Disclaimer: In no way do I wish to suggest that people shouldn’t repay their debts. But with bankruptcies reaching an all time high and bankruptcy protection being re-visited, its best to have a little advice when having to deal with these people. Think of it as a public service announcement. One more thing, this only applies to collection agencies in the States. Different countries probably have different guidelines.

For whatever reason, divorce, loss of job, physical or mental health problems, many people fall behind in the repayment of their debts. Collection agencies are the ones you want to avoid. Let’s take a look at some the things these folks can do to try and collect a debt and simultaneously make your life miserable. I guess its better than going to debtor prisons

What are collection agencies?

Basically there are two types. Let’s try and illustrate the first with an example.

Suppose you have a credit card with Ripemoff Savings and Loan and for whatever reason cannot make the payments. You can bet your bottom dollar that you will start receiving calls and letters from Ripemoff asking when they might expect payment. If you cannot make the payments, stall long enough or simply ignore the communication, chances are you’ll start receiving the same type of communication from a collection agency.

Now, if Ripemoff is a large enough company, they might have their own collection department that goes under another name. This is based on a theory that you will be more inclined (threatened) by the “outside “agency” than you were be Ripemoff and thereby more inclined to pay.

Chances are though, that your debt has either been charged off by Ripemoff and sold to a third party or “worked” on by a third party on behalf of Ripemoff in exchange for a commission on any amounts that are collected.

How do these agencies make their money?

As I mentioned earlier, they most often work on commission. You know that person on the phone with the made up name, the individual collector? Well, they’re usually paid like shit but can make more based upon the commission they collect and any amount you might pay


How did the agency get my debt?

How else, they bought it. They usually pay a small percentage of the face value of the debt to the original creditor and they now own your ass. Example:

You run up a credit card bill of five grand and can’t make the payments. After a while, your credit card company will sell the debt (the amount you owe) to a collection agency for somewhere between 5 to 10 percent of the face value.

In the case of the five grand, they now own the debt for either 250 or 500 dollars and stand to profit on the difference between that price and the amount you eventually pay off. Of course, this is less salaries and commission and various other overhead expenses for the people working the phones

How do these agencies work?

Should you be targeted or made yourself a target of a collections agency, you can expect to be bombarded by what seems like a never ending series of letters and phone calls.

What are the tone of the letters?

Since they are computer generated, impersonal would be the best description I could ascribe. They usually start out as friendly “reminders” but soon might advance to ultimatums. The first letter that you get must also state that you (as the debtor) have a right to disoute the validity of the debt. Should you choose this course of action, you must do so in writing. The collection agency then must send you some sort of confirmation that the debt is indeed valid after verifying it with the original creditor.

The letter must also state that any information the agency has gathered is being used for the sole purpose of collecting a debt and will not be used for any other purposes.

Even the envelope is subject to regulation. It can make no mention or suggest that the contents or nature of the communication is for the purpose of collecting a debt. The return address is often just a post office box with the company’s initials. The letter itself will try and create a sense of urgency. This is so that the agency can collect the debt in the shortest amount of time. They might set deadlines such as 10 or 30 days or they will “proceed with further collection action.” Usually, that means another letter with the same basic demands stated in more threatening terms. They will also usually encourage you to call the collection agency and set up terms of repayment.

What if I start getting phone calls, what will they be like?

Folks, let me start by saying that very few people make careers out of being individual debt collectors. As I said, low wages, long hours, and endless confrontations between themselves and debtors contribute to high turnover. That being said, should you speak to an actual collector, you can expect a scripted presentation depending on your response to their questions. They will also try and create a sense of urgency since the bulk of their pay is in the form of commissions.

If they reach someone in your household other than yourself, they can leave a message but cannot reveal the reason for the call. Should they get your machine, they usually leave a message that “this is not a sales call” and to please contact them in regards to an “urgent business matter.” They must also provide you with a toll free number to call back.

But what can a collection agency actually DO?

If the agency is working the debt on commission, you can expect some more form letters and some more scripted phone calls.

They can also report your ass to the credit bureaus. If your debt is large enough, they can recommend a lawsuit, or if they own the debt outright, they can haul you to court and sue. However, the actual chances or intentions of this are often significantly less than they try to suggest to the debtor that they pay up

What can a collection agency NOT do?

Collection agencies can not legally seize your assets, bank accounts, or paycheck unless there has already been a successful lawsuit with a judgment awarded to them.

Collection agencies can not legally make any kind of public announcements about you or disclosures concerning your debt, except to the credit bureaus.

Collection agencies can not legally get you fired from your job.

Collection agencies can not legally engage in any type of physical violence or threats against you.

So why should I pay?

Well, it is a debt and you do owe somebody. Often though, collection agencies will either try and guilt you into through intimidation and threats. They count on you not knowing or understanding your legal situation.

Owing money to a creditor is a serious matter. It's important to realize that there are two types of debt collection companies, debt collection agencies and debt collection law firms.
Borgo describes agencies well, so I'll pick up with what happens when you don't pay an agency (or original creditor) to whom you owe money. If the debt is small (under $500 is the rough cutoff here in the midwest) then you just get some nasty words on your credit report. Debts that small are almost invariably from high interest check cashing joints.
Any bigger than $500, and the agency will probably pass your debt on to a law firm. As an IT employee of such a law firm, I think I can provide a somewhat informative picture of what these firms are like, and what is involved in being sued by one.
Disclaimer: I don't guarantee any of my above or below statements to be true. I do not directly work in debt collection, but it goes on all around me every day.

What a Debt Collection Firm is

The firm isn't a big cubicle farm of low wage saps reading from scripts. In fact, we don't call you, you call us. The firm is composed entirely of lawyers, paralegals, and support staff. You will speak almost exclusively to paralegals, should you call. Debt collection is profitable in good times and rediculously profitable in bad times, so the people at every level will always be well paid, and usually very good at what they do.

From Debt to Lawsuit

When the firm gets your debt, a quick and dirty check is run on you. The firm will find out if you own real estate, if you work, if you get social security or disability, how much money you owe to other companies, and whether or not you are paying those companies. If the firm decides there's a realistic chance of recovering the debt from you (and there is, in almost every case) then a guy in the firm will say "OK to proceed with suit" and the fun begins.

A Quick Guide to the Debt Lawsuit Process

Skipping the technical details to just speak in general terms, the firm will file suit in your county's court system and you will be served a summons by certified mail which informs you that you are being sued. You have about three weeks to respond to the suit. Most often this involves you agreeing to pay the firm either in full or in monthly installments. You can also fight the lawsuit. Fighting the lawsuit means you have hired a lawyer, who will be much more qualified than me to explain things, so I'll skip that part.

What happens if you don't reply to the Lawsuit

If you make no formal response to the lawsuit, the firm will get a default judgement against you, where basically the court recognizes that you owe the firm the full ammount of money in question. The interest has been ticking, and attorney fees are added. Then the firm will use a few different techniques to get you to pay:
Wage Garnishment: If you are employed, the very first thing the firm will do is get a wage garnishment order against you. Your employer will be legally required to deduct an ammount of money (about 20% of your after taxes earnings) from your paycheck. This hurts.
Bank Garnishment: If you have money in the bank, the firm will get that.
Real Estate Lien: If you own real estate, the firm will put a lien on it, where the court gives them the right to collect the debt through your property.
Executions: If you own a business, the firm will have the sheriff's office come in and take the money out of your cash register.

Driver's Liscense Revocation: Yes, you can have your liscense suspended for having an unpaid civil judgement! Public disclosuer: We don't do this, but many firms will give notice in your local paper that they are suing you. In small towns the papers often will report these lawsuits even if they aren't asked to do so. My Advice

Pay your debt! Despite what various 'get out of debt lawsuit' books will claim, if you can pay, we will probably make you pay. The definition of cannot pay is: "Debtor is unemployed, lives on an income that legally cannot be garnished (social security, welfare or disability), debtor owns no real estate and no valuable property". So you can get off without paying, but what's the point of going in debt in the first place if you're going to live with almost nothing?
At any rate, here is how I would suggest you minimize the amount you end up paying:
* Pay early! Interest and attorney fees are mounting every day you wait. Every resource the firm uses to make you pay will be added - at a high cost - to your bill. Putting off paying or even communicating with the firm in that hope doing so will get you off the hook is the dumbest thing you can do. You'll pay anyway, and owe twice as much when you do. Often your best bet will just be to get a decent loan from the bank and pay off your creditors. Legal interest is usually 10% and often much more, the bank can usually give you a better deal.
* Settle in full. Firms like it when you do that, and will usually cut you a better deal.
* Negotiate! Even if you are a poor debater, the paralegal you call to discuss payment will be very willing to lower the amount you have to pay to get a settlement. If you settle in full, you can often expect to pay just 80-90% of the amount owed. Many creditors will accept 80%, but it doesn't hurt to plead financial difficulty and make a lower offer (in which case the person will usually have to get approval from his boss).
* In cases where that amount is ridiculously inflated by high interest and attorney fees, I've seen people talk their way down to just paying 20-30% of the on paper amount owed.
* If you do reply formally to the lawsuit, you must send the letter to court, and actually deny the allegations made against you, not just explain why you aren't going to pay, otherwise the lawyer can more or less ignore your letter.
* It many cases, bankruptcy is going to be your best choice. It's messy but it often is better than having your wages garnished for a decade or two. However, I think bankruptcy is only a legitimate thing to do if you are a victim of predatory lending, going through a messy divorce, injured and unable to work, or experiencing some similar sort of hardship.
* If you owe a lot, get a lawyer. A debt collection firm handles tens of thousands of suits a year, and will occasionally screw up. They will always fix the mistake sooner or later, but a good lawyer can quickly spot that error and pounce on it, and often get the case dismissed before the firm can react.

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