Debt collectors have a way of tracking people down, and sometimes, they track down the wrong people. That’s why it’s important to know how debt collectors work. No matter what your credit rating, you may get a call one day. When that happens, you need to figure out how to deal with the collector and with the debt.
The first thing to know is that collection agency is paid only if the money comes in, so it has a huge incentive to get you to pay. But that means that you have some power in the relationship, because you (may) have the money they need. The Federal Trade Commission enforces rules for collection agencies to keep the balance of power equal.
Debt collectors may not harass you. They may not call you before 8 a.m. or after 9 p.m. They may call you at work unless you tell them not to – so tell them not to call you at work. You can stop the calls altogether if you need more information about the debts by sending a letter, and the Consumer Financial Protection Bureau has some good sample letters to use.
Once you and the agency have reached an understanding about how you will be contacted and what information you need, you will have to deal with the charge. The first question is, do you owe the money? If you do not, send a letter or make a phone call explaining the situation. (Don’t call unless you are sure you can stay calm. It helps to write out what you want to say before you get on the phone. )
And yes, you can dispute a charge and win. I once had a health insurance claim go to collections. The hospital had gone through a merger and didn’t send the bill to the insurance company in time to receive payment. I explained what had happened, the collector verified that it was the hospital’s mistake, and the debt was written off.
It felt great!
If you owe the money, then you have another decision. Do you have the money to pay? Will you have it soon? If you have money or assets that can be used to pay the claim, you should work out a settlement. You can negotiate the terms of the repayment – after all, the collector doesn’t get paid until the money comes in, so he wants to work with you.
If you owe the money but do not have it to pay the creditor, you can ignore the collector or file for bankruptcy. If you ignore the collector, he or she may go to court to get a judgment against you, which would allow the company to garnish your wages, seize bank accounts and put a lien against real estate or other property. That strategy only works if you truly are broke; if you have any assets at all, the creditor can reach them, charging interest and destroying your credit rating in the process.
Unlike ignoring the collectors, bankruptcy can help you make a fresh start, but it can be expensive and will damage your credit rating, too. It is not something to take lightly, but it may be an option. If you’re considering bankruptcy or ignoring credits, you need more help than this article can offer. Before you call a lawyer, though, read the Nolo.com guide to debt management and collection agencies.