Dealing With Debt in Collection
Taking on debt isn’t a bad thing, as long as you can pay it off. If you can’t, not only will your credit take a hit, but you will often have to pay penalties for not honoring your loan agreement. Unfortunately, if you find yourself not being able to pay back an unsecured loan, you will also likely need to deal with debt collection after a few months of defaulting.
For some information about consumer debt and how it affects you, read this.
Debt collection is a very stressful time, especially for those who are confused about the process and don’t know what to expect. This can make you feel powerless, as well as make you worry that someone is coming after you. Therefore, the Rebound Finance team has created this article in an effort to help you feel more comfortable about dealing with debt collection so that you can learn what it’s all about.
What is Debt Collection?
When you stop making regular payments to your unsecured debts (like your credit cards), your lender will likely try to reach out several times to encourage you to begin making payments again. If you continue to avoid them, however, this lender might decide to employ a collection company, once again in an attempt to get you to pay your debt. It’s often cheaper and easier for them to hire outside help, as opposed to continually using resources to chase you down themselves. The collections agent or agency will usually be paid a set fee, percentage or commission for getting the debt paid for your original lender.
Click here to learn the other consequences of not making your loan payments on time.
Dealing with these debt collectors is never a pleasant experience, as they can be quite aggressive when reaching out to you, insisting you pay your debts. Their sole goal is to get you to pay back your debt. After all, that is what they were hired to do. Also, some will employ tactics that toe the legal line, which is why it is so important for you to know about debt collection to ensure you are being treated fairly.
Why Happens When Your Account Goes Into Collection Status?
When your debt is transferred from your lender to a third party collections agency, it means that your account is officially in “collection” status. You will know when the debt goes into collection because the agency and/or your lender will send you a written notice about the status and outstanding debt. The lender doesn’t have to tell you they are sending your account to collections, but the collections agency does have to let you know that they are now going to be seeking repayment for your debts.
There is no set amount of time that it will take for a debt to go to collections (if it ever does). That decision is completely up to the lenders, though it usually won’t happen for at least a few months. However, if you haven’t been making payments on your debt, you should at least have it in the back of your mind that your debt may one day be sent to collections, so you aren’t surprised if it happens.
If you’re struggling with your debt, ask your lender about a debt management program.
What is the Debt Collection Process?
So, let’s say you haven’t been making payments on your debt and feel you might soon have an account in collections. What should you expect? In an effort to help you, we’ve included a breakdown of what will happen during the debt collection process.
First, you will be contacted by the debt collector (usually via a letter or a call) and they will explain to you that they are now in charge of collecting your debts, and will often provide (or ask you to request) debt validation. They must also identify themselves, tell you the name of the creditor that you owe and the amount you owe.
Once they have validated your debt and introduced themselves, they will begin the debt collection process. This will involve repeated calls and letters to you, which can get very annoying, very quickly. In most cases, this is when consumers begin to work out a plan to start paying back their debts, as no one wants to live with the constant annoyance of a debt collector calling you every day. If you can’t pay them, answer their calls and try and work out a solution, as ignoring their calls generally won’t stop them from contacting you. Once you pay the money back, the account will be out of collections and you will no longer be bothered by the collector.
To avoid this happening, you can also try bad credit debt consolidation.
What Happens if You Don’t Pay Off Debt Collectors?
What happens if you just ignore their calls or letters and simply never pay the debt back? Well, the next logical step for them to take is to pursue legal action against you. You will receive notice of their intention to seek legal action a few weeks before they do, allowing you one last chance to pay off your debts.
As part of the legal action, you will need to attend a court hearing in which your case will appear in front of a judge. If they decide that you do indeed owe the money, they will sign a judgement saying that you are now legally required to pay back your debts.
If you still insist on not paying them back, your debt collector will be granted the legal right to start garnishing your wages in order to pay back your debts. At this point, the only available options to get out of paying your debt are to file a consumer proposal or bankruptcy, both of which can be very damaging to your credit for many years.
What really happens when you ruin your credit? Find out here.
Debt Collection Laws
While debt collectors are, of course, allowed to collect all of their debts, there are also rules in place about the methods that they can use to collect. The Fair Debt Collection Practices Act has been in place since 1977 and it outlines what debt collectors can and can’t legally do.
According to the law, debt collectors cannot do things like:
- Harass or abuse you. This goes for using obscene language or threatening violence.
- Call you before 8 AM or after 9 PM, based on your specific time zone.
- Lie to you or claim you have committed a crime.
- Discuss your debt with friends, family or employers.
If you feel your rights have been violated, you should file a lawsuit or reach out to the Consumer Financial Protection Bureau.
Understand The Debt Collection Process Before it Happens to You
In conclusion, when your debt goes to collection, it can be a confusing and stressful time in your life. However, understanding the process and what needs to be done can make it a lot easier to deal with. Hopefully, this article has made you more aware of what takes place when your debt is in collection and what you need to do if you find yourself in that situation. While it’s often easier said than done, the best thing for you to do, whenever possible, is to always keep up with your payments and settle your debts before they ever reach collections.
Get Debt Relief Today
If you’re currently dealing with debt and are looking to get back on track, Rebound Finance and help by matching you with the best debt relief product or service for your needs.