When you start not paying your credit cards or bills, you will first receive late notices in the mail. Then you are likely to get phone calls notifying you that you are behind on your payments. At some point (typically within 3-6 months) the company can and will turn your case over to a collection agency (not an internal collection department of the company but an outside agency). A collection agency collects debts on behalf of a company or client. Once your account is turned over to an agency you can no longer negotiate with the company, store, hospital, doctor, mechanic, etc. directly. The collection company can file legal action against you (sue you) and garnish your wages (meaning they will take their money out of your paycheck before you get it).

Collection agencies have one job – to get their clients’ money for them. Debt collectors are paid on commission, sometimes up to as much as 60 percent! While debt collectors can be relentless, the good news is that they are regulated. You have rights under the Federal Fair Debt Collection Practices Act. For example, debt collectors cannot…

• Call you before 8:00 am or after 9:00 pm.
• Contact you in inconvenient places (i.e. at work if your employer disapproves)
• Contact you if the collector knows that you have hired an attorney
• Tell anyone that you owe money
• Indicate on an envelope that the mail is from a debt collector
• Threaten violence to you or your property
• Try to represent him/herself as an agent of the federal government, a lawyer or an employee of a credit bureau
• Imply that you have committed a crime
• Give credit information about you to anyone
• Collect more money from you than you owe their client

A collections agency can, and eventually will, sue you if you fail to pay. Until they file suit the best thing to do to stop any unreasonable contact is to send the collection agency a certified mail return receipt letter (for proof if it ever comes to court). In the letter, notify them that you know your rights under the Federal Fair Debt Collection Practices Act and that you demand they stop contacting and harassing you. At that point the collector is required by law to stop communicating with you except to let you know what the next step in the collections process will be (i.e. taking you to court). If you are still being harassed by the agency, keep a record of the times/ways the agency contacts you, tape record the conversation on your phone if possible, and then register a formal complaint with the Federal Trade Commission. If the agency persists, you may have grounds to sue.

Let the debt collector know your financial situation, how much you can pay and ask to create a repayment plan so you can pay your debt off over a time period that you can afford.

If you haven’t already considered getting outside professional help now is when you may want to do so. Some people prefer having a credit counselor, debt consolidation professional or lawyer handle their interaction with creditors instead of managing the relationships themselves.

At some point if a bill is unpaid for long enough, virtually every creditor will use an outside collection agency. What varies is how quickly a creditor will turn your case over to an outside agency and how persistent/aggressive the collector will be to obtain the debt repayment. When all of their attempts to get the money due that you owe have failed, they can, and often will, seek to file suit against you. Let’s take a look at what your situation will look like if your creditors decide to take you to court.