What to Do When Collectors Start Calling

Posted on June 10, 2015 by resourcefulman

If you are in debt, chances are debt collectors will find you. After all, this is their job. And when your financial background comes back to haunt you, it could be a cross between a headache and a nightmare, depending on your financial situation. Here’s what you should do when collectors start calling.

Make sure this is not a scam

First of all, you want to make sure the debt collector is legal. There are so many scams out there. Here are some troubling points to keep in mind:

The Collector Worries : Nolo’s legal website claims that while ordinary debt collectors can be intimidating and rude, scammers often outright insult and threaten. They usually threaten you with legal action or jail time.
They demand payment immediately : again, regular pickers have urgent requests too. But the fraudster usually demands payment “today” along with the threat.
They don’t accept many forms of payment: if they have a very specific request for how you should pay, that’s a big red flag. Most of the real collection agencies offer multiple payment methods through their website, mailing address, or telephone.
Someone immediately answers when you call : Most companies have telephone systems. If someone answers right away when you call, it could be a scam. Also, be careful if you keep dealing with the same person. Legal companies have several agents.

It also helps to know the law. The Fair Debt Collection Practices Act prohibits collectors from doing several things, including calling before 8 am, calling after 9 pm, calling you at work, and harassing you with repeated calls. Fortunately, these scams are pretty easy to expose. Here’s how to do it:

Get Written Notice : Do not discuss any debts until you receive it in writing. The collector must send you written notice of your debt within five days of the first contact. This notice includes the amount owed, the name of the loan, and a description of your fair collection rights. CreditCards.com points out that legit collectors usually ship it before calling anyway.
Ask the following questions : What is the name, address and telephone number of the company you are calling from? What name and address of the debtor are you trying to contact? What are the last four digits of the debtor’s social security number?
Request confirmation : According to CreditCards.com, you have within 30 days of the first contact to request confirmation of the debt if you do so in writing. Find sample letters here .

Check your credit report

You should always ask for proof of your debt, but you should also verify it yourself. This is why it is so important to keep track of your credit report – so you know what you owe. Of course, when you’re in a lot of debt, it won’t be fun. But this is necessary.

If you haven’t already, request a free copy of your credit report . Second, learn to read. It’s probably also a good idea to make a list of your debts and come up with a repayment plan, but this is a completely different post (thankfully we already wrote it ). But knowing your debt repayment plan can help you prioritize the debt in question.

At the very least, you should be familiar with the specific debt the collector is calling about.

Consider a debt management plan

Full debt repayment is probably the most responsible business. Getting out of debt is a great financial goal, and you can usually work with a collection agency to come up with a new payment plan. The collector may refer to this as a debt management plan when proposing it.

This usually involves reducing the monthly payment and extending the due date so that you can eventually pay back what you owe. Of course, since the term is extended, you will generally pay more interest. But this is something to consider if you want to get out of debt, and perhaps you can work out the best interest rate in the process.

Know what happens if you settle

In addition to the debt management plan, the collector will likely offer a settlement amount less than your original debt, with a promise that the debt will be closed if you pay that amount.

We used to question the moral gray area of debt settlement. But debt settlement is a widespread financial practice, so we will tell the facts and let you decide which is best. Here’s what you should know before deciding to settle.

This is not good for your credit history: if you are more than 90 days late, the settlement probably won’t affect your credit rating too much. But suppose you have ongoing repayment payments, and instead you decide to settle. According to loan officer Todd Ossenforth , the collector does not immediately credit your payment. They keep it while they try to negotiate a lower amount with the lender. In the meantime, you are missing payments and your account will, as he put it, “suffer a loss.”
You may have to pay taxes: in some cases, you will have to pay taxes on the amount of the forgiven debt. If you agree to be at least $ 600 less than the original balance, you are likely to receive a “1099-C debt cancellation” from the IRS. They consider your forgiven amount to be taxable income.
There is a statue of the limit on debt: Nolo explains how it works :

Don’t inadvertently lengthen the lawsuit deadline: If a collector contacts you about an old debt that is out of date, be very careful what you say to the bill collector. If you say or sign anything that could be considered proof of the validity of a debt (i.e., you agree that you owe the debt even if the statute of limitations has expired), then you may have renewed, refused, or extended the statute of limitations … Or, if you make an agreement with this invoice collector to pay off the old debt, you can also renew, cancel, or extend the statute of limitations.

In some cases, paying off your debt can help you. Just keep in mind – often it is not as fast and painless as it seems. Know what you are getting into before settling down.

Try to negotiate your settlement

It is also possible to agree on the settlement amount. And if you are interested in this option, there are several strategies. Loan Officer John Ulzheimer suggests offering 10 to 15 percent of your debt. Then, expect to settle in the 30 to 50 percent area.

According to Bankrate , you can also offer a so-called deletion fee . This is not illegal, but it is often frowned upon and many collection agencies may refuse. The point is, you pay and they agree to call the credit bureaus (Experian, TransUnion, Equifax) to remove your debt history from your credit report.

Get it all in writing

Whether you are paying off a debt or paying it back, get written consent from the collector. Do this before making any payments. Make sure the agreement contains complete information about your transaction, including the amount, terms and any interest.

You should also make sure that you can verify your payment history. Credit.com offers to pay with your bank’s certified check so you have a record of the payment without giving them your account details.

What Happens When You Ignore the Debt Collector

Let’s say you don’t want to settle accounts or deal with a debt collector. You have the option to ignore them, and any of the following can happen :

They leave you alone (unlikely)
You will receive a loan: your debts will be displayed as in collection.
Your debt will grow: interest will continue to accrue on it
Another agency will contact you
They sued you

It’s probably best to deal with the debt collectors right away. Because if they sue you and succeed in court, their next step might be to increase your wages.

Beware of withholding wages

Yes, debt collectors can withdraw money from your paycheck, depending on the debt. But there are rules and restrictions , and they also depend on the type of debt you have.

Again, with most debts, if you ignore the debt collectors, they will have to rule against you in court to brighten your paycheck. You have the option of challenging a judgment, trying to pay off a debt, or declaring bankruptcy. If you ignore the verdict, they will be allowed to take money from your earnings.

If you owe the US Department of Education for an unpaid student loan or the IRS for unpaid taxes, they can return your salary without a court order.

There are bonus laws that limit the amount that can be withdrawn from your paycheck. According to Alllaw.com , lenders cannot receive more than:

25% of your disposable income, or
your income in excess of 30 times the federal minimum wage, whichever is lower.

The Department of Education cannot withhold more than 15% of your wages. State laws vary depending on where you live. But they should at least protect you as well as federal directives do, that is, the amount that creditors can receive based on a court order cannot be more than 25.

If collectors start calling, the most responsible thing to do is come up with a plan to pay off the debt. But there are several options and several possible consequences, depending on how you decide to deal with your debt. Either way, you need to know what you are getting yourself into before making any big decisions.

More…

Personal Finance