|
If you’ve fallen behind in your payments, some companies that make their money off of “helping” will make it sound as if creditors are going to be taking you to court, securing a judgment against you and garnishing your wages and seizing your property very soon. If you don’t sign up for their services, these companies say, you can expect sheriffs to come knocking on your door any moment. (Collection agencies also play this tune.)
It is likely that your car will be repossessed if you miss payments on it. And it’s likely that the bank that holds your mortgage will foreclose if you miss several payments on your home. Those are secured debts; the property serves as collateral.
But when it comes to unsecured debt, especially credit cards, it is unlikely that a creditor will take you to court to collect a few thousand dollars.
We’re not saying it never happens. But the odds of it happening to you are relatively slim, simply because there are so many consumers who have debt repayment problems. Taking every one of them to court would be exorbitantly expensive for lenders.
Therefore, what creditors normally will do is report your bad behavior to credit bureaus, which affects your credit rating. And, eventually, they turn your account over to a collection agency.
Collection agencies work on what is, essentially, a commission basis. They get a cut—sometimes as much as 50 percent—of any money they collect. The rest of the money then goes to the original creditor.
In a few cases, collection agencies will actually buy debts from credit companies and collect these debts as their own. However, this practice has come under closer government scrutiny…so it’s not as appealing to collectors as it once was.
Needless to say, collection agencies are very motivated to extract whatever money they can from you. That’s how they get paid.
That’s one reason people at collection agencies are not known for their charming telephone demeanor. However, they also cannot get on the phone and simply rail at you, day and night.
There is a federal law that dictates how debt collectors may-and may not-deal with consumers. It's called the Fair Debt Collection Practices Act (FDCPA), and it applies to personal debts, including money owed for an auto loan or home loan, for medical care and for credit card accounts.
The appeals court emphasized that, under the FDCPA, It is not enough that a collection demand letter state the amount of the debt that is due. It must state it clearly enough that the recipient is likely to understand it:
Otherwise the collection agency could write the letter in Hittite and have a secure defense. …one doesn’t have to be ingenious to misread [National Action Financial’s] letter; one has to be exceptionally ingenious to excavate its meaning.
If a debt collector is trying to collect only the amount due on the date the letter is sent, then it complies with the FDCPA by stating the balance due, stating that the creditor “has assigned your delinquent account to our agency for collection,” and asking the recipient to remit the balance listed—and stopping there.
If a debt collector is trying to collect the listed balance plus the interest running on it or other charges, it should use language outlined by federal courts:
As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800- [phone number].
If you get calls from a collection agency, try to remain calm. And whatever you do, don't give out any additional information about yourself. Specifically, don't tell a collection agency:
where you work; or
the bank or banks where you have accounts.
This information only makes it easier for the collection agency to get a judgment against you in court.
If the collection agent asks where you work or asks about your bank point-blank, don't engage in a legal debate. Simply reply, "No comment."
You shouldn't commit to paying a bill that you don't have the money on hand to pay. Some collection agencies will try to get you to commit to a payment plan or make a postdated check payment over the phone. This may seem attractive, since it buys you time to pay; but, if you have doubts about the money, don't agree. Bouncing a check to a collection agency creates a bigger claim.
Did you know that there's a ‘statute of limitation' on collecting various types of debt? That means that creditors only have a certain amount of time in which they can legally sue you in court to collect on a debt.
If the statute of limitations has not expired-and it is not about to expire-on a debt, and it has been sent to collections, you may be able to negotiate with the collection agency.
If the collection agency has stopped calling you, you're actually in a better negotiating position, because the silent telephone means the debt collector is not optimistic about getting paid.
If you can, it's a good idea to negotiate with the collection agency face-to-face, in person. Most are not set up to do this-and are likely to be more flexible when sitting across from you than talking on the phone.
If you have to negotiate by phone, be sure to take notes, including the date and time of the call and the full name and title of the person with whom you are speaking.
If someone owed you a big chunk of money, your first inclination would be to get the entire loan repaid. But would you ever settle for less than 100 percent?
You might, if you thought it was the only way you were going to get any of your money back. You also might if you thought the person who owed you money didn't have anything of any value that you-or he or she-could sell to come up with the money owed.
Your creditors think the same way. If they believe that there's no point in taking you to court and getting a judgment against you because you don't have any assets anyway, they're more likely to settle.
And if they believe that you only have a small chunk of money, and you're either going to give it to them or give it to one of your other creditors who is more inclined to negotiate a settlement, they too will become more inclined to settle.
Typically, the best deal you can get with a creditor or a collection agency is a 50 percent settlement- where you pay 50 cents on the dollar.
In addition to negotiating a dollar amount for a settlement, you should use the negotiation to manage the effects on your credit report as much as possible.
Ideally, you would like:
the collection agency to remove its listing from your credit report entirely; and
the original creditor to show your bill as “Paid as Agreed,” or “Account Closed/Paid as Agreed.”
At the very least, you want any derogatory remarks taken off your credit report, and you want the account to be listed as “paid in full,” even if you have negotiated a reduced settlement. Ask for these things when you offer to settle. And get the collector’s response in writing.
Worst case scenario: You might agree to have the original creditor show the account as “settled,” if any negative comments, such as “charge-off” or “collection” are removed.
“Settled” is not the best way to have an account listed on your credit report. Having a settled account can trigger a denial of credit later on.
You may be able to have the account removed from your credit report once it has been paid, if you use the consumer reporting agency’s dispute process.
Before you leave the collection agency’s office (or get off the phone, if you couldn’t negotiate in person), get everything you’ve agreed upon in writing. If you are negotiating by phone, have a fax number ready before you call, so you can get the agreement faxed over immediately.
As soon as you’ve reached an agreement and gotten it in writing, you will need to pay the agreed-upon amount. Usually, you can either return with the funds or overnight the money.
Do not give the collection agency a personal check. Pay off the settlement with a cashier’s check or a money order, and do not purchase it at your own bank.
You do not want the collector—and potentially any other creditors to whom you owe money—to know your bank account number.
Also, be sure to keep a copy of the cashier’s check or money order. You want to have proof that you have paid this debt.
If you have negotiated a settlement for less than the full amount owed, you also will want to make a special notation on your check. It should say something like:
Cashing this check constitutes payment in full on account number XXX-XXX-XXX.
In most states, creditors cannot come after you for the balance of the debt if they have cashed a check that is so labeled.
|
