Dealing With Debt Collection Companies and Collection Law Firms

A few months ago, you had to have emergency surgery and spent three nights in the hospital. Your insurance only covered a fraction of your medical bills, so you had to put the balance on a credit card. You didn’t get paid for three weeks because you had to recover from surgery, and on your first day back at work your car broke down and needed a thousand dollars of work, which you also paid by credit card.

You are experiencing a lot of pain and brain fog after surgery and forgot to make minimum payments on your bills. Now you’re receiving letters and threatening phone calls from debt collectors and wondering how to respond or whether you should respond at all.

Having an account sent to collections is stressful, so it’s important that you understand your options – and rights under the law – when this happens.

What Is Debt Collection?

Debt collection is the process whereby lenders attempt to get a debtor to pay unpaid debts. Your creditors can attempt to collect debt in any of four ways:

  1. If you are past-due, or delinquent, on paying your bills, your creditor’s collections department can call and/or send you letters to get you to pay your overdue balance. If you think you can repay your debt, this would be the time to try to negotiate an accommodation based on your financial situation; in other words, try to do so BEFORE your debt gets sent to collections. While there is no guarantee your creditor will be understanding, explaining the circumstances behind your financial hardships (e.g., recent layoff, reduction in working hours, medical bills) may make them willing to set up a payment plan, assign a lower APR, offer temporary forbearance or deferment, waive late fees, or reduce the amount of debt you owe.
  2. If you are unable to negotiate an agreement with your creditor or you simply don’t respond to them, generally after about six months they will give up and hire a third-party debt collection agency or law firm to collect the debt on their behalf.
  3. If the third-party agency is unsuccessful in collecting the debt, your creditor will sometimes sell the debt to a collection agency (often for pennies on the dollar) who then attempts to collect the debt for itself, with or without the assistance of a collection agency or law firm.
  4. Your creditor may also try to repossess items associated with installment loans (for example, a car on a delinquent auto loan), selling the item at an auction and often attempting to collect any deficiency owing after the sale, either on its own account or by selling the remaining debt to a collection agency.

Debt Collection and Your Legal Rights

A federal law passed in 1977, the Fair Debt Collection Practices Act (FDCPA), provides debtors with legal protection by prohibiting debt collectors from using false, deceptive, abusive, or misleading practices in the debt collection process. This includes:

  • Misrepresenting the debt, including the amount owed
  • Using deception to collect the debt
  • Falsely claiming that the person contacting you is an attorney
  • Contacting debtors by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time
  • Failing to cease communication upon request
  • Communicating with debtors at their place of employment
  • Contacting a consumer known to be represented by an attorney
  • Communicating with a consumer after a request for debt validation has been made and before validation is provided.
  • Publishing the consumer’s name or address on a “unmanageable debt” list
  • Threatening arrest or legal action that is either not permitted or not actually contemplated
  • Abusive or profane language used during communication related to the debt.
  • Communicating with third parties about the debt
  • Reporting false information on a consumer’s credit report or threatening to do so in the process of collection

On November 30, 2021, the Consumer Financial Protection Bureau (CFPB) Debt Collection Rule was passed that further prohibits the following:

  • Trying to collect charges in addition to the debt unless they are allowed by the contract or state law
  • Depositing a post-dated check early
  • Communicating with you about a debt by postcard
  • Using any language or symbol on an envelope for correspondence with you (other than its address) that indicates it is a debt collector

In addition to prohibiting certain behaviors in the process of debt collection, the Fair Debt Collection Practices Act (FDCPA) requires debt collectors to do the following:

  • Identify themselves and notify the consumer, in every communication, that the communication is from a debt collector, and in the initial communication that any information obtained will be used to effect collection of the debt
  • Give the name and address of the original creditor (company to which the debt was originally payable) upon the consumer’s written request made within 30 days of receipt of the notice
  • Notify the consumer of their right to dispute the debt, in part or in full, with the debt collector
  • Provide verification of the debt. Verification should include at a minimum the amount owed and the name and address of the original creditor
  • File a lawsuit in a proper venue (in a place where the consumer lives or signed the contract)

It is a good idea to keep a file of all letters or documents a debt collector sends you and copies of any communication you send to them. Write down dates and times of conversations along with notes about what you discussed. These records can help you if you have a dispute with a debt collector, meet with a lawyer, or go to court.

If you believe a debt collector is using an unfair practice while collecting a debt, contact the CFPB, the Federal Trade Commission, or your state’s attorney general. You can also sue the debt collector for this or other violations of the Fair Debt Collection Practices Act (FDCPA). If you sue under this federal law and win, the debt collector must generally pay your attorney’s fees, and may also have to pay you damages.

What You Should Do Once Your Debt Goes to Collections

The most important thing to know if your debt goes to collection is this: DO NOT ignore or avoid a debt collector. Doing so is not likely to make the debt collector go away and could very well result in legal action against you. Knowing this, what then should you do?

You can always send a written request to the debt collector to receive more information about the debt. If you believe the debt amount is incorrect or that it’s not even your debt, send a written communication to the debt collector and ”dispute” the debt. (click here for further information).

If it’s your debt and you would like to try to resolve it, before you contact the debt collector it’s important to come up with a realistic payment plan or settlement proposal based on your overall budget. Realistic is the key here: don’t try to resolve this debt by jeopardizing your ability to meet your other financial obligations.

Once you have done this, negotiate with the debt collector using your proposed repayment plan. Make certain you take notes of your negotiation and get a letter or email confirmation of your agreement from the debt collector.

If you’re feeling overwhelmed about the prospect of negotiating with the debt collector, you may consider consulting with a non-profit credit counseling agency that can not only assist you in analyzing your overall budget and in coming up with a realistic payment plan, but can also provide advice on how to negotiate with your creditor(s) or even negotiate for you.

Another option that some debtors undergoing financial hardship choose is to work with one of the many debt settlement companies promising to settle your debt for less than you owe. Unfortunately, far too often these companies prove the adage that if it sounds too good to be true, it probably is. Over the years, I’ve seen too many debtors who find themselves in worse financial shape after signing up with a debt settlement company.

While legitimate debt settlement companies exist, the industry is plagued by deceptive practices and misleading claims, and I don’t recommend working with them.

Bankruptcy and Debt Collection

Many people, hoping to avoid bankruptcy, struggle to pay down unmanageable debt only to end up filing bankruptcy in worse financial shape several years later.

If you’re feeling overwhelmed by the amount of debt you’re carrying and your ability to repay it, especially if you carry over $10,000 in debt or you’ve had accounts sent to collections, you should consider consulting with an experienced bankruptcy attorney to discuss your situation and determine if bankruptcy may be your best option. 

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