Imagine getting sick and having to put your medical bills on a credit card. You heal, and life goes on. Then, you are hit with unexpected expenses like a major car repair, or you have to replace the AC unit in your home that goes on a credit card. When the bill comes, it is more than you can afford, and in the busyness of life, you forget to make the minimum payments along the way.
Unfortunately, living in debt is a reality for many people. More than one in four consumers (28%) have a third-party collections tradeline on their file, according to the Consumer Financial Protection Bureau. Since collected debt remains on a credit report for up to seven years, the CFPB estimates that approximately 13% of those tradelines are new. And whether you signed up for the debt or it came as an unwelcome surprise, when you get one of those envelopes, it can be good to know how to respond.
Simple. Debt collection is the process of unpaid debts getting assigned to a collection agency. These agencies then become responsible for collecting the debt on behalf of the original company. Or sometimes, they buy the debt to collect on its behalf. Lenders may collect the debt in many ways including:
Once a company attempts to resolve a debt on its own, it will eventually turn it over to a debt collection agency and report the debt as a “charge off” to the credit bureaus. This means the original creditor has ceased their efforts to recover the debt and assigned their collections rights to the collection agency.
Realizing that you have debt in collections can be scary. However, once you receive that letter, there are different ways to resolve the debt.
Many people panic when they receive a collection letter. You want to pick up the phone, call the creditor, and explain the debt. This typically isn’t in your best interest. Collectors are well-trained and have the advantage in the situation. Unfortunately, you may be cornered into a payment plan that you can’t afford or into paying the debt in full.
Take a moment to evaluate the situation and how you can resolve the debt. Then, ask yourself, “do I owe the money? What financial position am I in to pay this debt? What am I prepared to discuss on the phone?”
If the debt doesn’t belong to you, dispute it.
If you know the debt is yours, you may be able to negotiate a settlement. Create a “realistic repayment proposal” based on how much you can afford to pay each month after accounting for other expenses like bills, other debt payments, and emergency costs.
Remember also that debt falls under a statute of limitations in each state. Collectors cannot sue you for a debt older than a set number of years, which the states are between three to six years. What does this mean for you? If the debt is close to the end of the limitations, the collector may be more willing to negotiate with you. Contact a bankruptcy or debt attorney if you need clarification on the statute of limitations on a debt.
If you think the debt is not yours, you can contact the collections agency and dispute the debt. You have 30 days from the initial letter about the debt to call and ask for the debt to be verified in writing. The debt collector must return your request before they can start trying to collect the debt again.
If the debt is your, you still may be able to negotiate a lower payment. Take notes during the call and detail important information like who you are speaking to, current balance, and interest rate. If you choose to negotiate the debt, do not give an amount of how much you are willing to pay off. Instead, wait for the collector to make the first move.
Dealing with debt collectors or negotiating debt on your own can feel intimidating. For those that feel overwhelmed with the debt, or if your problems are severe and you are being threatened with legal action, it might be time to find a bankruptcy attorney.
Common Reasons to seek legal advice.
If you choose to file a bankruptcy, the debt collector must contact your attorney and cannot contact you directly once that case is filed. If you are being pursued by a collections agency or need help managing your debt, consult with an experienced attorney for help. Often, bankruptcy may be the best option to relieve debt.
Don’t let a collections letter stop you in your tracks. Things happen, and life can get in the way. But when the letters end up in your mailbox, don’t ignore them. Help is available. Miller, Hollander, and Jeda are your local bankruptcy attorneys. We are here to help you stop the harassing phone calls and get you on the path to a better financial future.
Miller, Hollander & Jeda’s founding attorneys began practicing in the early 1970s before putting down roots in the area and joining forces in 1992 to create the Naples, Florida, law firm that bears their names. Since its inception, Miller, Hollander & Jeda has focused on bankruptcy. The goal of our attorneys and our experienced staff, established at the outset and built upon year by year, is to use our extensive knowledge of bankruptcy law to answer the complicated questions you have regarding your financial trouble and help you solve your problems. We take pride in helping clients get a fresh start.