Tips for Dealing with Debt Collectors

Tips for Dealing with Debt Collectors
Eileen St. Pierre, The Everyday Financial Planner

debtSome time ago, a soldier I was counseling told me that he was just going to ignore an unpaid debt in collection on his credit report because it was going to age off after seven years. He incorrectly believed that once the debt disappeared from his credit report, that he was no longer responsible for it. I told him that the creditor, or more likely a debt collection agency that purchased the unpaid debt, could sue him and have a judgment entered against him. That judgment could stay on his credit report a lot longer.

Be aware of the legal implications of unpaid consumer debt.

Consumer debt includes any household debt including medical debt, student loans, auto loans, credit cards, and store cards. If you are sued by a debt collector and you don’t bother showing up in court, then a default judgment will be entered against you. Then the debt collector can have your bank account frozen and/or have your wages garnished. Try explaining that to your boss!

There is a statute of limitations on unpaid debts.

This statute of limitations varies by state. Many of my clients swear they never incurred the unpaid debt in question. Formally ask in writing for proof of the debt. Unpaid debts can be bought and sold many times so it’s important to negotiate with the original creditor if possible.

  • Debt that is old, defaulted, or not owed at all is sometimes referred to as zombie or phantom debt because it haunts the presumed debtor.
  • Know how old the debt is before you send in any payment.
  • If the statue of limitations has passed, you cannot be sued for nonpayment. The laws here can be complicated – some states like NY may still allow you to be sued so please do your due diligence.
  • If you send in payment for an old debt for which the statute of limitations has run out, you re-start the statue of limitations all over again.
  • There is currently no statute of limitations on federal student loans.

If you do get sued by a debt collector, find out everything you can about the lawsuit.

You must receive legal notice of the lawsuit. If you never found out about it, ask for proof that notice was delivered. In today’s GPS age, this is getting easier to prove. If a default judgment has already been entered, ask your court clerk to re-open the case on the grounds you never received notice.

You most likely will have to represent yourself in court. If you think you will get nervous, write out your story.

  • Know how much you owe.
  • Know who you owe it to.
  • Be able to back up your story with documentation.
  • Don’t rush to settle a case in court. The debt collector may have very limited information about your debt so he/she will try to get a settlement right away.
  • Look for free legal clinics in your community. If you live near a law school, call them and see if they offer free or reduced cost legal advice.

Finally, do not hide from your debts.

Many people think if they do not open their mail, or they ignore collection calls, the problem will go away. It won’t. It is important to take responsibility for your debts. Default court judgments are not fake judgments. Debt collectors who buy unpaid debts for pennies on the dollar from creditors are basically purchasing the right to sue you. They are banking on you not doing anything. So the best advice I can give you is this – Just show up!

For more information on this issue, read What To Do When Creditors Sue! by Marcy Einhorn, Esq.  You can file a complaint against a debt collector with the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC).