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To many of us, the word "collections" sends shivers down our spines. You've fallen behind on paying off a debt—maybe one of your credit card bills—and now a debt collector wants you to pay up.
Thankfully, you can get rid of those shivers by taking responsibility for the debt and taking steps to erase it. Read on to learn how you can clear out the obstacles, clear away the debt and clear your conscience when your account goes to collections.
Why Do Debts Go to Collections?
Typically, a debt collector—either a person or a company—reaches out to you when you owe a debt that's gone unpaid for some time, generally after you've missed three or more monthly payments. Two possible scenarios are:
- A creditor, such as a credit card issuer or a mortgage lender, thinks you're behind on payments. The creditor might use its own debt collectors to do this, or might hire a debt collection agency or law firm to take it on.
- A company bought your debt from the creditor and is trying to collect the money you owe.
A debt collector can contact you by phone, email, mail or text message when it's trying to collect payment for your overdue bills.
When a debt collector initially contacts you by phone, ask that the details about your debt be put in writing. Hang on to any written correspondence you receive from a debt collector. Within five days of its initial contact with you, a debt collector must tell you in writing the amount of the debt and the name of the creditor, and must inform you about how to dispute the debt.
What Should You Do When You Find Out Your Account Is in Collections?
1. Don't Ignore the Debt
When you're being hounded by a debt collector, it might be tempting to avoid collection calls or rip up collection letters. Unfortunately, that won't make your debt go away. It's best to take control of the situation and confront the debt head on. That way, you can get some peace of mind and minimize harm to your credit.
It's comforting to know that the federal Fair Debt Collections Practices Act prevents debt collectors from engaging in abusive, deceptive or unfair debt collection methods. For instance, they can't swear at you over the phone or threaten to throw you in jail if you don't pay. They also can't call you before 8 a.m. or after 9 p.m. unless you give permission. If you're not able to take calls at work, a debt collector can't contact you there.
2. Deal With the Creditor First
For several months after your debt has gone unpaid, an in-house debt collector working directly for the creditor normally will be the one reaching out to you about your debt. After that, the creditor might sell the debt to a debt collection agency or another outside company. Your debt even can be sold by one debt collection agency to another debt collection agency.
3. Ask the Debt Collector to Stop Contacting You
Under federal law, a debt collector in most cases must stop contacting you when you request so in writing.
After it receives your written request, a debt collector can contact you to verify that it won't contact you anymore or that it's filing a lawsuit against you.
Keep in mind that halting a debt collector from contacting you does not wipe out your debt. A debt collector can still report to a credit bureau that your debt has gone to collections, and it can still sue you to recover the debt.
4. Look Into Negotiating the Debt
Ultimately, a creditor or debt collection agency wants to get its money. Therefore, it might be willing to negotiate a lump-sum payment or a plan to pay off the debt over time.
Before you start negotiating, figure out how much of the debt you can pay at one time or over a number of months. Then, propose an amount of money you can reasonably pay, based on your income and expenses. A debt collector might accept 75% of your $3,500 credit card debt, for example, or might agree to an 18-month payment plan for the $2,000 you still owe on a personal loan.
5. Be Sure You Know Whom to Pay
Once you've arranged to pay off the debt, who should receive your debt payments?
If the original creditor, such as a credit card issuer or mortgage lender, is handling the debt collection, then your payments will go to the creditor. But if the original creditor hires a debt collector or sells your debt to a debt collector, you'll send payments to the debt collector.
6. Consider Disputing the Debt
Being contacted by a debt collector is no fun. But it can really be annoying if they're contacting you in error.
If that occurs, mail a letter to the debt collector stating the amount they're saying you owe is incorrect. You should also ask for proof of the debt collector's claim that you owe money, such as a copy of a credit card bill. Be sure to keep a copy of the letter. The federal Consumer Financial Protection Bureau offers a sample dispute letter on its website.
What happens if you and the debt collector can't settle the dispute? It might be time to bring in a third-party arbitrator. The arbitrator will weigh the evidence, such as proof that you paid all or some of the debt, and listen to both sides of the story before issuing a ruling.
7. Think About Hiring an Attorney
If the situation with a debt collector gets messy—particularly if the debt collector is suing you—then you might want to hire an attorney to represent you. Once you hand the matter over to an attorney, all communication must be between the debt collector and the attorney.
Another option: Ask for help from a nonprofit credit counseling service. A credit counselor can work with you on a debt payment plan and a household budget. Don't delay in seeking help, though, as waiting too long could land you in court.
What Happens if You Don't Pay a Debt Collector?
In some cases, a debt collector might take you to court and request that a judge order you to pay the debt. You can represent yourself in court or hire an attorney.
As part of the legal case, the debt collector must show that the debt is valid and that you're the one who owes it. Based on that and other evidence, a judge will rule whether you do or do not owe the debt.
While it's scary to go to court, it's not wise to ignore the lawsuit. In fact, ignoring a suit against you often worsens your situation. Typically, a judge will rule against you if you don't respond to the legal action. That could let a debt collector:
- Garnish (take) your wages
- Freeze or garnish money in your bank accounts
- Put a lien on any property you own
To stay out of legal hot water, face the consequences rather than hoping the lawsuit will simply go away.
On a positive note, a debt collector might not be able to take you to court over old debts. Why? Debt collectors have a certain window of time to sue you. In most states, that window is three to six years.
How Do Collections Affect Your Credit?
Once your overdue debt is handed over to an internal or external debt collector, this action probably will pop up on your credit reports. A collection account on your credit can lead to a significant drop in your credit scores. It'll take seven years for accounts that have gone to collections to fall off your credit reports.
How to Get Through the Collections Process
When one of your debts winds up with a debt collector, you might feel helpless. There are plenty of reasons to be hopeful, though. The way you react to this can empower you to come through this with your head held high:
- Act swiftly. Once you learn that a debt collector is pursuing your debt, the clock starts ticking. Time is on your side, but you must acknowledge the circumstances and respond quickly. Don't neglect your debt. Instead, be proactive so you can head off trouble.
- Educate yourself. Arming yourself with information can give you an edge in finding debt solutions. Be sure you're clear about who you owe, how much you owe and what your legal rights are.
- Seek help. It might be overwhelming to cope with this on your own. If so, consider hiring an attorney or contacting a nonprofit credit counseling service. An expert can provide guidance on how to resolve the debt and get your credit in better shape.
- Stay on track. After you've paid off the debt that went to collections, commit to making monthly debt payments on time, sticking to your budget and maintaining a manageable amount of debt. Your credit scores eventually will reflect your hard work.