Know Your Debt

What is a Debt Collector?

Debt collectors, as the name implies, are companies that specialize in getting you to pay a debt. If you have been contacted, via mail or phone, about a debt you owe, it’s likely that the person contacting you doesn’t work for the original lender you took the loan out from. Likely they work for a debt collector instead.

Sometimes debt collectors are hired by lenders to do their dirty work. In this case, a debt collector collects money to pay to the lender and takes a commission.

More common nowadays is for lenders to sell debts to debt collectors outright. They do this when they don’t want to collect on a particular debt anymore. They don’t even have to ask you permission to do this to your debt. When lenders sell a debt you owe them to a debt collector (this is called “assigning” a debt), then you owe that debt to the debt collector and not to the lender. Every dollar a debt collector collects goes to their bottom line—they have bought the right to make money on a debt you owe to somebody else.

Debt collectors generally buy debts from lenders for a small fraction of their original value. If you owe a $1,000 to a lender, they might have sold it to a debt collector for $100 or less. Lenders sell loans at such a discount when they’d rather cut their losses than spend money pushing you to pay on it. Debt collectors who buy loans at such a discount then try to get you to pay the full amount, even though they make profit if you pay a fraction of that amount.

Debt collection is big business. The industry makes tens of billions of dollars each year. No surprise, then, that many of the most profitable collectors are at least part owned by Wall Street banks. So, for example: if you fall behind on a Chase credit card, JP Morgan Chase can then write off the amount you owe them to get a tax deduction and sell it to NCO Group, the debt collector it owns, to keep harassing you until you pay.

Wall Street never misses a chance to make money off of your misery.

How to Deal With Debt Collectors: The Basics

When lions hunt wildebeest, they are too slow to take on the whole herd. So the lions chase after the herd until the weakest wildebeest fall behind, then they pick them off. Debt collectors take a similar approach.

They run a volume business, buying thousands of peoples’ debts at a time for a fraction of what they’re worth. In doing so, they take a gamble. For the gamble to pay off, they only need to convince a small minority of debtors to pay. That means debt collectors don’t want to spend too much time or money trying to get you to pay. They count on you to be an easy mark, to be overwhelmed by bureaucracy, harassment, and shame. They count on you to give in.

So the basic way to deal with debt collectors is to do the opposite of what they want: make it hard to collect from you. That means:

  • Act quickly. You have a 30-day window to dispute the debt.
  • Know your rights. They will threaten you, try to confuse you, and often lie to you. If you know what they can and can’t do to you, you won’t be intimidated.
  • Dispute the debt. Make them prove that you owe them and how much you owe. Often they don’t have the required documentation even if it is really your debt.
  • Keep records. Make a file with all their letters and make them communicate in writing as much as possible. Keep dated and detailed notes of what happens. Record phone conversations if legal.
  • Tell them to stop bothering you. They are required to stop contacting you if you ask them. Once you get the information you need, tell them to bug off.
  • If they violate your rights, go after them. You can sue them and/or report them to law enforcement.

If you make life hard for them, you may never hear from them again. But they might persist or sell your debt to another collector. Your last resort is to bargain with them. Remember: they likely bought your debt for a fraction of what they’re asking for and it costs them money to sue you, so they’re likely to settle for less than you think possible. Bargain hard.

When a Debt Collector First Contacts You

As soon as you hear from a debt collector, a 30-day window opens. If you dispute the debt in that window, the debt collector is required to stop collecting on that debt until they verify the debt.

(It is worth disputing the debt even if you don't fall in the 30-day window, you just won't get them to stop collecting. However, in some states, such as New York, you can dispute the debt at any time to stop them from collecting.)

For this reason, it is very important that you do not ignore the call or letter. You should dispute the debt as quickly as possible.

It does not matter if you think you owe the debt or not: make them prove it. Even if you did take out the original loan, the debt collector contacting you may not actually have a right to collect on it. They might not actually own it or they might not have the right documentation to prove that they own it.

You can dispute the debt with our DEBT DISPUTE TOOL.

If the debt collector continues to attempt to collect on the debt (including reporting to a credit reporting agency) without sending you verification, it has violated the Fair Debt Collections Practices Act (FDCPA). The verification (which should be a copy of a bill or something like that) must include:

  • The amount of the debt
  • The date of the debt
  • The name and contact information of the original creditor

Also, when you first hear from a debt collector, whether by phone or mail, they are required to tell you that they are a debt collector attempting to collect a debt. If they do not include this disclosure, they have violated the FDCPA.

I am [name of collector]. I am a debt collector representing [the original lender]. Information obtained during the course of this call will be used for the purpose of collecting a debt.

If they send you a letter, it should have a passage that looks like:

This correspondence is an attempt to collect a debt. Any information obtained will be used for that purpose. Unless within thirty days of your receipt of this notice, you notify us that you dispute the validity of this debt, it will be assumed to be correct. If you notify this office within thirty days that you dispute the validity of this debt, we will obtain verification of the debt or a copy of the judgment. If you request it within thirty days, we will provide you with the name and address of the original creditor (if different from the current creditor).

Some states, such as California, require the debt collector to include additional disclosures. Here are links to laws from states that have additional protections: [http://www.nolo.com/legal-encyclopedia/state-fair-debt-collection-laws#].

If You are a Victim of Identity Theft

coming soon.

What Debt Collectors May and May Not (Legally) Do

A federal law called the Fair Debt Collections Practices Act (FDCPA) regulates the behavior of debt collectors. Many states have additional regulations. Check out: [http://www.nolo.com/legal-encyclopedia/state-fair-debt-collection-laws#]

Under federal law, debt collectors may:

  • Call you a reasonable number of times between 8:00 am and 9:00 pm, as long as you haven’t told them to stop.
  • Send you letters with information about your debt and urging you to pay it, as long as you haven’t told them to stop.
  • Act like assholes on the phone, making you feel bad for your debt, and pretending that the only way out is to pay them. Ignore this crap.
  • Report to credit reporting agencies.
  • Sue you in civil (not criminal) court.
  • Offer you payment plans and otherwise bargain about repayment.

Under federal law, debt collectors may not:

  • Have you arrested or have you thrown in jail. Or threaten to do either.
  • Physically harm you or threaten to do so.
  • Contact you without including the notice that they are a debt collector discussed in the previous section.
  • Call you before 8:00 am or after 9:00 pm.
  • Call or write to you about your debt after you’ve told them to stop doing so, unless they are notifying you of a lawsuit.
  • Call your boss or anyone besides you about your debt, unless they are trying to find you or they have won a judgment against you in court. (Often they will pretend to be trying to find you, but if they do more than ask for your contact info, they have violated the law).
  • Pretend to be lawyers or a law firm when they aren’t actually.
  • Take any of your property without suing you first.

Of course it is illegal for a debt collector that does not actually own your debt to try to collect from you.

Keep all evidence of any interaction you have with a debt collector, especially if they have done something prohibited. Keep records, keep notes of what violations they committed when, and even record your phone conversations with them if that is legal in your state. In most states, you don't need to ask to record a call. Eleven states require you to get the other party's consent: California, Connecticut, Florida, Hawaii (if you're in a private place while calling), Illinois, Maryland, Massachusetts, Montana, New Hampshire, Pennsylvania and Washington (see http://www.dmlp.org/legal-guide/state-law-recording).

You may be able to use what you record against them (see IF THE DEBT COLLECTOR VIOLATES THE FDCPA)

If You Just Want the Debt Collector to Stop Bothering You

If you tell a debt collector to stop contacting you about a debt, they are required to do so. Not doing so is a violation of the FDCPA. It is best to make this request in writing so that you have a record of it.

However, just because they are required to stop contacting you doesn’t mean they can’t keep reporting to credit reporting agencies and even sue you if it comes to that. If they decide to sue you for the debt they may notify you that they have made this decision and must notify you if and when they actually do sue you (see IF YOU ARE SUED). They can also notify you if they intend to stop collecting on the debt.

If you used the DEBT DISPUTE TOOL, you have already requested (in writing) that the debt collector stop contacting you after providing verification of the debt.

If You Haven't Paid Your Debt in a While

All states have statutes of limitations on collecting debts: a limit on the number of years a lender or collector can try to collect. You can see a chart of statutes of limitations by state here: [http://www.nolo.com/legal-encyclopedia/statute-of-limitations-state-laws-chart-29941.html]

The clock on a statute of limitations starts running on the date of the last “activity” on your account. That is often the date of your last payment, but it may also be the date when you entered into a payment plan or simply agreed that you owed the debt. This is why it is important to contest whether you owe the debt and definitely never outright admit to owing it if you don’t want to pay and definitely don't promise to pay unless you've decided for certain that you have the money and are ready to pay it.

If you think the debt a collector is trying to collect on is beyond the statute of limitations, you have a weapon on your side. In most states, a debt collector can still try to collect on that debt and they can even still try to sue you on it. But if they report to a credit reporting agency you can contest it as beyond the statute of limitations (use our CREDIT REPORT DISPUTE TOOL for that). And if they sue you, you have a defense. See IF YOU ARE SUED.

So, if a debt collector tries to go after you for a debt that you think is beyond the statute of limitations, you can tell them that you know it is beyond the statute of limitations and you’re not paying. This may get them to buzz off. If it doesn’t, then you have to decide if you want to fight them over it or just negotiate a lower payment to get them to go away. For more, see the BARGAINING FOR A LOWER PAYMENT section (They may also sell the debt to another debt collector, even though that is illegal—if they do that, you have a defense against paying and an FDCPA violation on your hands).

If a Debt Collector Violates the FDCPA (or Another Law)

If a debt collector does something they are legally prohibited from doing (under the FDCPA or a similar state law), you have gained an advantage in dealing with them. You can use this advantage in four ways:

  • Suing them
  • Using it as a counterclaim if they sue you
  • Complaining to law enforcement agencies, and
  • Using it as a bargaining chip

Suing

Suing a debt collector is always easier with a lawyer, so you should consider getting a lawyer to help you out. You can ask folks in the FORUMS for recommendations. It will be easier to get a lawyer if you can find others who have experienced the same wrongdoing from the same debt collector, since then you can do a class action.

However, you don’t always need a lawyer to sue. If you decide to sue without a lawyer (this is called “proceeding pro se”):

If you sue, you could get at least $1,000, plus the costs of filing and compensation for any harm you have incurred.

Unless the debt collector gives in right away or starts to bargain with you, you will have to provide evidence of whatever you say they did in your complaint. This is one reason it is important to record all of your interactions with debt collectors.

Using a Violation as Leverage

Suing a debt collector can give you a lot of leverage—they may propose to stop collecting or to give you a serious discount in exchange for dropping the suit. Even before you sue—or even if you don’t actually plan on suing—you can use the fact that you have a right to sue as a bargaining chip when dealing with a debt collector. If you tell them that you know they violated the FDCPA and that you plan on suing them, you’re more likely to convince them to stop collecting or to accept a low settlement. Tell them that you won’t sue them in exchange for their commitment to not collect or sell a debt. If they don’t agree, you can bargain (see BARGAINING FOR A SETTLEMENT) or decide to sue. Make sure whatever agreement you come to you get in writing, with their signature.

Submitting a Complaint

Whether you sue or not, you can also submit a complaint to the Consumer Financial Protection Bureau (CFPB) ([https://www.consumerfinance.gov/complaint/#debt-collection]) and/or your state Attorney General (AG) or other state consumer protection agencies. The CFPB and AGs cannot represent you directly, but if they get enough complaints about the same debt collector, they will consider bringing a lawsuit against them to stop them.

Counterclaims

Even if you don’t take any action yourself, if a debt collector has violated the FCPA or another law, you can use that against them if they sue you. For more, see IF YOU ARE SUED.

Bargaining for a Settlement

Before you decide to pay, you should make sure you’ve put the debt collector through their paces as discussed in other sections, especially if the debt is beyond the statute of limitations. Certainly you should not pay the debt if you do not actually owe it (e.g. if you are the victim of identity theft).

You should also know that if your income comes from social security, public assistance, the VA, child support, or a pension, a debt collector cannot take it from you even if they sue you. Thus, if you have such an “exempt” source of income, you should think twice before paying. (You might still want to pay to improve your credit.)

If you can’t afford the debt, you might consider just letting them sue you rather than agreeing to pay more than you can. See more in the IF YOU ARE SUED section.

Should you find yourself at the point where you’re ready to pay, remember three things:

  • You can probably get a debt collector to accept less than the full amount they say you owe. You have power. Figure out how much you can afford to pay and then offer them much less. They may act tough, but they will usually bargain if it means that’s the easiest way for them to get paid.
  • Any agreement you come to with a debt collector should be in writing and signed. Don’t pay them until you have that. Otherwise, they can later say they never agreed and it would be your word versus theirs.
  • Never give a debt collector access to your bank account, including via automatic deductions, and never pay a debt collector with a postdated check.

Some tips for bargaining:

  • Remember: you have power. They would rather collect something from you than fight to collect everything. If you’re bargaining with them, you’re giving them something and they should give you a discount in return.
  • Wait until the end of the month to offer anything. Debt collectors usually have monthly quotas, so they will be more desperate then.
  • Start low, lower than you think you should. Ideally, you’ve already disputed this debt and provided them all the reasons you won’t pay, so you’ve actually started at $0.
  • Make them feel lucky to get any money from you. Make them know that you don’t have enough money to pay them and you don’t intend to pay the full amount under any circumstances. If they violated the law, make it clear that you’re considering suing them if you can’t come to a mutually beneficial agreement. If the debt is older—close to or beyond the statute of limitations—make it clear that you know time is running out for them. If they don’t seem to have much documentation of the debt, let them know that you can force them to prove it in court if they don’t agree to something good now. Etc.
  • Offer a lump sum rather than a payment plan if you can afford it. If you offer a lump sum, debt collectors will usually give you a big discount.
  • Tell them as little as possible about yourself.
  • Stay confident. You know your rights. If they lie to you about what they can do, tell them what they just did was a violation of the FDCPA.
  • Always keep records. Record phone calls if you can.
  • Make sure they agree to remove the debt from your credit report as part of any agreement. Or at least get them to have the credit report say “paid in full”.
  • Get it in writing. Don’t pay until it’s in writing. Especially if the debt is beyond the statute of limitations.

If You are Sued

If a debt collector sues you, you should receive a summons and complaint in the mail or delivered to your door. These are legal documents notifying you of a lawsuit and outlining the claims against you. Do not throw them away. Do not ignore them.

It is not uncommon for debt collectors to file a case without notifying debtors. But it is illegal. If you find out that you have been sued in another way besides receiving a summons (for example, your wages are garnished unexpectedly), the debt collector has likely violated the law. Depending on the details of your case and the state you live in, you should have the right to reopen the case and possibly to sue the debt collector. The best thing to do is to find a lawyer who can help you. If you cannot find a lawyer, find out where the judgment was entered (ask your employer who ordered the wage garnishment, contact the debt collector, or just go to the courthouse nearest you), go there, tell them what happened, and ask about reopening the case so you can defend yourself.

When debt collectors sue you, they expect you to just give up. If you don’t respond, debt collectors automatically win without having to spend any money actually putting on a case or even having to prove that they own the debt. This is called a “default judgment”. 95% of all debt collection lawsuits are won by debt collectors because debtors did nothing to defend themselves.

So the most important thing you can do if you are sued is to respond. Often, just submitting an answer to the complaint will be enough to get the debt collector to give up. Remember, debt collecting is a volume business: they’d rather spend their time only dealing with people who don’t fight back and give up on the people who do. Frequently they don't even have the evidence they need to sue you--but that doesn't matter if you don't fight back. Just a little push and many debt collectors cave in. Even if they don't give up right away, you have a better chance than you think of beating them in court if you don't give up.

How soon you have to respond depends on the state. The summons should tell you.

If you can find a lawyer you can afford (some will do it for free if they work at a public interest organization), you should get legal help. If not, you can still defend yourself on your own.

The Stakes

If the debt collector wins in court and gets a judgment against you (whether they do so "by default" or by actually arguing with you or your attorney in court), they gain new collection powers over you. Exactly which powers they gain depends on what the judge decides. Remember: if you don't respond to a complaint, a debt collector could automatically gain one or more of these powers over you.

At its most basic, a judgment is an order for you to pay. If you pay regularly after a judgment (subject to a plan created by the judge), you might not face any of the more coercive consequences below.

A judge could decide to allow the debt collector to garnish your wages, meaning that the collector could take up to 15% of your wages every month directly from your employer. Certain sources of income are protected from garnishment: social security, public assistance, VA benefits, child support, and pensions. If all of your income comes from one or more of these sources, you do not need to worry about garnishment.

A debt collector could also gain the power to seize your assets. Most states exempt certain assets from being seized by collectors. Which assets depends on the state and the type of debt.

The Answer

The first thing to do is to file an “answer” to the complaint. Here is a template for the state of New York: [http://www.neweconomynyc.org/wp-content/uploads/2014/10/Answer-form-in-person-for-consumer-credit-transactions.pdf]. You can use this form if you are in New York. Otherwise, you can use it as a guide for how to make your own answer.

An answer can contain three things:

  • Responses
  • Defenses
  • Counterclaims

Responses are just whether you (“the defendant”) admit or deny the claims made by the debt collector (“the plaintiff”). The claims against you will be numbered in the complaint. You can either respond to each claim one by one, referring to their numbers in the complaint, or you can make a general denial of all the claims made in the complaint. You don’t have to be specific about why you admit or deny any given claim: you can just say “admit” or “deny”.

Defenses are reasons you should win even if everything in the complaint is true—they are additional information that work in your favor. Look at the sample answer linked above for examples of common defenses. Use as many as apply to you. If you’re not sure whether it does or not, use it. You can always change your mind and take it away later.

Counterclaims are claims you have against the debt collector. The most likely sort of counterclaim you would submit would be any violations of the FDCPA that the debt collector has committed while dealing with you. See WHAT DEBT COLELCTORS MAY (AND MAY NOT) DO.

After You File an Answer

Once you fill out at answer, you should bring it in person to the courthouse listed on the summons and mail a copy to the debt collector. It is best to use certified mail ([http://www.wikihow.com/Send-Certified-Mail-%28USA%29]), so you know for sure that it is delivered. You should also make sure to keep a copy for yourself.

After you file your answer, the debt collector may just give up. If not, you will likely get a letter from the court telling you when your first court date is. It is important that you go to this court date. This is another stage where most debtors lose cases just by not showing up. But you could win just by showing up. If the date does not work for you, you can call the courthouse and try to change it.

Sometimes going to court does not happen right away. You may get a letter instructing you to do something different. Follow the instructions and get ready to defend yourself using the guide linked below.

Remember, it is the debt collectors’ job to prove that you owe the debt and that they rightfully own it. If they don’t have enough evidence, they cannot successfully sue you. Debt collectors frequently do not have all the evidence they need—they only win because nobody asks them for it. If you force them to prove their case and firmly assert your defenses and counterclaims, you have a better chance of winning than you think. And even if things aren’t going well, you can always choose to bargain.

For more details about what to expect and how to deal with a court date, see this helpful link from our friends at the New Economy Project: [http://www.neweconomynyc.org/preparing-for-your-court-date/]. This information focuses on New York, but most of it is applicable anywhere.

Here is a pretty good resource on how to challenge debt collector's evidence: http://caveatemptorblog.com/7105/evidence-of-assignment/

Watch out for scams

Some companies, calling themselves "credit repair", will offer to help you get rid of your debts for a fee. These are quite often scams that just take your money and then don't help you at all. In general, do not pay for help getting rid of loans unless it's from an attorney that you have reason to trust.