How to deal with debt collectors

This article had to be revamped big time.


Don't get me wrong, it wasn't terrible. It actually had what I consider to be a nice lead-in, with good segues to the major points of debt collection. It was a very soft-peddle approach.


But in light of recent events, it all just seemed hokey -- not to mention disheartening. So I say we break things down to the brass tacks, eh?


These days, it seems like "debt collection" doesn't have the same gravitas as when I was younger. Perhaps it's nostalgia, where some things loom larger than life. Perhaps it speaks to my comfortably middle-class upbringing -- not paying one's debts was simply unthinkable -- or maybe people were already too comfortable with living above their means, even before the current economic crisis. Whatever the reason, the term that used to seem ominous has apparently become rather commonplace. It's lost its power.


Part of this has to do with a surge in the number of collections agencies. New companies have cropped up over the last few years, which is also where a lot of the problems come from.


Let's start with one of the biggest ones: They're chasing after a debt that isn't yours.


This happens more often than you might think. There are plenty of tales of people having their credit ruined by over-zealous collectors with the wrong leads, wrong names or just wrong information.


Perhaps the worst part about this problem is that it's often so easy to see there has been a mistake. I remember one anecdote: A company was harassing a woman over a small business loan taken out in another state. Except that she had never left her home state and had been steadily employed as a teacher while this debt was incurred. But the company claimed she had to prove it wasn't hers. (Not true.)


So, just in case some of you haven't actually dealt with collections before, let's go over some basic rules.



First a quick primer on debt


Once you incur debt, most companies will wait at least 60 days -- more often 90 or more -- before sending an account to collections. At the 60 day mark, the company will contact you (and, often, the credit bureaus), reminding you that it hasn't received a payment and threatening collections.


The representative will tell you that the account is about to be "charged off." This sounds pretty scary, but actually it means the company is officially giving up on you. The good news: It won't hassle you anymore. The bad news: The credit bureaus have already been notified. The collections agencies will start contacting you.


Some agencies will contact you first by letter. Legally, they must send you a letter within five days of contacting you by phone. But some companies ignore this rule. After all, if you don't have a letter, it's harder to complain about a specific company's harassment. (Many of the less scrupulous will avoid saying the name of the company when they call.)



Rule 1: Never accept responsibility


Much like a car accident, you should never, ever admit fault. As soon as you accept a debt as your own, the company has a good basis for asserting the legitimacy of its efforts.


This rule can be one of the hardest to remember. Often, you're dealing with debts you incurred years before. The company has exact figures on its side. It has your social security number. And the agent just sounds so sure. How can it not be true?


Pressure doesn't help memory. We all know that. So just flat out refuse to accept the debt as your own until the agency provides proof. Once you've had a few hours to think about it, you may remember details that prove the debt isn't yours.


But chances are, none of those facts will line up in your head while some guy is telling you all sorts of dire consequences. So just air on the side of caution, and don't admit to any responsibility.


Remember, these guys do this for a living. They have encountered all sorts of counter-arguments. They're prepared. You're not.


Instead, tell the agent you need to see proof that this is your debt. Until you see the evidence you requested, legally the company cannot take action. If it does, it's opening itself up to some nasty lawsuits.



Rule 2: Never make a payment

Unless you are 100% certain that this is a debt you created, do not -- under any circumstances -- agree to a payment. Even if it's just a few dollars. Even if it's one dollar.


One of the oldest tricks in the book is to offer you a very enticing settlement, either in writing or on the phone. Often, these communications offer to take up to 60% off the amount owed. This could be tempting, especially if you're pretty sure the debt is yours.


Other times, the agent will offer to let you just make a small payment -- a show of good faith, then he'll leave you alone. If you're tired, distracted or stressed, this can seem pretty appealing.


Do. not. take. the bait.


Because that's exactly what it is. The agent uses these offers to hook you. Getting you to make a payment -- even $1 -- accomplishes that.


Why? Because any payment on a debt restarts the clock on the statute of limitations.


Each state has a statute of limitations on debt. Usually between 4-6 years, the statute means you cannot legally be forced to pay debts beyond this point. (The notable exception to this is a federal student loan or an IRS debt. Those almost never go away.) So once the 3-6 years is up, you are no longer responsible for paying back the debt.


Unless, of course, you make a payment. Then, you're on the hook again for another 3-6 years.


So how do you know if it's past the statute of limitations? Well, first, check find out what your state's magic number is.


But there is another good way to sniff out a soon-to-elapse debt. When a collections company suddenly starts contacting you with promises of severely reduced amounts, it's a good guess that they're desperate to collect before time runs out.


See, collections agencies pay pennies on the dollar for the charged off accounts. And their people work mostly, if not completely, on commission. So if they're suddenly willing to take thousands of dollars less than what you owe, it's usually their last shot at payment.


An aside:

Let me just say, I firmly believe that people should pay off the debts they create. I think this nation would be in much better financial shape if this were the guiding principle. Instead, I see an awful lot of Americans talk about bankruptcy as casually as a dentist appoint: Not something they love to do, but easy and relatively harmless.


So, please, don't use the statute of limitations on debt for evil. If you can afford to pay off your debt, do it.


But if you are in a financially tight situation -- and that means no savings, no lattes, no nothing -- then you should check your state's law before making any kind of deal with a debt collector.



Rule 3: Don't assume being innocent will protect you


So you get a letter from a debt collection company. You know it's not your debt. You weren't even in the state when this happened! So you can just toss the letter and go on about your merry way, right?


Wrong.


Ignoring a debt collections letter is as good as giving the agency a green light. You have to refute your responsibility in writing. You need to put in a letter that this debt is not your debt and you will not accept responsibility for it.


Once the company receives this notice, it may not contact you further about the debt until it has furnished proof -- usually in the form of a debt report.


When you send the letter, it's a good idea to use tracking confirmation and/or return-receipt request. This way, you have evidence that the letter was, in fact, received by the company.



Rule 4: Don't assume that having paid off/refuted a debt will protect you


Liz Pulliam Weston talks a lot about zombie debt. This is debt that won't die. You can pay it off, or even successfully refute that it's yours, but you'll probably hear about it again.


If you know this isn't your debt or that the statute of limitations is up, it may be in your best interest to hang up. At most, you should state that the statute of limitations is over/the debt is not yours/you have paid that debt. But, really, if you say nothing, then the company has nothing to use against you.


Should the company keep contacting you, it's a good idea to go ahead and send a letter again, asking for the collections attempt to cease and desist.

Rule 5: Know your rights


You have rights under the Fair Debt Collection Practices Act. It's important that you know what they are.


For example, a debt collector may not use profanity or threats. This happens more often than you might expect. I suppose it's the idea of obedience through fear. It's yet another reason that some agents avoid mentioning their company name. You can't report them if you don't know who called you.


Debt collectors cannot contact you at obviously inconvenient times, such as before 8 a.m. and after 9 p.m. They must also stop calling at work if you make it clear that your employer disapproves of your receiving calls there.


They may not threaten to have you arrested, exaggerate the amount owed, or otherwise make false statements.


Because these practices do happen, it's important to keep a log as soon as a debt collector contacts you. Be sure to get the name of the company and the agent. Note the date and time, as well as contact method. Summarize what was communicated to you, along with any response you make.


If the agency continues to abuse your rights after you've asserted them, contact your state's Attorney General and/or the FTC. These entities can give you a better idea of how to proceed, including whether you should engage a lawyer. (If you win a lawsuit, you are entitled to damages and up to $1,000. The Act does not specify, but in some cases, the plaintiff has been awarded $1,000 per contact that is in violation.)



I hope that answers some questions about debt collections. Feel free to chime in with your own advice and/or experience with debt collectors. If there's something I left out, feel free to ask!