I got a call yesterday from a client who is dealing with a debt collector. She was surprised when I told her that paying a debt collection company will hurt her credit. You see, using a debt settlement company is worse in many ways than filing bankruptcy. The Fair Debt Collection Practices Act (FDCPA) is in place to protect consumers from abusive debt practices. This client was paying the debt collector because it was “the honest thing to do.” But, what she didn’t know is that after a debt is sent to a collection company, she only hurts herself by paying the bill. This article teaches you how to handle a debt collector.
The FDCPA and How to Handle a Debt Collector
⎆ First • Paying a collection only costs you more money.
Pay a $1,000 debt, and $1,000 is gone. I know it sounds obvious but let’s think about it. If you simply invest $2,000 dollars when you are 16 years old and another $2,000 when you are 17 years old into a money market at 16%, you will have over $1 million with which to retire at age 65. That’s a much better use for your $1,000.
After all, what did paying the debt do for her? Nothing. Normally, this type of payment only encourages abusive debt collection or encourages other debt collectors. In other words, if you pay them because of threats or abuse, you reward and encourage more abusive behavior.
⎆ Second • Paying a debt collector hurts your FICO score.
When the collection company reports an effort to collect it damages your credit. If you respond to the collection company, they report it. If you make a payment or talk to them, they report another contact, and it starts all over. Any payment or admission increases the time they have under the statute of limitations.
If you have no current contracts and the account ages, the information and damage to your credit die over time. Make an effort to repay it two years after it drops off and you damage your credit all over again. Old information has little or no impact on your credit score.
⎆ Third • There is no benefit in talking to the debt collector.
A collection company rarely sues. All they ever tend to do is to file an initial claim that you didn’t pay the debt. They don’t follow up unless you pay or respond to their collection attempts. When you do answer the phone, they record your admission that you owe the debt and if they sue they will use it against you later.
They also gather information on where you bank, work, and what assets you have. If you talk to them, don’t admit that you owe the debt and insist that communications stop. You may have had service with Sprint, but the debt they are collecting might even be for a different person.
They often claim they will sue or use the terms that they will recommend legal action. However the cost of suing is so high, suing is rarely an option for them. The threat of suing is the only method they have to force payment. Reporting the debt is often the limit of their ability to harm you other than making repeated calls. Call blocking is a wonderful telephone option.
⎆ More tips about how to handle a debt collector.
The FDCPA restricts debt collectors from using abusive tactics and making untrue statements to consumers. The FDCPA does not protest you if the person attempting to collect is collecting their debt, or the debt is not a consumer debt. If you purchased telephone book advertising for your business, the FDCPA does not stop a debt collector from lying or using abusive tactics. The same is true if the advertising company’s own employees collect the debt.
Only consumers are protected by the FDCPA and consumers are only protected when a 3rd party is attempting to collect the debt. Normally you can record these calls. When a creditor violates a rule like trying to collect a debt that is being discharged in bankruptcy you can sue under the FDCPA. Talking to or paying a debt collector is rarely in your best interest. A cease and desist letter will stop any further communications but so will bankruptcy if the conduct is bad.
Moreover, if you choose bankruptcy and they contact you for payment after the case is filed it is possible to sue the creditor for damages including all of your court costs and attorney fees.
⎆ Common violations of the FDCPA include the following events.
- Threats of arrest lawsuit garnishments
- Abusive or foul language
- Calls at work after a request to stop or calling before 8 am or after 9 pm
- Repeatedly contacting friends, family coworkers, or employers
- Making false statements or misrepresentations
- Contacting you after giving them notice you have an attorney
- Extreme repeated phone calls
This is not an exhaustive list. In fact, there is an unlimited number of ways for a debt collector to be abusive. If you are having a problem call us. We can cure this.
Resources for Bankruptcy
Louisville Kentucky Bankruptcy Forms
Kentucky Fair Debt Collection Practices Act and Contempt • Video
About the Fair Debt Collection Practices Act
Kentucky’s 60-Year Statute of Limitations for Debt Collection
Fraudulent Concealment and Transfers in Bankruptcy • Video
Contact us to see what defenses you have or to negotiate with the debt collector. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
