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DEBT COLLECTION PROCESS One’s debt is generally not sent to a collection agency until they are at least 180 days late on a bill. Collections can hurt one’s credit score but one can improve that as soon as the debt is paid off. One simply has to be certain about working with a legitimate debt collection agency before the payment is made.
The process of debt collection varies on the basis of the creditor, but usually, one can expect the following:
1. A note is received from the creditor stating that one is past due. This is done generally by the creditor’s in- house collection department.
2. One’s creditor will move their account into a ‘charge off’ status – which usually takes place after no payment is made for 180 days. If the account is of a credit card, one will no longer be able to make use of their card. This negative demarcation will remain on one’s report for 7 years.
3. One’s debt is then sent to a collector. One’s creditor will hire an agency that will help in the collection of the payment. They might even sell one’s debt to this agency – therefore ensuring that the creditor has no more involvement in the future process. One would then be working on paying the debt back with the collection agency alone.
4. The collector makes contact to verify one’s identity. They can ensure this via mail or phone and can further involve contacting family, employers, friends and peers to confirm one’s identity. It is however noteworthy that they are legally only allowed to discuss one’s debt with only the person concerned and nobody else.
5. One receives from the collector a written debt validation notice – after which one’s identity is verified – and then one receives within 5 days, a letter proclaiming the original creditor, the owed amount and next steps of the process.
6. One will continue to receive phone calls and letters from the collector until they agree to pay their debt off.
7. One communicates with the collector and agrees to return the debt. By this point, one can try negotiating with the collector about paying less than the original owed amount.
8. One’s account is closed by the collector once the debt is paid off to them.
What happens if one is unable to repay their Debt? Should one be unable to pay off their debt, the collection agency could appoint a lawyer to sue them. One will receive a notice from court with a date that will require their appearance. If one doesn't show up, they will by default lose and become legally responsible to pay. When one does show up in court, both them and the collector convey their cases to the judge. Then, a judgement is delivered and it is decided if one needs to repay the debt or not. If one loses, they become responsible for not only returning the debt but also other expenses like lawyer fees, collection interest and costs. Additionally, one’s collector may enhance finances or place a lien on their assets so as to recoup the owed amount.
Will my credit score be affected if I don't repay my Debt? One’s credit score generally drops when a credit account goes to collections. The drop depends on how high the credit score was to begin with. The account of collection tends to stay on one’s credit report for 7 years – even if one has made the payment to the collector. However, now one can improve this by paying back the debts. FICO9 is the most frequently used scoring model – it de-prioritises collection accounts that one has already paid. Therefore, paying the account while it is still in collections can manage to improve one’s score.
When will I be contacted by a Debt Collector? All credit providers have different policies about overdue debts and debt collection – but mostly, when one is late in making a payment, they won’t be contacted instantly by a debt collector. The provider may connect with you by phone , email or letter – stating the owed debt and requesting payment. If one fails to respond to the provider or make the payment – their account may then be referred to a debt collector. This is likely the case when payment is overdue by more than 30 days. But when one’s account is moved to the status of “charge off” after 180 days of no moment, it tends to happen more often.
New ruling of CFPB on Debt Collection Communication The Consumer Financial Protection Bureau (CFPB) issued 2 rulings in the year 2020 that clarify what is considered to be harassment. The new rules establish practices that must be followed by debt collectors while corresponding with debtors and before reporting to credit bureaus. While there is no limit set to how often a debt collector can contact one by phone, text or email, they are additionally required to offer the option to opt out at every attempt of contact. It also emphasises rulings from earlier that state that debt collectors cannot drop messages with the intention of harassing or abusing anyone – however it is not specified what might qualify as messages of harassment. It further prohibits collectors from threatening lawsuits on any debt that maybe outside of the statute of limitations. Debt collectors are required to still provide one with proof of their debt when it is requested.
Comparison of Debt Relief Companies If one has more than $7,500 of unsecured debt, one may wish to consider debt relief.
Before one signs up with a Debt Relief Company: Typically, debt relief companies charge a percentage of a customer’s debt or a monthly fee for their services. Not every company is transparent about the costs or deficiencies that negatively affect one’s credit score. One may pay other fees for third-party settlement services or for the setting up of new accounts, depending on the company they work for – which could possibly leave one is a worse situation than when they signed up.
Alternatives to consider before signing up with a Debt Relief Company: Payment extensions: Companies that are owed to could be inclined to extend the due date of one’s payment or place them on a longer plan of payment, if asked. Non-profit credit counselling: Search for free debt management aid from non-profit organisations such as National Foundation for credit counselling. Debt settlement: If one can manage to pay a part of the bill, one should offer the collection agency a single payment as a settlement. Collection agencies are frequently keen to allow a lower payment on one’s debt so as to close the account.
Is your Debt Collector legitimate? If one receives a notice from a debt collector, it is only natural to wonder if it is a scam. Certain obvious signs can give away the authenticity of the collector or its lack of.
What does one look for in a reputable Debt Collector: The debt collector’s company should be easy to find. A well reputed debt collection company will have its own website and its headquarters should be easy to locate. They should be able to validate the debt. The debt collector should be able to have a process in place where they send a letter in the mail showing where the debt came from upon being asked for its validation. One’s original creditor should be able to verify them. When contacted, the individual or company that one originally owes the debt to, should be able to confirm the collection agency that the debt was sold to.
What to look out for in a faulty Debt Collector: The faulty debt collector will not share their contact details. If the person reaching out refuses to share their name, company name, contact details and professional licence number, it is likely that they are not operating in a legal capacity. They will not be able to provide information/details about the debt. One has the right to demand the collector details about the debt before making the payment. If one does not recognise the creditor they are to collect for, it is likely not legitimate. One can write a letter to the collection agency for further details before making any payments – so as to ensure it's actually their own debt. They are likely to threaten one with criminal charges. If the person claims they will have one arrested in the event that they are unable to pay, they are likely an unreliable debt collector.
How will a Debt Collector contact me? Debt collectors usually contact people over the phone but they could also reach out by mail/letter, in person or via email/online. They cannot make contact before 8am or after 9pm. They also can’t irritate you by calling repeatedly – though the law does not specify exactly how often they’re allowed to call or not, for it to qualify as harassment. Any and all reasonable requests made by an individual on their preference of communication hours and availability are advised to be respected by the debt collector. It is also advised for them to not make contact when one is at work – upon one’s request. One can also request for the calls to be halted altogether via mail/letter. If one feels like a debt collector is making contact too often, or not providing the opportunity for one to respond, one can also contact the company or the Consumer Financial Protection Bureau to make a formal complaint.
Debt Collectors & Privacy There are certain rules and requirements as well as recommendations around how frequently one can be contacted by a debt collector that protect one’s right to privacy. For instance, sharing details about one’s financial situation with anyone else is absolutely prohibited for a debt collector. Also, unless one gives them permission to share, they are not allowed to reveal to anyone that they are a debt collector. Therefore, if a debt collector reaches out to an individual at their workplace or at home while they are not present, they are not at liberty to share anything about the individual’s situation with anyone else. If they are to make contact with an individual online, they need to be reasonably certain that no one else will be able to access the information.
What to do when Debt Collectors get involved: Upon being contacted by a debt collector, it is ideal to respond as soon as possible – so as to deal with the overdue account. One may be able to consider some of the following option, depending on their circumstances: Keeping a record of the contract: One must make note of when exactly a debt collector made contact with them and what was said. This will protect one’s right to privacy and can be used as evidence if one has to file a complaint. Explaining the situation: Allow the debt collector to properly understand why one hasn’t made the payment. If one is experiencing hardships on the financial front, they may be able to offer a payment plan before taking any further action. Figuring out how much one can afford to pay: One may be referred to a repayment plan by the debt collector, based on the owed amount. Should that be the case, one must ensure that they can afford the repayments based on their current circumstances. If one is unable to, one must suggest an amount that would be reasonable for them or enquire about more options. Signing up for credit counselling: If one is unsure of how to deal with their debt, it is wise to consider getting professional advice from a non-profit credit counselling agency.
Finding the right Credit Counselling Agency: A list of government-approved non-profit Credit Counselling agencies has been issued by the Department of Justice on its website that can be searched by State. Upon finding one’s state of choice, they must check with their state’s Attorney General to ensure there are no complaints lodged against it. Once everything checks out, contact them to set up the consultation. Generally, these are free of charge with legitimate agencies. The counsellor is likely to come up with a plan to get on top of the financial trouble.
How to figure which Debt Collection Agency is owed? If one is aware they have an account in collections but is unsure about who exactly the owe – there are certain ways to find out exactly which agency the particular debt was sold to: Checking Credit report: Debt collection agencies will generally report one’s debt to of of, if not all major credit bureaus: Equifax, Experian and TransUnion. One must consider taking a look at one’s credit report from each bureau – this can be done once a year, free of charge – and one will likely be able to access the name and contact details of the debt collector that their debt was sold to. Contacting the original Creditor: One can contact the credit card issuer or any other lender who one originally held the account with, and demand if their debt has been sold. If the debt has been sold, they will be able to share the name and contact details for the debt collection agency that is now owed to. Checking one’s mail & voicemail: If one’s debt has in fact been sold to a third-party agency, is is possible that they received letters and voicemails from the concerned collector – trying to extract the payment.A debt validation notice must contain the contact details for the collector. If a voicemail is all one has received, they can try looking for a phone number online to try to narrow in on the company name.
What if one is contacted regarding a Debt that isn’t theirs to owe? If one is contacted by a debt collector regarding a debt they don't think belongs to them, or if they are doubtful of the amount of debt being quoted, one must send a letter to demand the validation of the debt. One can verify these details by checking them against one’s own and then reach out to the provider, disputing the debt. One can further provide copies of any and all additional details like payments that were made but not recorded on one’s account, if necessary. If the situation is not reaching a resolution still, one can seek out professional advice from a non-profit affiliation, bring in a lawyer or lodge a complaint with the CFPB, if they feel the collector is indulging in harassment.
In summation: Overdue debts can prove to be overwhelming when dealt with but there are certain ways to bring back balance. One must understand how the process works and become proactive by reaching out to any debt collectors that could help regain control of the finances. However, if the debt situation becomes worse – to the point where one no longer thinks they can handle it by themself, it is wise to consult a debt relief company to help one’s self regain control of their finances.
FAQs Responses to commonly asked question about debt collection practices:
When will a third-party company collect my Debt? Ans: Certain banks and providers have their own internal debt collection teams to support them with overdue accounts. Others can pass debts on to third-party debt collection companies. This is common for larger sized debts that have been defaulting for several months. Whatever may be the case,one should be able to explore a range of options in dealing with their debt in a manner that is manageable for them.
How is a Debt collector able to access money from my bank account and/or paycheck? Ans: A debt collector has to first sue any individual in order to access money from their bank account and/or paycheck. If one receives a letter stating that they are being sued, one must make sure to NOT ignore it. If one doesn't show up in court, it is nearly a guarantee that the collector will win the court order to access their money.
Who do I contact in order to settle my Debt? The collection company or the company I borrowed money from? Ans: Upon being sold to a collector, the debt becomes the charge of said collector. At this stage, the original company that was owed to, won’t help – one needs to deal head on with the collection agency.
The Collection Company dealing with me suddenly changed their name. Is it a scam? Ans: It is possible that one is being scammed but also probable that that’s not the case. Be wary of sca,s and faulty collectors and make sure to request validation of the debt to ensure the company is legitimate. However, simply because a company is relatively new does not mean it is a scam – it is common for a collection agency to sell a debt to another collection agency. This generally happens when the first agency is unable to draw a payment in an amount of time that is considered reasonable.
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