Despite the unrelenting COVID-19 pandemic and the protections put in place to protect borrowers from debt collection right now, the business of trying to collect on old debt goes on. Debt collectors are continuing to contact borrowers/debtors by phone at home and at work, by email, and “snail mail”. Debt collection is a big business, with an estimated one in four Americans having at least one unpaid debt currently in collection.
If you are being contacted by a debt collector, you need to know what they are legally allowed to do and what rights you have.
Before going into a detailed explanation of what debt collectors are and what they’re allowed to do, I want to emphasize that in Ohio and most other states, they are definitely not allowed to threaten you by saying or suggesting that a warrant has been issued for you through your local court, and that unless you make arrangements with them immediately to make payments, a sheriff will soon arrive at your door to arrest you. Collection of debts is a civil matter, a contract between you and the lender, not a criminal matter. We don’t have debtor prisons — no one can put you in jail for nonpayment of a debt. What’s more, there is a federal law, the Fair Debt Collection Practices Act, that prohibits debt collectors from threatening arrest and even from threatening to sue you civilly in court unless they actually have the legal right and intention to file shortly. The important thing to keep in mind as that all the debt collectors are very familiar with this law, even if they pretend not to be.
So who are debt collectors?
When you don’t pay a debt on time, the original creditor (such as a credit card company) will probably try to collect the debt itself for several months, usually by sending you multiple copies of your bill marked as “past due” or by numerous phone calls. After that time, they may assign your debt to an outside firm, either a collection agency such as Alliance One or EIS Collections or possibly a law firm, who will continue to contact you through mail or phone calls for a number of months. These collection agencies receive a percentage of the money they collect from you and turn the rest over to the original creditor.
If the debt still isn’t paid, the original creditor may “charge off” the debt, which means they are considering it uncollectable for tax purposes. If you request a copy of your credit report, you would see that charge off noted. Although logic might suggest that you are no longer liable for a charged off debt, in reality, you are. The original creditor can still pursue you for payment, although what’s usually done currently is that the original creditor sells it to one of the big debt-acquisition firms. Common examples of these are the Encore Capital Group, Global Receivables Solutions, and Portfolio Recovery Associates. These debt-purchasing companies pay the original creditors pennies on the dollar, since supposedly these debts are considered “unrecoverable”. However, they will then work aggressively to get you to pay them, since they can keep 100% of what they collect since they now own the debts.
As owners of the debts, they can sue you in court if they don’t collect from you, and charge you interest and attorney fees in addition to the balance on the original debt. If the court awards them judgment against you, they can garnish your wages, attach your bank account, and report you to the credit reporting agencies (TransUnion, Equifax, Experian), which might prevent you from being able to get a loan or credit card or even a mortgage.
What if the debt the collectors are contacting you about isn’t yours?
There are times when collectors have bad information about who the debtor really is. They may find your address when they are really trying to find a debtor who has the same name and lives/lived in your general area. They may have a bad social security number and pursue the wrong person. If this happens, you have a right under the Fair Debt Collection Practices Act to notify them in writing, telling them you believe they are pursuing you in error, you believe you don’t owe them anything, and requesting all documentation they have showing that you are responsible for the debt. If you actually get served with a civil lawsuit, you will have to respond to that in writing to the court or appear at a hearing to contest that the debt is yours.
Will I owe on this debt for the rest of my life, or does it expire after some time?
The right of a creditor to collect on a debt expires, or becomes “time-barred” as a matter of law. This is called, in legal terms, the statute of limitations. It’s a state law in every state. In Ohio, the statue of limitations on a contract matter is 15 years.
If I do owe the debt and it isn’t expired, what can I do?
Since the companies that buy debts have generally bought them cheaply, they have plenty of leeway to deal with you and still make money. Therefore, they are often willing to work out a payment plan and even reduce the total amount you owe them. If you do work out a settlement agreement with them, be sure to get a written proposal from them stating that your indebtedness will be eliminated if you pay them ___ amount within ___ months. And when you send them your final payment, demand that they send you something in writing to show that the debt has been paid and that the credit reporting agencies have been notified of that fact. You can then wait a couple months and request a copy of your credit report yourself to make sure that was done.
Another factor to consider is whether you are “judgment-proof,” which means that you have no assets that a creditor can attach. Social Security and VA checks, as well as retirement funds are examples of assets that cannot be reached by creditors as a matter of law.
Finally, if your debts are overwhelming you and you can’t really afford to enter into settlements with your creditors, you might want to consider filing a bankruptcy to wipe them out and give you a fresh start.