What to do If a Collection Agency is After You

By: Keith


I recommend never buying anything on credit unless it’s a student loan or a house (and the house only because people don’t usually have that much money lying around).  The hassle of credit is usually not worth whatever short term gain you think you’re getting.  Collection agencies are good examples of the aggravation that comes with debts.  I know a bit about collection agencies because I used to send delinquent customers to them. Then I’d have to deal with sobbing phone calls about how I didn’t give them a chance to pay (even though I sent multiple letters and waited 6 months).  Once the debt was at collections and verified, there was no amount of whining that ever changed it.  I never liked giving contracts over to a collection agency because it meant I would get just 50% of whatever debt the agency was able to collect.  Thankfully, I worked with a good company; they never tried to cheat anybody, and they always stayed within the rules. Nevertheless, my preference was always to work it out with the customer first.  I would wait until I was sure the debt was not going to be paid (6 months past due was my rule).  But, what do you do if you encounter a bad collection agency? How do you combat some of the worst techniques in the business?  


Two Kinds of Agencies  


Legitimate: These guys keep 25% of whatever debt they collect and the rest goes to the original lender (Mine was 50% because I was a little guy).  They work directly for banks, retailers or whomever.  You’ll know them when you encounter them because they’ll send official letters from their agency or letters from lawyers as first attempts and when phone calls don’t work.  The only thing you, as a debtor, have to worry about with these people is making sure there is no case of mistaken identity and that they have recorded the right amount for the debt.  They’re professionals, and they’re simply doing their jobs.  


The Bad Guys: These people deal in what are known as zombie loans.  The original lender has written off the debt and bulk sold a bunch of them for pennies to a collection agency.  The lender no longer has any stake in the debt.  Thus, whatever the collection agency can get belongs to them.  Many of these debts are so long gone that the original creditor thinks the chances of collecting are slim enough that they write them off completely.  Some of the people working at these agencies are really terrible human beings.  Whatever they get is profit, and some of them make a sport out of squeezing as much as they can, in many cases going way too far.  


Common Tricks  


Wage Garnishment: Wage garnishment can only happen when the original creditor takes you to court and wins.  Chances are that you don’t have a debt important enough to worry about it.  And if an unscrupulous collector threatens you with it then it’s an outright lie.  Remember that they bought your debt for pennies.  There’s no way the original creditor even cares anymore.  


Jail: There’s no debtor’s prison here.  Don’t worry about it; it isn’t a criminal offense to owe money.  


Being Really Annoying: Collectors are only allowed to call you between 8 A.M. And 9 P.M., and if you put your request to stop calling in writing, they have to stop.  In that case they can only contact you in writing to say they’re taking you to court (which they won’t bother doing).  Some creditors will even call third parties such as parents, coworkers or whomever in an attempt to collect.  They’re only allowed to call 3rd parties to ask for a phone number or address; they are not allowed to discuss the debt.  If you’re being harassed by a debt collector, file a complaint with your state’s Attorney General.  The collection agency is required to tell you who they are (another way to tell if they’re dirt bags is when they won’t fully identify themselves).  


“Mistaken” Identity: Some credit agencies don’t care who pays the debt as long as somebody pays it.  It’s not uncommon for them to randomly pick on as many Keith Wilcox’s, say, as they can in the hopes that one of them will pay up.  They’ll say it’s a case of mistaken identity if you dispute it and win, but the truth is that they were just trolling for someone to pay.  The sad reality is that they’re quite often successful.  It isn’t fair that it happens to innocent people, but the only thing to do is to waste your time and dispute the debt in writing (and perhaps report the agency to the Attorney General’s office).  


Bad Credit Rating: Your credit can take a hit if you don’t pay a debt.  This one’s true.  But, if you dispute the debt in writing with the agency they must report it to the three major credit bureaus.  Also, say you have an old debt, a very old debt, that a collector is trying to get (a lot of zombie loans fall into this category).  Sometimes they’ll try to get you to pay right before the statute of limitations runs out (7 years), and if you make a payment, that 7 years starts over again.  Never pay an old debt without checking first.   


New Rule Starting this Year  


You’ll all be happy to know that there is one interesting new rule going into effect this year for creditors.  Starting in July, Businesses will have to do their own research when a dispute arises.  Instead of you, the customer, having to do the footwork, the creditor will have to research your dispute and respond within 30 days.  Now, I don’t know if that means the creditor will simply wait a few days and then respond “we were right all along.” Or if they’ll have to give proof of good faith.  I’ll wait to see how specific the FTC has been with that.  


Some collectors are outright criminals.  Yesterday I read about a collector who threatened to burn down a man’s house because the homeowner hung up on the collector (you can read about it here). Fittingly, the homeowner turned around and sued Verizon (the company for whom the collectors work).  You don’t have to put up with harassment and abuse.  Check out the laws in your state, and The Fair Debt Collection Practices Act.  The FTC website has an informative FAQ for anybody really interested in reading about collection agency rules.

3 Responses to “What to do If a Collection Agency is After You”
  1. PJ Mullen June 1, 2010 at 5:33 pm #

    There are entirely too many slimy collection agencies out there. Granted people should pay their debts, but some of the things these people do are dispicable. I tried negotiating a settlement for a family member who owed a sizable amount. The card was charged off and the debt long forgotten. Then, out of nowhere, they came after him for the debt. Our first request was to prove it had been less than three years since they attempted to collect this debt and we almost won on that. Two months later they finally came back saying they had a payment on record that negated the three year statute of limitations. So, as I was preparing an offer to settle the debt for obviously less than the full amount, I simply asked them to provide evidence of that payment to the courts (they had filed for summary judgment at this point). When they couldn’t they withdrew the case and released him from the claim. It was very satisfying, because they filed suit the same day my family member received a letter stating he had 30 days to respond before they’d sue. As soon as they did that we had no real interest in being fair minded.
    .-= PJ Mullen´s last blog ..Road Trip! =-.

  2. Rob J November 6, 2010 at 5:55 pm #

    Hey, kudos on the article. I know this isn’t the thesis of your piece (which is right on), but I’m kind of surprised you’re “recommending” student loan debt…I know the prevailing wisdom is that student loans are the smart debt because you’re trading it for an education. But, student loans are the most pervasive cause of financial crisis in this country next to foreclosure and medical bills.

    We take them out for our kids at the expense of our own retirement. Or, kids take them out for themselves not at all understanding the financial impact they will have on their lives. Student loans never go away…and they can never be entered into bankruptcy. Worst still, if you default, the debt is ultimately serviced by the IRS. After four years at most colleges, the average student will accumulate anywhere between $25,00 and $40,000 in unsecured debt…In this economy (or any other), that kind of debt represents a ludicrous risk to reward ratio…especially when more and more kids are graduating with no meaningful job prospects.

  3. Singapore Debt Collection May 29, 2013 at 12:25 pm #

    I am 105K in debt(mortgage, student loan, car and the unsecured loan) and lost my former job due to lack of work. I got a new job but I am out 15K/yr. Through much juggling, I am paying off everyone except the unsecured loan on which I am paying 30/month(they want 260/mth) and they are unhappy I am paying them so little and threatening to sue me. I am trying to sell the house to pay off the mortgage and the personal loan and this is still at the original lender level. I am hoping I will get to work with a collections agency first since I can offer them the 30 I am now paying the creditor and when I sell the house I can pay the bill in full and have the credit bureau remove the blotch from my credit by showing evidence of payment. Do they go to collections or sue first?If they do sue,will they garnish my wages or freeze my checking account(no savings) or both? How does the debt collection process work on an unsecured loan?
    Tried debt consolidation but my house is not worth enough to do it and having other debt attached to it would reduce my chances of selling the house and paying off the mortgage and the personal loan. I am really looking for info on how the debt collection process works,not how to get out of debt. I have that part figured out unless I get sued. Thanks
    Thanks Taja but I am asking what the collection process is. I owe 105K out of which only 9K are unsecured debt. I am paying everybody except for the unsecured debt (to preserve my assets) and paying this unsecured creditor 30 a month hoping to sell my house to pay of the mortgage and the unsecured loan which will get rid of 64K off my debt and put approx 4 K in my pocket to move to an area with a better pay labor market. I am trying to find out (by learning how the collection process works) if I am going to have time to get this done before I have to worry about their coming after my wages and/or checking bank account. In other words, if I can work with a collection agency to which I can offer payments and pay the 30 I am now paying until I can sell the house. I already tried debt consolidation and I can’t get a loan for 105 K with a house that is worth 79K as the only collateral. The rest I owe is my car and student loans which must be paid or they will be worse than this creditor.
    BBOYBALL: My mortgage is in perfectly good standing since I pay that before I even buy food. It is the only assett I have and I want to move to an area where I can work without having to commute an hour to do so. That is why I am selling the house: to move and to pay off the mortgage and the personal loan I took out to buy a new furnace and remove asbestos. I am willing to sell for 76K.

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