Mortgages, car payments, medical bills, credit card obligations, student loans - the bills keep rolling in. But the current economic crunch is finding more and more people the subject of debt collection. Many consumers, already floundering with monthly payments, have found themselves in a situation made worse by an unwanted job loss. As the bills pile up and the phone calls start coming in, knowing how the debt collection process works, and knowing your rights, can help you determine the best course of action. (Learn more in Outfox The Debt Collector's Hounds.)

This Is a Friendly Reminder …

If you have not paid a bill on time, a creditor may start the debt collection process by either sending a friendly letter or making a pleasant call to you. The creditor is simply trying to determine your intent - are you going to pay the bill? – and may offer to set up a payment plan where the entire amount can be paid over several smaller payments. Oftentimes, however, the creditor may be interested in recovering the entire amount immediately. Depending on the terms of agreement that you have with the creditor, they may add a late fee or penalty for missing the payment.

Nobody Likes a Tattle Tale

Following the friendly phone and/or mail reminders, the creditors may get dirty. Once a debt is 30 to 60 days past due, they can report your missed payment to any or all of the three major credit bureaus. This can be very damaging to your credit, and may stay on your credit report for up to seven years. Bad credit can make it more difficult in the future to secure a loan, such as mortgage or car loan, or open a new credit card account. Bad credit can even make it challenging to rent an apartment. If there is any way to arrange an amicable agreement with the creditor before it gets to this stage, it may be in your best interest. (Read Negotiating A Debt Settlement for more info.)

Transfer to a Collection Agency

Once the debt is 90 days overdue, the creditor will probably use an in-house affiliate or employ a debt collection agency to try to collect money from you. The debt collection agency becomes responsible for contacting you and trying to collect all or part of the money owed. The debt collection agency works for a fee or collects a percentage of the amount they recover from you. Third party collectors may also purchase your debt from the company to which you owe money - thereby allowing the company to write off the loss - often for much less than the value of the defaulted amount. These companies will then try to collect as much as possible from you to turn a profit. The incentive is high for the debt collection agency to collect, and they will dig deep in their bag of tricks to get you to pay. But do you have any rights in this process? You betcha. Read on to learn more.

Debt Collectors Have to Play Nice

The Fair Debt Collection Practices Act (FDCPA), enforced by the Federal Trade Commission (FTC), prohibits debt collectors from using abusive, unfair or deceptive practices to collect from you. For starters, a debt collector may not contact you at an inconvenient time, such as early in the morning or late at night, unless you agree to it. They also cannot contact you at work if you have told them, either orally or in writing, that you are not allowed to receive calls at work. (Learn more about what debt collectors are not allowed to do, read The Dark Side Of Debt Collection.)

You can also tell the debt collector, in writing, not to contact you anymore. They will still be able to contact you to inform you that: 1) there will be no more contact; or 2) the collection agency or creditor is planning a specific action, such as a law suit.

Debt collectors are prohibited from practices including:

  • Discussing your case with a third party, besides a spouse or lawyer. (They may, however, ask other people to obtain information regarding your whereabouts, workplace or phone number).
  • Harassing, oppressing or abusing you or any third parties they contact.
  • Making false statements or lying.
  • Saying that you will go to jail if you don't pay.
  • Saying they will seize property or garnish wages unless they are legally entitled to and plan on doing it.
  • Presenting anything that looks like a court or government document when it isn't.

Debt collectors cannot seize your property or garnish your wages unless they have filed suit against you and a court has entered a judgment against you. The judgment will state the amount owed and specify the legal action that the creditor or collection agency is allowed to take to recover their money.

You may report any trouble you may have with a creditor or collection agency to your state's Attorney General's office ( and the Federal Trade Commission ( You can also review the terms of the Fair Debt Collection Practices Act on the Federal Trade Commission's website:

Bottom Line
Nobody wants to be in this situation, but more and more people are facing debt collection as they are unable to pay their bills. Knowing how the process works, and knowing your rights, can help ease some of the pain and stress brought on by this challenging situation. (Just because you forgot about it doesn't mean the debt-collectors have. Learn how to deal with old debt in Dawn Of The Zombie Debt.)

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