Falling behind on debt payments can be stressful, and the last thing anyone wants is a barrage of calls or letters from a debt collector threatening repercussions if you donât pay up now. While companies do have the right to ask consumers to pay their bills, there are government rules in place to keep debt collectors from unduly harassing you.
Calls from unscrupulous debt collectors can be frightening and unsettling. Before engaging with anyone who contacts you claiming that you owe money, itâs important to know your rights. Often, debt collectors may be lying or breaking federal law.
The Fair Debt Collection Practices Act (FDCPA), a federal law that was passed in 1978, provides guidelines on the actions that debt collectors can take when they try to get consumers to make payments on their debts. It prohibits abusive, deceptive or unfair practices and puts limits on when and how third-party debt collectors can contact people who owe money.
The FDCPA covers the collection of credit card, mortgage and medical debt, as well as debts from household, personal or family purposes, including student loans and auto loans. The FDCPA does not cover business debt or debts for agricultural purposes.
One important aspect of the FDCPA is that it only applies to third-party collections. That means that the company where the debt originated, such as a bank or credit card company, does not have to abide by FDCPA rules when collecting debt.
But original creditors typically donât collect their own debt or sue people who owe them money because it would make them look bad, said Ira Rheingold, executive director of the National Association of Consumer Advocates. Instead, these companies hire someone else â a third-party collection agency â to do it for them.
âItâs reputational,â Rheingold said. âIf you are a credit card company, do you really want your name on all these lawsuits?â
If a debt collector contacts you, they likely are working for a third party such as a debt buyer or a debt collection agency. Some of these companies buy past-due debts, often at pennies on the dollar, and then use abusive means to try to collect the debt.
The bottom line is that third-party collectors are allowed to contact you within the FDCPAâs guidelines if you owe money. But if their behavior breaks the law, which includes threatening to call your grandma or your neighbor about your debts, you have recourse.
If you get a call from a debt collector, do not engage with them. That means do not give them personal or financial information, no matter how forcefully they ask. Instead, hereâs how to handle unwanted calls and letters.
Itâs important to make calls short, but make sure you get some important information before you hang up. Tell the debt collector you want verification of your debt in writing. âSay to them, âI donât believe I owe this debt. What proof do you have?ââ Rheingold said. By law, the debt collector is required to tell you:
The debt collector is required to send you the information within five days of the initial contact.
While it can be tempting to try to negotiate over the phone with a debt collector, Rheingold recommended proceeding with caution, and donât fall for a debt collectorâs argument that you have a moral obligation to pay your debt.
Often, debt collectors pile exorbitant fees on top of the amount you owe. âBe very careful,â Rheingold said. âOftentimes, itâs just throwing good money after bad.â
Ask the caller for their companyâs name and mailing address. If you receive a letter, save the return address.
Send the debt collector a letter by certified mail telling them to stop contacting you, and keep a copy for your records. This letter will trigger FDCPA rules that require the debt collector to leave you alone.
Keep in mind, however, that a letter will not magically banish a third-party debt collector. They are still legally allowed to contact you to confirm there will be no further contact or to notify you of any actions it can legally take, including a lawsuit or reporting negative information to a credit reporting company.
If a collector contacts you, they could be breaking the law as they try to get you to repay debts. Rheingold said one common fraud is debt collection companies buying past-due debt for extremely low prices at âdebt auctionsâ and then trying to collect it. Often, the debt collection company only has a little information about the debtor and no information about the actual debt. If you donât pay, however, they may try to take you to court.
âThey use our court system to collect debts when the debt is not provable,â Rheingold said. âThey donât have the original contract or accounting of how much money is owed. They will say you owe money, and if you donât pay it, they sometimes will sue you.â If you donât show up in court, the debt collector may get an easy win.
If you think a debt collector is doing something illegal, here are some options:
Personal debts typically are considered delinquent after you miss the first payment, and if you donât make any payments for six months or respond to the original lenderâs collection efforts, the lender may turn the debt over to a third-party debt collection company.
At this point, you may start receiving letters, emails and phone calls to get you to make payments on the debt. Third-party debt collectors typically will try these tactics for about 90 days, and then they may sue you or sell your debt to another collection company.
Yes. The law requires a debt collector to send you a âvalidation noticeâ within five days of making contact with you. The notice must include the name of the creditor you owe money, how much money you owe and information about steps you can take if you donât think the debt is yours.
First, never agree that the debt is yours. The FDCPA requires debt collectors to provide validation, such as a copy of a bill showing how much you owe on the debt, when you ask.
After you get the debt collectorâs mailing address, send the company a letter within 30 days stating that you donât owe the money and asking for verification of the debt. The debt collector also is required to stop contacting you if you ask in writing.
Itâs likely that the debt collector has the incorrect amount for your debt or has tacked on high fees â Rheingold said you may owe $500, but a third-party debt collector may inflate that number to $2,500 with fees. Both of these practices are illegal. Third-party debt collectors cannot misrepresent the amount you owe or collect fees or interest above whatâs stated in your original contract.
After sending a letter requesting that the debt collector verify the loan amount, file a complaint with the CFBP. If the debt collector sues you, seek legal assistance and respond to all court summons.
Thereâs a possibility that a third-party debt collector will sue you if you donât agree to make payments on your debt, regardless of whether you actually owe the money. If you do receive a court summons, do not ignore it, Rheingold said. Be sure to show up on your appointed date, with an attorney if you can, to make sure that the court doesnât rubber-stamp a judgment against you.
If a debt collector is contacting you about more than one debt and you do want to make payments, you can dictate where the payment goes. Itâs illegal for a third-party debt collector to apply your payment to a debt that you have said you donât owe.
You also may want to consider a serious assessment of your financial situation, Rheingold said. âYou need to have a real understanding of what you can afford and what you canât,â he said. âMaybe thatâs the time to sit down with a financial counselor.â
Youâll also want to figure out which debts to prioritize. If you need your car for work, for example, youâll want to pay your auto loan.
Any payments you can make need to be substantial, Rheingold said. âPaying a little money here and a little there isnât going to do you any good,â he said. Making minimum payments while accumulating more debt will not lead to financial health, and, in extreme situations, consumers may want to look at bankruptcy options.
It depends. Debt collectors can have money taken from your paycheck and your bank account with a court order. But the debt collector first must sue you. Thatâs why itâs vital that you respond to any legal notices from debt collectors, preferable with legal counsel.
Federal benefits such as Social Security typically cannot be garnished for repayment of debts.
A statute of limitations, which begins when you miss your first debt payment, limits the window of time that debt collectors have to sue you and win payment. When that time frame passes, an unpaid debt is considered âtime-barred.â
The length of the statute of limitations is determined by the type of debt and the laws in the state where your contract originated. Be careful: If you make a payment or acknowledge your debt in writing during the statute of limitations, the time will reset.
While debt collectors may be annoying or bordering on abusive, at times they are trying to collect a legitimate debt. In most cases, you can legally make debt collectors leave you alone, but your inability to pay outstanding debt remains.
âIf you owe the debt, you canât get blood from a rock,â Rheingold said. âBut you can still say, âI donât want you to call me anymore.ââ
When you get the debt collectors off your back, take a hard look at your options. Making minimum payments typically isnât enough to reduce debt, and it could prove difficult to rein in spending while you make debt payments.
Rheingold said nonprofit credit counselors will provide free guidance for people struggling to get out of debt, including information about bankruptcy. âSometimes youâre better off getting a fresh start so that you can renew your credit (history),â he said. âIf you find yourself in that position, think about how you got there and maybe seek help.â
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