Dealing with Collection Agencies FAQ

What you need to know about dealing with debt collectors.

Should I deal with debt collectors or try to avoid them?

Unless you're "judgment-proof" (that is, broke) or plan to file for bankruptcy, most credit counselors believe that you shouldn't ignore your debt or try to hide from a debt collector. Generally, the longer you put off resolving the issue, the worse the situation and consequences will become. Whether you negotiate directly with the collector or obtain a lawyer's assistance, most counselors feel it is almost always best to talk with the collector and try to work out a mutually satisfactory arrangement.

Collection agencies have been calling me all hours of the day and night. How can I get them to stop contacting me?

It's against federal law for a bill collector who works for a collection agency (as opposed to working in the collections department of the creditor itself) to call you at an unreasonable time. Before 8 a.m. or after 9 p.m. are considered unreasonable times, but other hours may be unreasonable, too, such as daytime hours for a person who works nights.

The federal Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. § 1692 and following) bars collectors from:

• harassing you
• using abusive language
• using false or misleading statements
• adding unauthorized charges, and
• many other practices.

Under the FDCPA, you can demand that the collection agency stop contacting you (except to tell you that collection efforts have ended or that the creditor or collection agency will sue you). Make your request in writing.

For more information on what the FDCPA prohibits and what to do if a collector violates the law, see Nolo's article What to Do If a Bill Collector Crosses the Line.

The collections department of a local merchant is harassing me. Can I do anything about it?

Unfortunately, the federal Fair Debt Collection Practices Act (FDCPA) does not apply to the collection department of a creditor (it only applies to outside collection agencies). However, many states have fair debt collection laws that do cover creditors' collection departments.

Check with your state consumer protection office to see if your state law applies to in-house collectors and to find out what types of collection practices it prohibits. (To locate your state consumer protection office, see Nolo's article State Consumer Protection Offices.)

A bill collector insisted that I wire the money I owe through Western Union. Am I required to do so?

No. Many collectors, especially when a debt is more than 90 days past due, will suggest that you make an "urgency payment," by doing things like:

• sending money by express or overnight mail, which will add at least $10 to your bill
• wiring money through Western Union's Quick Collect or American Express's Moneygram, another waste of money, or
• putting your payment on a credit card you'll never get out of debt if you do this.

Mailing your payment with a first-class stamp is fine. Or, pay by debit card or check card but first ask if the creditor will charge a fee. If you send your payment through the mail, you may receive further phone calls from the collector until the creditor receives and processes your payment.

Can a collection agency add interest to my debt?

Yes. The Fair Debt Collection Practices Act (FDCPA) allows a collector to add interest if your original agreement calls for the addition of interest during collection proceedings or the addition of such interest is allowed under state law. Every state authorizes the collection of interest, although the maximum amount allowed varies.

A collection agency sued me and won. What collection measures can it now take against me?

Before obtaining a court judgment, a bill collector generally has only one way of getting paid: asking. This is done with calls and letters.

However, once the collector (or creditor) sues you and obtains a court judgment, the law allows it to take further steps to collect the debt. The collector can:

• Garnish up to 25% of your net wages.  The amount depends on where you live and how much you earn.
• Seize bank or other deposit accounts.
• Record a lien against real property. This lien will have to be paid when you sell or refinance your property. Technically, the creditor could also force a sale of your home in order to get the lien paid. However, creditors rarely do this because after the creditor pays the costs incurred in selling the home, other more senior creditors get paid from the proceeds (like mortgage holders), and the homeowner gets the amount of the state's homestead exemption (most states allow homeowners to protect a certain amount of the equity in their home from creditors, called the homestead exemption), there is nothing left for the creditor.

Even if you're not currently working or have no property, the judgment won't disappear. Depending on the state, court judgments can last up to 20 years. In many states, it can be renewed for years beyond that.

To learn more about what creditors can and cannot do when collecting debts and judgments, get Solve Your Money Troubles: Debt, Credit & Bankrupty, by Robin Leonard and Margaret Reiter (Nolo).