You think you’re on top of things ... and then the phone rings. A debt collection agency claims that you owe them money. What do you do? Or perhaps the bigger question should be: “what do you not do?”
Too many people make mistakes with that first phone call—mistakes that can cost them dearly. Read on to know how to avoid these common debt collection faux pas.
1. Ignoring Those Calls
What we mean: Thinking that you can just ignore the calls when the number shows up on caller ID won’t make the debt—or the collector—go away.
It can be intimidating when you answer the phone and a voice at the other end starts talking about collecting a debt. But if you continue to ignore the calls, they will start to send collection letters—and possibly notice of legal action. Don’t let it get to that stage.
What to do: Answer the phone, remain calm and know your rights (more on that below.) Before they call again, get your paperwork in order (more on that later, too), so you won’t be caught off guard when you answer the phone. If they're already sending letters, don’t toss them—read them and seek advice.
2. Not Verifying the Debt in Writing
What we mean: Always ask for written verification of the debt to be mailed to you. In trying to track down a debtor, companies may resort to something as simple as checking the phone directory. Do you want to be held responsible for someone else’s debt simply because that person has the same name as you?
What to do: Explain to the caller that you do not make any decisions on the phone, and that you need written proof of the debt. (By law, they must provide it.) Request that they mail you all of details of the debt, including the name and address of the borrower, the amount borrowed, the date the debt was incurred and, if possible, a copy of the original debt application or approval letter.
3. Not Knowing the Legal Status of Your Debt
What we mean: Some debts are subject to a statute of limitations. While the actual amount of time varies from state to state, this means that if the creditor has not made contact with you in a specific time period (typically five to seven years), that debt can legally be struck from the books.
What to do: Check the debt statute of limitations for your state. The statute applies when the company owed the money has failed to make reasonable efforts to obtain the money owed, not when you have ignored attempts to collect. When does the clock start ticking? Usually from the date of last activity on the account, but this may vary by state.
If the statute of limitations has expired on your debt, write to the debt collector, advising them that it has expired, and not to contact you anymore. Sending the letter by certified mail ensures that they have received it. If the statute has not passed, talk to a legal or financial professional experienced in debt collection to learn about your repayment options.
4. Providing Credit Card Information or Agreeing to a Payment Plan Before Seeking Advice
What we mean: Do not give your credit card or bank info to the person on the phone without first requesting—and reviewing—written evidence of the debt. A huge business in today’s debt collection market is zombie debt, or debts that have expired but have been purchased by one or more debt collection agencies. As soon as you acknowledge the debt, and offer to make payments, the debt is reactivated, making you fully liable.
What to do: After receiving written verification of the debt, seek independent financial advice. The collection agency will want to receive their money in the time that's most beneficial to them, but a financial advisor may be able to help you find alternative repayment options. Once you’ve agreed to a plan, it can be difficult, but not impossible, to make changes. But even with an agreement made via phone, you are entitled to receive written details about the agreed-to plan. And be sure to seek financial advice as soon as the paperwork arrives.
5. Not Knowing Your Legal Rights
What we mean: Even if you owe money, you still have legal rights to protect yourself from debt collectors who may not be following the rules. The Fair Debt Collection Practices Act is made available by the FTC and offers a clear explanation of your rights as a consumer. For instance, did you know that a collection agency must identify themselves clearly, must provide any written evidence you request and can only call between certain hours?
What to do: Download your free copy of the Fair Debt Collection Practices Act (FDCPA) (pdf). It may look dense and be full of legal jargon, but it's actually very straightforward when it comes to explaining what a collection agency can and can’t do when they contact you. And be sure to let anyone who calls regarding a debt know that you're aware of its contents.
6. Seeking Advice From the Wrong Source
What we mean: Look for guidance from the National Foundation for Credit Counseling, or a certified financial planner or a legal advisor with specific experience in debt collection. Some people make the mistake of calling their state’s treasury or revenue office in the belief that they can help, but they cannot provide individual legal advice.
Warning: Not all advisors are created equal. You wouldn’t see a heart doctor for a stubbed toe, so it only makes sense to seek out professionals with experience in the field of debt collection. They will be more up to date on current legal and financial developments, and can help save you a lot of headaches in the long run.
What to do: Find a qualified financial planner. If seeking legal advice, ensure that the attorney is qualified to practice in your state, and that the person's area of expertise is relevant to your situation. (Be wary of any free online sites that purport to give financial advice, but that are, in fact, linked to collection agencies.) And remember that you may not receive the advice you'd like to hear—even the most specialized professional cannot make your debt magically disappear.
7. Not Knowing Who Is Collecting Your Debt
What we mean: Do you know which company you're paying the money to? Is it the same company that you originally borrowed from? Or is it a collections agency? If so, the debt may have legally expired.
Given the various economic upheavals of the past decades, banks have failed, debts have been passed from one company to another and the company calling to collect may not be the same company from whom you originally borrowed money.
Furthermore, as debts pass the statute of limitations, debt collection agencies buy them from the original creditor for pennies on the dollar in the hopes of recouping huge profits. Even though the statute of limitations may have passed, if an agency can get you to admit to owing the debt, liability is revived and they can legally collect the debt. It's not unusual to have multiple companies all attempting to collect the same zombie debt, and if you’re not careful, you could end up having to repay them all.
What to do: Go back to that written proof. Follow the trail to see who is now contacting you about the debt, and how they came to be in possession of it. This can help you to determine whether the debt has been legitimately passed to a collections agency or whether it has expired and is now being pursued as a zombie debt.
8. Not Reporting Harassment
What we mean: Harassing behavior may include calling outside permitted hours, refusing to provide written proof of debt and threatening arrest or imprisonment. The number of complaints against collection agencies has skyrocketed in recent years, and the judicial system is taking the matter of harassment very seriously. Last year, an Atlanta-based company was forced to forgo collection on more than 31,000 delinquent accounts (exceeding $15,000,000) as punishment for violating collections laws.
What to do: Know your rights. If a caller appears to be in violation of the Fair Debt Collection Practices Act, remind them of that fact—and tell them that you will call your state attorney to report the harassment. And remember that it’s never too late to report harassment. While there may be no legal recourse for you, your complaint may be part of a thick file that eventually helps to shut down those who continue to threaten others.