Mortgages, car payments, medical bills, credit card obligations, student loans—the bills keep rolling in, and too often people find themselves overwhelmed and subject to debt collection. As the bills pile up and the phone calls begin to multiply, knowing how the debt-collection process works and what your rights are can help you determine the best course of action.

Key Takeaways

  • Debt collection usually starts with a friendly query as to when you plan to pay your bill.
  • It gets more aggressive once you have been in arrears for 30 to 60 days, when creditors can legally report your debt to the three major credit bureaus.
  • Such reports can significantly damage your credit and may stay on your credit report for seven years.
  • When a creditor assigns your debt to a collection agency, usually at the 90-day mark, the situation gets serious.
  • In the wake of the COVID-19 pandemic additional federal, state, and local rules have been put in place to protect consumers faced with debt problems.

How Debt Collection Starts

If you have not paid a bill on time, a creditor may start the debt collection process by either sending you a friendly reminder or making a pleasant call. The creditor is simply trying to determine your intent—whether or not you are going to pay the bill—and may offer to set up a payment plan that allows the entire amount to be paid in several smaller payments.

Oftentimes, however, the creditor may be interested in recovering the entire amount immediately. Depending on the terms of agreement between you, the creditor may add a late fee or penalty for missing the payment.

After the friendly phone and/or mail reminders, creditors may get rougher. 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 a mortgage or car loan, or open a new credit card account. Bad credit can make it challenging to rent an apartment or even, sometimes, secure employment. If there is any way to arrange an amicable agreement with a creditor before it gets to this stage, that is likely be in your best interest.

Enter the Debt 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 obtain the money from you. The debt collection agency becomes responsible for contacting you and trying to collect all or part of the money owed. It works for a fee or collects a percentage of the amount it recovers from you.

Third-party collectors may also purchase your debt from the company to which you owe money—thereby allowing your creditor 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 agency to collect, and it will dig deep in its bag of tricks to get you to pay. So, do you have any rights in this process? You betcha.

Debt collection agencies cannot threaten to seize your property or garnish your wages without having a court order issued in a lawsuit.

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, debt collectors 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.

You can also tell a debt collector, in writing, not to contact you anymore. The company 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 lawsuit.

Debt collectors are prohibited from the following practices:

  • Discussing your case with a third party, besides a spouse or lawyer (though they may ask other people for 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 except when they are legally entitled to and plan on doing so
  • 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 its money.

Special COVID-19 Debt Protections

In the wake of the COVID-19 pandemic additional federal, state, and local rules have been put in place to protect consumers faced with debt problems. Sec. 4022 of the CARES Act, for example, provided foreclosure protection until May 17 for anyone with a federally backed mortgage. It still provides the opportunity for anyone with a federally backed mortgage affected by COVID-19 to request forbearance of up to 180 days with an up to 180-day extension, which effectively also stops foreclosure since forbearance is a form of loss mitigation that prevents foreclosure so long as you comply with the agreement.

The CARES Act also offers forbearance protection to owners of government-backed multifamily properties and eviction protection for their tenants. Until July 25, 2020, additional eviction protection applies to anyone living in federally backed housing. Other CARES Act debt-related help includes administrative forbearance for federal student loan borrowers, protection for stimulus payment recipients, Chapter 13 bankruptcy procedures, credit reporting limits, and enhanced unemployment insurance benefits.

In addition to the CARES Act, other programs, including at the state and local level, off coronavirus debt protection. One example is this Cease Debt Collection Communication letter from New York City. These programs and the helpful information they offer are not always easy to track down. Fortunately, the National Consumer Law Center has created a document listing federal and state-by-state COVID-19 protections in a variety of categories including:

  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act
  • Federal foreclosure and eviction suspensions; mortgage loan forbearance
  • Banking agency guidance on mortgage servicing and loan modifications
  • State limitations on foreclosures and evictions
  • Federal changes regarding appraisals
  • Student loans, other debts owed to the government
  • State actions regarding utilities and telecommunications
  • State limits on collection lawsuits, debt collection, and repossessions
  • Price gouging
  • Collection of civil and criminal debt owed to the state
  • Banking and bank-extended consumer credit
  • Bankruptcy changes
  • Fair credit reporting
  • Stopping automatic bank account payments
  • Insurance premiums
  • Health insurance coverage/limits on surprise billing
  • CARES Act employee protections
  • Advice and assistance for consumers

The Bottom Line

You can report any trouble you may have with a creditor or collection agency to your state 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.

Nobody wants to have a debt collector breathing down their neck. Knowing how the process works, and knowing your rights, can help ease some of the pain and stress brought on by debt collection. And remember, just because you forgot about a debt doesn’t mean that the debt collectors have. What’s called zombie debt can rise from the grave to strike when you least expect it. So don’t delay—deal.