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Dealing with Debt Collectors

By Jason Alderman

Senior Director, Visa Inc.

If you’ve ever fallen far behind on paying your bills, you know what it’s like to dread whenever the phone rings: What if it’s another bill collector? Ignoring the call – like ignoring a toothache – is never a good idea, however. Sooner or later, you’re going to have to deal with the situation.

According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC), “Our 2011 Financial Literacy Survey found that most people – 68 percent – pay their bills on time. However, 28 percent said they experience difficulty making timely bill payments.”

Ideally, you should contact your lender as soon as you realize you may have difficulty paying a bill. They would much rather work out a repayment plan than enter the costly and time-consuming collections process. But, if that ship has already sailed, here are a few precautions you can take to protect your interests:

You have certain rights whenever dealing with debt collectors. For example, under the Fair Debt Collection Practices Act, collectors cannot harass you by:

  • Using abusive language or threatening violence or arrest.
  • Calling before 8:00 a.m. or after 9:00 p.m.
  • Falsely representing themselves as attorneys or government employees if they are not.
  • Threatening to sue you if they do not in fact intend to file a lawsuit.
  • Contacting you at work if you tell them your employer disapproves.
  • Contacting others, except to verify where you live and work.
  • Revealing to others that you owe money.

If a collection agency contacts you initially by phone, they must send you a written notice within five days telling you how much you owe, the name of the creditor owed and how to file a dispute if you don’t agree. Once contacted, you should:

  • Get the names of all persons calling and their agency, its address and phone and fax numbers.
  • Take detailed notes of all conversations, correspondence and pre-recorded calls, noting names, dates and times. You may also want to consider recording the conversations, but be sure to get their consent if required by law in your state.
  • You may request that all subsequent contact be handled by mail. Send this request – and all further correspondence – by certified mail, return receipt requested.
  • Request that all conversations be followed-up in writing.
  • Document any false, misleading or harassing statements and include them in your correspondence.
  • Ask for full details about any debts the collector claims you owe, including dates, amounts, lender’s name, etc.
  • Instruct that you be the only person contacted, unless you wish an attorney to be involved.
  • Retain all records indefinitely in case of future disputes.
  • Have all agreed-to repayment plan terms verified in writing, including promises to remove or adjust reports to your credit history.

If you feel you’ve been targeted in error, tell the collection agency – in writing – that it has the wrong party and to stop contacting you. If they can’t provide proof, by law they must cease collection efforts.

Unfortunately, it’s not uncommon for identity thieves to run up debt in someone else’s name and to have those unpaid debts eventually go into collection. That’s why it’s important to check your credit reports regularly and to report any errors or mistaken transactions immediately. You can order one free credit report a year from each of the three main credit bureaus. (Order through the government-authorized AnnualCreditReport.com; otherwise you’ll pay a small fee.)

A few other tips:

  • By not responding to a debt collector you risk triggering a lawsuit, which, if lost could result in garnishment of your wages or other actions.
  • There’s no time limit on contacting you about a debt. Some debts are sold to other collectors even after being properly disputed. So keep all records indefinitely in case the debt ever resurfaces and you need to dispute it again.
  • If you settle with a debt collector for less than what you originally owed, this “forgiven debt” may be considered taxable income by the IRS.
  • Don’t pay bills you don’t owe just to make the collector go away; that’s considered acknowledgement that you are responsible.

The Privacy Rights Clearinghouse’s Debt Collection Practices: When Hardball Tactics Go Too Far offers great tips on navigating the debt-collection process, including your privacy rights, sample letters and where to turn for help. The Federal Trade Commission also provides a helpful Guide for Consumers.

And finally, if you want to learn more about the potential advantages – and pitfalls – of working with a debt settlement company to pay off your debt, read my previous blog, Feds Strengthen Debt Settlement Rules.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney

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