What Debt Collectors Can and Can’t Do

If you have credit problems, you will likely be contacted by a collector at some point. If a collector contacts you about a debt by phone, the collector has five working days to send you a written notification of the amount you owe and the name of the creditor that referred the debt to the collector.

The notice has to state that this is an attempt to collect a debt and that any information obtained will be used for that purpose. The written notice also must disclose that you have the right to dispute the debt within 30 days of receiving the notice.

A debt collector may

  • Contact you directly, unless you tell the collector not to call you again or to contact your attorney instead, and you give the collector the attorney’s contact information. In this case, the file usually goes straight to a collection attorney.

  • Contact you by phone between 8 a.m. and 9 p.m., unless you agree to other times. The collector may contact you outside those hours only if you give your permission to do so.

  • Call you at work. However, if you tell the collector that your employer prohibits such contact, the collector must not call you at work.

  • Contact you by mail. However, the collector can’t put information on the outside of the envelope that indicates a collection attempt or send information on a postcard.

  • Contact others to get information about where you live and work. The collector can request only contact information. The collector can’t say that he or she is calling in regard to an owed debt. The sticky part is that if the collector calls your sweetie and your sweetie asks who the collector is, the collector can state his or her name and the name of his or her employer.

  • Supersize your statement. Only charges that you agreed to under the original terms of your loan may be added to your bill. You can find a list of them in the account terms, in the fine print. These charges include endless fees, huge interest rate hikes, and the costs of collection.

  • Ask for postdated checks. Depending on the state in which you live, the collector may be entitled to ask for postdated checks. Look into your state’s guidelines. Although your state may permit collectors to ask for postdated checks, providing one is not in your best interest.

  • Tell the credit bureaus that you’re behind on your payments. A delinquency that shows up on your credit report stays there for seven years and lowers your credit score.

  • Hike your interest rate. You may be hit with a penalty rate. You can’t pay the current bill, so why would the creditor increase your interest rate to 20 or 30 percent? Because you’re a higher risk than the creditor thought.

  • Repossess your purchase. Repossession is almost always a bad deal for you because the creditor determines the value of the repossessed item and can charge you for costs incurred in reselling it, too.

  • Sue you in court. The collector may ask a judge for a judgment against you in a court of law. Depending on your state’s laws, this judgment can be a prelude to garnishing your wages or placing a lien on your home. A court action further damages your credit report.

  • Change the terms of your agreement. Some collectors may allow you to make up what you owe over time by adding an amount to future payments. Some, to their credit, offer hardship programs, but usually only if you ask. Be sure to get any changes to your agreement in writing, particularly if communications are strained at best. You need documentation to ensure that the agreement is honored.

  • Accept or offer a debt settlement option for less than the full amount owed. If a lower amount is agreed on, the collector usually wants the settlement at once and in a single payment. The debt is reported negatively on your credit report as “settled.”

    Depending on the amount of debt forgiven (usually a $600 threshold), you may get a Form 1099C from the creditor in the mail at tax time. The IRS considers the forgiven portion of the debt as income and requires you to pay taxes on it.

Debt collectors are not allowed to

  • Threaten you. In writing or over the phone, collectors must use businesslike language. Threatening, abusive, or obscene language is not allowed.

  • Be annoying. An annoying collector — isn’t that redundant? This rule means that collectors aren’t allowed to make repetitive or excessively frequent phone calls to annoy or harass you.

  • Be deceptive. Collectors can’t pretend to be anything other than what they are in order to get you on the phone.

  • Lie about the consequences. Collectors can’t claim that you’ve committed a crime or that you’ll be arrested if you don’t send payment. The United States doesn’t have debtors’ prison.

  • Make idle threats. Collectors can’t threaten you with illegal actions or actions that they have no intention of carrying out. If they don’t intend to take you to court, they can’t threaten to do so.

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