Understanding the collections process and debtor’s rights is a good way to prepare yourself for the road ahead.
A Debt Timeline
If a payment has been missed and you are 30 days behind, creditors will begin trying to reach you to resolve the debt. The attempts may involve phone calls, emails and letters.
Your option: If you know that you may be 30 days behind, contact the creditor and let them know. They may work with you on a payment plan and you can avoid the collections agency process altogether.
If payments have been missed and you are 60 days behind, your account may go into a collections status within the creditor company. The collections department will continue to contact you more aggressively and warn you about potential reporting of delinquency to collections bureaus.
Your option: You may still have the option of working out a payment plan with the creditor. You may also pay a penalty fee.
If you are now 90 days behind, your creditor will continue to call you more aggressively and possibly shut down your account. The creditor will also report the delinquent account to credit reporting bureaus. Late fees and other penalties will be added to what you already owe.
Your option: A payment plan with reduced payments may be available if you are facing a financial hardship. Speak with your creditor to see how they can work with you.
If your account is over 90 days behind and the creditor has been unable to reach you or obtain payment, they will write off the debt as unrecoverable and contract or sell the debt to a collections agency. The creditor will also inform the credit reporting bureaus that your account has gone to a collections agency.
Collections Agency Process
Once your account is being handled by a third-party debt collector or collections agency, they will call, email and send letters in an attempt to collect payment on your account. You still have the option of a payment plan or settlement with your original creditor, if you reach out to them directly. A collections agency may not accept anything less than the full balance.
If you do reach an offer with your creditor, get the offer in writing. Make sure the offer states that you won’t be sued as long as you are making payments. Follow up with your credit reporting bureaus to make sure the settlement or other offer is being noted on your account.
Collections agencies will be persistent in contacting you once they take over your account. The quicker they reach you, the more likely they will be able to resolve the account. Collection agencies often get paid based on the amount they collect, so their tactics in reaching you will be assertive.
Going to Court
If neither the original creditor, nor the collections agency, were able to reach you for payment, you may be taken to court. You will receive a court summons with regards to your debt. If the creditor wins the suit, your wages, assets or bank accounts may be garnished until the debt is satisfied.
If you do not show up for your court date, the collections agency or debt collector automatically wins the suit.
Debtor’s Rights
When attempting to contact you about your account, a collections agency must adhere to the Fair Debt Collection Practice Act (FDCPA). This regulation grants you, the debtor, specific legal rights against any third party collector who threatens, harasses, intimidates or berates you while collecting a debt. They may also not call during odd hours (generally after 9 pm and before 8 am) nor are they allowed to contact you at work if collections calls are prohibited at your workplace.
They are not allowed to threaten you with public humiliation, violence, an arrest nor use abusive or profane language. They are not allowed to contact anyone else about your debt, with the exception of your attorney, a credit reporting agency and the original creditor. They are, however, allowed to contact others to obtain information on your whereabouts. For more information about what is or isn’t allowed in the FDCPA, visit the Federal Trade Commission page on fair debt collection practices.
One thing to note, the FDCPA only applies to debt collectors or debt collection agencies. The original creditor may still use aggressive tactics to reach you for payment.
Also note that each state has regulations with regard to garnishing wages and the statute of limitations on debt collection. All delinquent debt information remains on your credit report for seven years from the date of the first missed payment.
Medical Debt Reporting Changes with Credit Bureaus
Communication is Key
As you can see, there are many options during the debt collections process to work with a creditor to relieve delinquent debt. The key is to communicate directly with the creditor. Many people will avoid answering the phone or responding to emails and letters because they are in a financial hardship. Please understand that you are not alone. Unemployment, unexpected medical debt and other unplanned emergencies can easily put you behind in payments. If you show that your intention is to pay what you can, creditors will work with you and save the both of you the discomfort of relentless collections calls.
