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Your first reaction when hearing from a bill collector may be panic or avoidance, or perhaps a combination. But those reactions won’t help the situation and could make it a worse.

Most collectors are just doing their jobs, and some of them are so good at dealing with consumers that they get love letters from their clients! But even if you don’t get a warm and fuzzy feeling when you are talking with a collector, you don’t have to deal with abusive behavior. There are laws that protect you against that.

Here we have assembled some of our best advice from years of answering consumers’ questions about collection accounts.

Are You For Real?

The first and most important step to take when contacted by a debt collector is to establish whether you are dealing with a legitimate agency trying to collect a debt you really owe. This can be more challenging than you may think. There are some very aggressive scammers out there and they’ll say just about anything to get you to pay them quickly. Consumers who applied for a payday loan online in the past are some of their favorite targets.

Two tip-offs that you are likely talking to a fake debt collector are that they won’t mail written confirmation of the debt or that they threaten dire consequences (jail, arrest, imminent lawsuit) if payment isn’t made immediately. Before you pay a debt collector, ask for written verification of the debt. Collection agencies, by law, must send this within five days of initially contacting you. Insisting on this is just one way to stop a scammer.

You can also call your state attorney general’s office to find out if debt collectors must be licensed to do business in your state, and if so, whether the one reaching out to you is licensed.

What Do You Want From Me?

While collection agencies would prefer you immediately pay the entire debt — including interest and fees — they also know that most people are in collections because they are having a hard time paying all their bills. They may be willing to settle the debt for less than the full balance, accept a payment plan, or a combination of the two. How low they will go depends on a number of things, such as how old the debt is and whether you are dealing with a debt buyer who purchased the debt for pennies on the dollar. Knowing what kind of debt collector you are dealing with can be helpful in negotiating.

Know Your Rights

You have a strong federal law, the Fair Debt Collection Practices Act, to help protect you from very aggressive tactics. Currently, federal law applies only to third-party collectors, not to creditors trying to collect their own debts, though there is talk of expanding these protections to creditors as well. And state law may give you additional rights.

Under the FDCPA, collection agencies:

  • Can’t tell others about your debt. They can contact relatives, neighbors or your employer to try to locate you, but once they’ve found you those calls must stop. And they can’t discuss your debt with others.
  • Can’t use, or threaten to use, violence. They also can’t threaten to take action they can’t legally take, such as having you arrested for “check fraud” or thrown in jail because you can’t afford to pay.
  • Must verify the debt. If you ask dispute the debt they must verify it and provide certain information about what you owe.
  • Stop calling you at work if you ask them to. If you tell a collector your employer doesn’t allow those kinds of calls at your workplace, they must stop contacting you there.
  • Stop contacting you completely, if you ask them to. If you ask them to stop contacting you (“cease contact”), they cannot contact you again except to notify you if they take legal action against you. This isn’t always the best thing to do, because you may leave them with no other option, but it may be helpful in situations where the debt is too old or you have no way of paying it.

These are just a few of the protections you have under the FDCPA. Knowing your rights should give you some confidence when talking with these professionals.

It’s also a good idea to understand the statute of limitations that applies to your debt. These state laws give creditors and collectors a certain number of years to successfully sue. If they try to take you to court after that time period, that may be illegal. At a minimum, you can raise the statute of limitations as a defense in a collection lawsuit.

Paying, or even agreeing to pay, an old debt may start the clock ticking again on the statute of limitations, and for that reason consumers need to be very careful about how they handle old debts.

Collection Accounts on Credit Reports

Almost as much as the phone calls and letters, what seems to bother consumers most is the fact that collection accounts harm their credit scores. The three most common questions we hear from consumers about this topic are:

  1. How much does a collection account affect my credit scores? The answer is “a lot,” but how much depends on everything else in your credit reports. If you have a stellar credit history and suddenly a collection account appears on your reports, it can drop your credit scores significantly. Some consumers will see a drop of 50 to 100 points or more. The more recent the collection account, the greater the impact.
  2. Will paying or settling it help my credit scores? Probably not. In most credit-scoring models it doesn’t matter whether a collection account is paid or not. It’s negative no matter what. The exception is VantageScore 3.0, which ignores paid collections.
  3. When will it come off my credit reports? Under the Fair Credit Reporting Act, collection accounts may be reported for seven years and 180 days from the date you first fell behind with the original creditor. Whether you pay or settle it has no impact on the reporting period, nor does the state statute of limitations for collecting the debt.

In addition to those main issues, there are others that crop up. For example, collection accounts may be sold and resold, resulting in multiple negative entries for the same item. Or unscrupulous collectors may threaten that they will report a collection account “forever” if the debt isn’t paid, even though that threat is illegal.

Of course, if you are dealing with collection accounts you will want to get your free credit reports to see what is being reported, and it’s a good idea to get a free credit score to find out how it is affecting your score.

The Way to Pay

If you owe the debt and are ready to pay, how you pay a collection agency can be just as important as how much. Be very cautious about providing a debt collector with direct access to your bank account, either through ACH (Automated Clearing House) debits or with your debit card. What happens if there is a problem and you either can’t make a payment or they take out too much? The money will be gone from your account. Good luck getting it back. Using your online bill-pay service, a cashier’s check or even a money order may be safer.

In addition, it’s crucial that you keep a record of all your payments since you won’t be receiving monthly statements. Keep that information indefinitely; you never know when an old debt can come back to haunt you.

If You Are Sued

If you can’t pay what you owe and the collector takes you to court, that doesn’t mean all is lost. You may be able to settle the debt or fight the lawsuit. Or if your debt is too large and there is no way you can pay it, filing for bankruptcy may help you get a fresh start.

The worst thing you can do is to simply ignore a notice indicating that you are being sued. The collector will then be able to go to court and get a default judgment against you. With that, it may have more options at its disposal, including wage garnishment and/or seizing payment from your bank account, depending on what’s allowed under your state’s laws.

Getting Help

If you believe a debt collector may be breaking the law, you can seek help from a consumer law attorney. If the collector is violating state or federal laws, the attorney may be willing to help you for free, as the collection agency would have to pay the attorney’s fees.

Another option is to complain to the Consumer Financial Protection Bureau, which regulates the collection industry. It may be able to help you resolve the problem, but if not there will at least be a record of the type of problem you are experiencing. If the CFPB sees a pattern of complaints against a company, it can take action. In addition, the CFPB is asking for input from consumers on ways consumer protections should be strengthened.

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