It can be scary and intimidating when the debt collector calls. Their threats are designed to make you pay, so they say things like “We can take you to jail,” or “We’re going to sue you and garnish your wages,” or even “When you go to jail, Child Protective Services will take your children away.” Sometimes they may even try to make you think they’re a law firm or local law enforcement.
Here are some tips and tricks to help you deal with debt collectors when you just don’t have the money to pay them.
Table of Contents
Get off the phone
There’s a good chance that a debt collector has caught you by surprise. When that happens, the most important thing is not to make any promises or admit the debt is yours. Tell them to send you a debt validation letter before you end the call. Take down the name of the debt collection agency.
Debt collectors are experts at playing with your emotions. Don’t let them, and don’t panic. There’s still hope.
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Learn your rights
Knowing your rights is the first step to understanding what protections are afforded to you against unfair, unscrupulous practices by debt collectors.
The Fair Debt Collection Practices Act (FDCPA) protects your rights as an individual. Enacted in 1978, it was designed to establish legal consumer protection against abusive, deceptive and unfair debt collection practices.
The FDCPA applies only to third-party debt collectors and not the collectors connected with the original creditor. It typically covers personal, family, or household-related debt and doesn’t apply to debt by businesses and individuals for business purposes.
One way to protect yourself and make sure the rules are enforced is to let debt collectors know that you are aware of your rights. There are both state and federal laws to protect you. Any violation will be documented and sent to the Federal Trade Commission, the Consumer Financial Protection Bureau, and your state attorney general’s office.
The Fair Debt Collection Practices Act is a federal law, but some states have imposed stricter regulations. This means your rights will vary by state. For instance, if you live in California, they will have state-specific consumer protection laws that mirror the FDCPA, and these rules will apply to the loan originator. Learn your state laws by contacting your attorney general’s office or local legal aid office.
Review your credit reports
Make sure that the debt is legitimately yours. Creditors and debt collectors make mistakes, and you don’t want to get stuck repaying a debt you don’t actually owe. It’s even possible that you could be dealing with a scammer. Pull reports from all three credit bureaus (Experian, Equifax and TransUnion) to make sure it’s listed. If you have a debt that’s in default, your credit score will probably be significantly lower than you expect.
What is the statute of limitations on your debt?
The good news is there is a statute of limitations on how long they can try to collect old debts. The clock starts on the date the account becomes past due. The statute of limitations will depend on the type of loan and which state it originated from.
For instance, in Nevada, it can be four years for an oral agreement and six years for a written one. But in New Hampshire, it is three years for both. Research your specific state.
READ MORE: Learn your state’s statutes of limitations
How to stop a debt collector from calling your work or home
The third-party debt collectors are only allowed to contact you within the hours of 8 a.m. to 9 p.m. They are not allowed to call your place of work if you tell them that you’re not allowed to receive calls at your place of work. Additionally, tell them that they cannot contact you at your home address and phone number. If the debt collector contacts you anyway, report the company.
Ensure you document all conversations with your account number and the dates and times the collections agency contacted you.
To stop a debt collector from contacting you altogether, you will need to send a letter to the collection company. You will need to send it by certified mail and ask for a return receipt. The letter must tell the debt collector to stop corresponding with you. Make sure you keep a copy. From this point on, they have to stop reaching out to you. They can only contact you if they plan to file a lawsuit against you. If you have an attorney, notify the debt collectors to direct all correspondence to your legal counsel.
Pro tip: If they catch you off-guard on the phone, it can be as simple as saying, “I prefer to pay the original creditor. Give me your company name and contact information, and I will send a cease-and-desist letter.”
Here’s a link to some sample letters to debt collectors.
Protect yourself by asking them to send you a debt validation letter. You are within your rights to dispute all or part of the debt separately, and you are entitled to request this debt validation letter. The lender or debt collector is legally obligated to respond.
Make them prove it’s a legitimate debt
The debt validation letter is a letter the debt collector sends you to prove you owe them money. It helps you confirm that a debt is legitimately yours and ensure you’re not dealing with a scammer. It shows the debt details, including what you owe, to whom and when to pay.
Under the FDCPA, debt collectors are required to send a debt validation letter to inform you that you are within your rights to dispute the debt. When the debt collectors reach out to you to collect money, they are supposed to let you know the creditor’s name, the amount of money owed and inform you that you can request the information from the original creditor.
What if the debt collector refuses to validate the debt?
If the debt collector refuses to comply, there’s a good chance that you’re dealing with a scammer. Report them to the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and your state attorney general’s office. You also can send them what’s known as a debt verification letter requesting that they validate your debt.
What to do next if the debt is legitimately yours
If the debt collector has followed all of the appropriate steps and you legitimately owe the money, you have a few options.
File for Chapter 7 bankruptcy
Filing for Chapter 7 is one option if you are unable to repay your debts. This could feel like rock bottom to you. You’re probably feeling emotionally overwhelmed, broken, and terrified. But it could also be a fresh start. Hitting rock bottom is sometimes necessary before you can rebound.
Chapter 7 bankruptcy is the most common type of bankruptcy. Chapter 7 is known as liquidation bankruptcy and involves selling some assets or property to pay off debt. Chapter 7 is a good choice if you don’t own a home and have limited income.
Filing for bankruptcy isn’t free, though. You’ll have to pay several mandatory fees and court-related costs.
READ MORE: Types of bankruptcy
Consult a debt relief professional
If a debt collection agency is hounding you or you’ve got a court summons, it’s a good idea to consult a debt relief professional. This can be a debt relief company (like DebtHammer) or a debt settlement attorney. Look for a company that offers a free consultation. This session will help you assess your financial situation and the types of debt you have. They will let you know whether debt consolidation, debt settlement or bankruptcy is a viable option.
Pro tip: If you get a summons to appear in court, make sure you appear on your scheduled court date. Otherwise, the judge will automatically rule in the debt collector’s favor and you’ll face wage garnishment.
Try DIY debt relief
You will have to be an excellent negotiator for this type of do-it-yourself debt settlement.
You need to know how much money is in your bank account, the maximum amount you can afford as a monthly payment plan and the exact date you can pay. Or you can try to negotiate to pay one lump sum.
Prepare for the negotiations
Make sure you have all of the debt collector’s contact information. Before you speak to them, do some research. Know what to say and what not to say. If the debt collectors catch you off guard, tell them to call you back at a specific day and time, making sure to give yourself enough time to do your research.
Start with an offer of 10% to 40% of what your maximum amount is that you can afford. Know when to stop. Assess your current financial situation to get a good idea of what you can afford to pay. It does no good to agree to pay more than you can afford.
Call the creditor or agency directly, or take their phone call
You can call the debt collector directly through a phone call, or wait for them to contact you. If the debt collector calls you, call them back after you have done some homework. Do not ignore them because the problem will only get bigger.
Document the date, time, and name of everyone you spoke with and in the order you talked to them. Be sure to confirm that they have the authority to accept a debt settlement agreement. Make sure that you are in control of the conversation. Say as little as possible, and don’t volunteer anything. Know your rights.
Don’t let them bully you into making a payment with promises that the settlement offer they are proposing is a one-time deal and won’t be available after a specific time.
Debt Management Plans
A Debt Management Plan (DMP) is an agreement between a debtor and creditor to set up a repayment plan managed by a third-party credit counseling agency.
When you sign on, your counselor will contact each of your creditors and negotiate lower interest rates and lower monthly payments. You won’t pay the full amount of your debts. The debt counseling agency will accept your monthly payment and pay the creditors per the payment agreement. There is an enrollment fee and a monthly fee per account, and agencies charge on average between $20 to $80.
Pro tip: Debt Management Plans work best if your debt is primarily credit card debt. If you have other forms of unsecured debt, like medical bills or student loans, a Debt Management Plan won’t be particularly effective.
Look for a nonprofit group offering a free consultation and accredited by the National Foundation for Credit Counseling. They will look over your financial situation and discuss several options, not just the debt management plan. Do not feel obligated to commit to a plan on the spot.
The bottom line
It’s hard when strangers start calling your home and work to hound you about your unpaid debts. Personal finance is a personal issue. But there’s still hope. Know how to push back, protect yourself and what options are available for a fresh start.
