How to Deal with Debt Collectors

When you receive a phone call or letter from a debt collector, it is an unsettling experience. Some calls are more upsetting than others as they may be from an attorney rather than a collection agency. If you are unprepared to deal with the situation, it can be even more overwhelming. The following tips will help you to deal with calls and letters from debt collectors.

Don't ignore the contact

Your initial reaction to a contact from a debt collector may be to hang up the phone, avoid the calls, or throw the letters away. This will not make the problem go away and will likely make the situation worse. The calls will continue, and they could pursue legal action and get a judgment against you. This may enable them to garnish your wages, bank accounts, and other property. In fact, there is a new multi-billion dollar industry known as "junk debt buyers" that purchases debts that have already been charged off or written off as uncollectible. They hope that you will ignore them so that they will easily be able to obtain a default judgment against you.

Get everything in writing

If your first contact is via phone, get all of the pertinent information such as they person's name, the name and address of the agency, what the alleged debt is for, and the amount that they are saying you owe. Request that future contacts be in writing, and tell them that you do not want them to call you at home or work. You should also make it clear that they may not contact friends, family members, or neighbors to obtain additional information about you. Follow up on this by sending a letter. By law, the collection agency should also send you a letter within five days of the initial contact that tells you how much you owe, the name of the original creditor, and how to file a dispute.

You should request validation of the debt before making any arrangements with a debt collector. In a validation letter, you are essentially requesting that the collection agency prove that you actually owe what they say you owe. They should also provide you with a breakdown of the debt including the original amount as well as any interest, fees, or other charges that have been added. There are a number of reasons why the debt may not be valid. For example, it may not be your debt at all, you may have been the victim of identity theft, you may have already paid the debt off, or the collection agency may be charging excessive fees. CreditBoards.com and Bankrate.com both have excellent sample letters that will assist you with this process. Send all correspondence Certified Mail, Return Receipt Requested. Keep copies of all letters you send and receive.

Know your rights

Debt collectors often use tactics that are meant to intimidate, so it is important for you to understand your rights. The Fair Debt Collection Practices Act (FDCPA) outlines your rights when your accounts have been sold to a third party collector. For example, a debt collector cannot falsely claim to be from a credit bureau or a member of law enforcement, they can only talk to you (or your attorney) about the debt, and they cannot harass you with repeated calls or use obscene language when they contact you. In addition, they cannot threaten you with arrest, cannot sue you unless they are actually taking action (which is prohibited in some states), and they cannot threaten to garnish your wages or seize property unless they actually intend to do so (which is also prohibited in some states). If a debt collector has violated the FDCPA, you can file a complaint with the Federal Trade Commission or the Attorney General's office in your state.

It is also important to understand the Statute of Limitations, which is the time limit that a creditor has to file a lawsuit on a delinquent debt. This period starts when a debtor becomes delinquent. It does not prevent a creditor from filing a lawsuit, but you can have the suit dismissed if the Statute of Limitations has expired. It will not stop the collection agency from contacting you and also will not keep them from reporting the account to credit bureaus.

Negotiate a payment plan or settlement

If you have determined that the debt is valid, you may wish to negotiate a payment plan or a settlement. Your proposal should be in writing. Collection agencies are sometimes willing to accept less than what is owed; however, you should be aware that if you enter into this type of settlement, you may owe taxes on the unpaid amount. If you are trying to negotiate a settlement, consider adding a request for the collector to remove all information regarding the account from your credit report (this is sometimes called "paid for deletion").

Do not make any payments until you receive written acknowledgement from the debt collector that the terms have been accepted. Do not authorize an automatic draft from your personal account. The best option is to use a cashier's check or money order. Keep your receipts and send payment via Certified Mail, Return Receipt Requested. Also, request a confirmation from the collector that the debt has been satisfied.

Learn from your mistakes

Stay on top of your payments and keep good documentation. When you pay a bill, keep a hard copy and document the date that it was paid, the amount that was paid, and the form of payment (check number, etc.). If you pay online or over the phone, also record the confirmation number. If you move, be sure that you notify all companies that you do business with so that you will continue to receive statements.

Check your credit report regularly for negative or inaccurate information. You can get a free copy of your credit report from each of the three major credit reporting agencies annually. Dispute inaccurate information and take steps to address and negative or damaging information.