How to Handle Collection Agencies and Debt
No one wants to answer the telephone and discover a debt collector as the other party to the conversation. Unfortunately, if you don't pay your creditors as agreed, this scenario is almost a certainty. Creditors write off outstanding balances that go unpaid -- typically after six months -- but they still have the right to collect. These creditors use collection agencies to help them recover delinquent accounts. While dealing with aggressive debt collectors and the debt they claim you owe may seem daunting, federal law under the Fair Debt Collection Practices Act protects you by requiring debt collectors to prove their claims.
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Instructions
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Write the collection agency a letter requesting the name and contact information for the original creditor and validation of the debt. Even if you suspect the debt belongs to you, that does not prove that this particular collection agency has the right to collect it. You do not want to submit a payment only to later discover that the company you paid wasn't an actual debt collector at all but a con artist. The FDCPA requires that all collection agencies provide debtors with proof of the debt, known as "validation," upon request.
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Send the letter via certified or registered mail. Request a return receipt. The recipient must sign for mail that arrives with a return receipt -- preventing the company from claiming that it never received your validation request. The collection agency cannot legally resume collection activity until it sends you documentation proving that you owe the amount it claims you owe.
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Send the collection agency a second letter demanding that the company communicate with you via mail or email only. Forcing the collection agency to only communicate with you in writing allows you to fully document your dealings with the company -- a feature that will come in handy if you ever need to sue the company for illegal collection methods or prove that the company entered into an agreement that it later refused to honor.
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Set aside money for a settlement fund. If you do not have any extra income you can use to settle the debt, consider liquidating assets or cashing in your investments.
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Respond to the collection agency's settlement offer with your own lower offer. Because collection agencies purchase debts from creditors for far less than face value -- sometimes as cheaply as 15 cents on the dollar -- the company can afford to offer you a settlement and still make a profit. Sooner or later, almost all collectors send debtors a settlement offer.
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Negotiate with the collection agency via mail until you arrive at a settlement offer you can both agree on. Pay the debt.
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Request a receipt for your payment and a statement reflecting that your balance with the company is zero. Keep these documents as protection in case a different collection agency contacts you in the future, attempting to collect on the same debt.
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Tips & Warnings
The older the debt is, the harder it is for debt collectors to recover. Thus, debt collectors will typically accept less for old debts than new ones.
Do not begin settlement negotiations or send a payment until the collection agency validates your debt. If the company cannot prove that you owe the debt, it may lack the right to collect.
You have the right to file a lawsuit against any collection agency that violates the FDCPA when conducting collection activity.
Although it is tempting to send the collection agency a settlement offer immediately, it's better to wait and let the collector set the bar for negotiations with its own offer. The company may demand less than you think.
Do not agree to send the collection agency a payment merely to end a phone call. In some states, agreeing to pay the debt restarts the debt's statute of limitations -- the time period during which a creditor can sue.
Paying collection agencies does not improve your credit score.
