditor. Your original creditors are regulated by state laws that closely follow the Fair Debt Collection Practices Act.
If you feel your creditor has violated a law in the Fair Debt Collection Practices Act, it is most likely that your creditor has also violated a state law. You can file a complaint to your state’s Attorney General’s office.
