Dealing with Debt Collectors, the Underbelly of Credit – Part 1

Are debt collectors harassing you? It’s difficult to go through a major financial set back, whether it’s the result of a job loss, the mortgage meltdown, illness or injury, or any other cause. Are you in a situation where, despite your best efforts, your creditors will not work with you? Do you have outstanding bills because neither credit counseling/consolidation nor bankruptcy are possible? You can protect yourself from brutal treatment by collection agencies.

Maria was recovering from an automobile accident that smashed several bones making it impossible for her to work in New England while her father was seriously ill in Texas. Due to her injuries she could not be with him. When the phone awakened her at midnight and she saw it was her father’s area code, she feared the news as she grabbed the phone. To her shock, a debt collector bellowed that he would have her thrown in jail if she did not pay a past due medical bill immediately. She told him to never call her again, that he was violating laws. The man laughed and hung up. She was frightened. Maria’s experience is one of thousands of illegal harassments by collection agencies, which occur daily.

With rapidly growing credit defaults due to economic downturns and increased stresses, such as the rising cost of food and gas, collection agency business is booming. Sometimes these companies have a contract with an original creditor, such as the hospital where Maria’s surgeries took place. They receive a portion of the amount of the bill they collect, which can be 50 per cent or more. In other cases, collectors buy up old debts at pennies on the dollar. Anything they collect, they keep. Employees often work on a commission basis; their income depends on them extracting money from you. However, the Fair Debt Collection Practices Act (FDCPA) – overseen by the Federal Trade Commission (FTC) – regulates the conduct of debt collectors. You cannot be called before 8 am or after 9 pm, unless you give your permission. Don’t! And you cannot be threatened.

Steps to protect your self from collection mistreatment:

1. When you are contacted by mail or phone regarding any debt, respond that you are not familiar with the bill they are mentioning. Tell them you must have written proof that this is your debt, that you signed documents agreeing to the debt, and you must have detailed information regarding the amount due because it does not sound familiar to you. Do NOT admit that it’s your debt. Although you may owe money to the same creditor, this may not be your debt. Wait to receive proof. Several years ago, I overlooked a bill for $75.00 during a cross-country move. It was not forwarded. A few years later I received a collection call telling me I owed more than $7500! These types of errors can be an innocent mistake or intentional fraud. You must receive proof. Remember, the more money you pay the collection agency, the more they earn.
2. If you receive proof and you know the bill is your responsibility, but you do not have the funds to pay it, be aware there is a statute of limitations in each state regarding how long a debt can be collected. The time ranges from 3 to 15 years. Here is a link to a summary of state statutes. For example, if you are struggling to survive in California and you have debts that are more than three years old, legally they can no longer attempt to collect them after four years unless there has been a legal judgment against you. If you know you will not be able to pay the bill in full in the foreseeable future, you would be wiser to not pay anything on a debt. Often, debt collectors will try to get you to make a very small payment of a few dollars – because when you make any payment the collection clock resets and it is legal for collection to be attempted for that debt for four years, or whatever the time period is in your state, after the date of your small payment.
3. Make a list of all your debts. Carefully examine your credit reports to determine when creditors reported accounts closed and when your last payments were made. Some major credit card companies refuse to close an account when there is an outstanding overdue balance. They keep accounts “active” by adding late fees each month. This gives them the legal ability to pursue the debt for many years past when the account actually ceased to be an active account.

If you are in a position where you cannot pay your debts, it is important to take control to the best of your ability. There is no reason to be victimized by debt collectors. In the next column we’ll address action to stop all collection agency contact and evaluate whether credit counseling or bankruptcy could be viable options.