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Debt Collection Explained

The Federal Fair Collections Practices Act ("FCPA") protects debtors from oppressive debt collection practices and affords debtors the right to dispute debt claims. Creditors and debt collectors that violate the FCPA risk waiving their recovery rights and could be subject to other penalties. Therefore, it’s important for both debtors and creditors to understand the laws on debt collection.


How Debt Collection Works

Creditors often hire debt collector agencies, rather than attempting to collect the debt themselves. The FCPA (16 U.S.C § 1962) defines a "debt collector" as any person that collects or attempts to collect debt either directly or through a third party that regularly attempts to collect a debt (i.e., debt collection agency).

Debt collection includes any action where a creditor attempts to get payment for a debt. Collection efforts may vary depending on the type and amount of the debt. Some common methods include:

  1. Sending demand letters or other attempts to contact the debtor;

  2. Negotiating debt settlements;

  3. Garnishing wages, bank accounts, or both;

  4. Reporting debt to credit bureau;

  5. Court proceedings to find the debtor's assets and property; and

  6. Executing on property or assets;

Some debt collection activities only become available to debt collectors after they've met certain requirements. Debt collectors cannot report a debt to a credit bureau unless they have contacted the debtor about the debt by either: talking with the debtor by phone or in person, mailing a letter to the debtor, or sending an electronic communication to the debtor about the debt. In doing so, they must provide the debtor with basic information about the debt and the identity of the creditor. If the debt collector sends a written communication, they must allow the debtor a reasonable amount of time to respond before reporting the debt to a credit bureau.

Debt collectors must obtain a judgment by a court before pursuing the debtors assets or property. Additional legal processes may be required such as an asset determination hearing or garnishment proceedings.

TIP#1: Negotiate. Some creditors accept a lower sum as full payment. Debtors should try to negotiate with the debt collector or creditor to lower the debt amount.

Debt Collectors & Debtor Rights

Debt collectors must comply with the FDCPA along with state law, agency regulations, and overlapping laws (e.g., healthcare, consumer protections, etc.). The FDCPA protects debtors from unfair debt collection practices and requires creditors or agencies acting on their behalf to take and avoid certain action when trying to collect a debt.

Before a debt collector can report a debt to a credit bureau, the debt collector must do one of the following:

  1. Talk with the debtor in person about the debt;

  2. Talk with the debtor by telephone about the debt;

  3. Mail the debtor a letter about the debt and wait a reasonable amount of time (generally 14 days) for a notice that letter wasn't delivered, or

  4. Send the debtor an electronic communication about the debt and wait a reasonable amount of time (generally 14 days) for a notice that the communication wasn't delivered.

Debt collectors must provide debtors with certain information about the debt in writing within five (5) days of first contacting the debtor called a 'validation notice.' The validation notice must include:

  • A statement that the communication is from a debt collector

  • The name and mailing information of the debt collector and the consumer

  • The name of the creditor(s) to whom the debt is owed

  • The account number associated with the debt (if any)

  • An itemization of the current amount of the debt that reflects interest, fees, payments and credits since a particular date, the “itemization date”

  • The current amount of the debt as of when the validation information is provided

  • Statements informing the debtor of his/her right to dispute the debt in writing within 30 days of the validation notice including:

    • If the debtor doesn't dispute the debt within 30 days the debt collector will assume the debt is valid

    • If the debtor disputes the debt within 30 days, the debt collector must stop collection until it verifies the debt

    • If the debtor requests the name and address of the original creditor (if different from the current creditor) within 30 days, the debt collector must provide such information

  • Information on how to dispute the debt

  • The notice must include a “tear-off” form that you can send back to the debt collector to dispute the debt or take other actions.

Debt collectors may include the required information in the initial communication in writing. The purpose of the written notice is to give the debtor enough information to either dispute or accept the debt. Failing to give debtors a written notice and required information might subject a debt collector to liability under the FDCPA, and weaken, or hurt the strength of the case in a court proceeding.

Communicating with Debtors

The FDCPA restricts who, how, when, and where debt collectors can communicate with debtors. Debt collectors cannot harass or abuse someone to collect debts. Harassment or abuse includes: (a) using profanity or abusive language, (b) using or threatening violence or other criminal act, (c) advertising the sale of the debt to coerce payment, (d) repeated calls and attempts to annoy or harass a person, (e) making telephone calls without disclosing their identity.

Also, debt collectors cannot make false or misleading statements or engage in unfair practices to collect debts. For instance, debt collectors cannot tell a debtor that non-payment will result in imprisonment, garnishment, seizure of property, sale, or other action unless the debt collector or creditor can lawfully do so and intends to do the same. However, the list of prohibited conduct under the FDCPA is more detailed and extensive and as provided here. The complete lists and descriptions can be found under 15 U.S.C. Sections 1692e-g.

Debt collectors cannot contact debtors at unreasonable times, days, or places. The default hours for communicating with debtors are between 8:00 a.m. - 9:00 p.m. and apply unless the debtor consents otherwise. Debtors may also send a written demand to the debt collector to cease communications. A written demand to cease communications does not, however, apply to any written notices or information. The FDCPA requires debt collectors to send.

Debt collectors cannot contact debtors at the debtor's work if the debt collector knows the employer prohibits such communication. Debtors should tell debt collectors they are not allowed to communicate with the debt collector at work. Debt collectors might be subject to liability if they continue contacting the debtor at work.

Further, Debt collectors cannot communicate with any third party without the debtor's consent unless doing so is necessary to enforce a judgment. Debt collectors may also discuss collection efforts with debtors (unless represented by an attorney), creditors or creditors' attorneys, and consumer reporting agencies.

Summary: - Debt collectors cannot contact debtors at unreasonable times or days. - Debtors can send a written demand for debt collectors to stop contacting them. - Debt collectors are prohibited from contacting debtors at inconvenient times and places, communicating with third parties (except for debtors' or creditors' attorneys and consumer reporting agencies), making false or misleading statements, and engaging in unfair collection practices.

Disputing Debt

As discussed above, debtors have thirty (30) days after receiving the validation notice to send a written dispute contesting the validity of the debt. Debt collectors must stop all debt collection efforts upon receiving the debtor's written dispute until the debt collector verifies the debt or mails the debtor a copy of the judgment.

Debt collectors also must stop collection efforts upon receiving a written request for the name and address of the original creditor until the debt collector provides the debtor with the requested information plus verification of the debt or a copy of the judgment by mail. Debt collectors need only stop collection efforts upon receiving a written dispute, and cannot take any action that interferes with the debtor's ability to dispute the debt. However, debt collectors may still try to collect debts by other means.

Debtors commonly dispute debt involving third parties. For example, a married or divorced couple might dispute a debt because the other spouse is ordered to make payments on a vehicle or real estate. Another example is for medical bills that the health insurance company denied or only partially paid. Therefore, the debtors dispute the debt due to the belief that another party is responsible for payment.

Debtors might also dispute a debt when the debt got paid. It's possible for a creditor to overlook a payment or fail to communicate with another branch causing the debt to appear unpaid. Therefore, it is important to keep financial records somewhere safe for several years after payment.

TIP#2: Gather Information. Debtors should find out as much information as possible about the debt alleged/claimed by the creditor. The type, amount, and age of debt may help debtors determine whether the costs of disputing a debt outweigh paying the debt amount.

Legal Proceedings and Judgments

Debt collection efforts may occur: before the creditor files a court action, as part of litigating a legal action, or after the creditor receives a judgment. A judgment is a document entered by the court that finds for one party and against another. A judgment against a debtor will state that the court finds for the creditor and against the debtor. The judgment states the amount awarded to the prevailing party, including whether there are any attorney fees and costs granted. If a debtor fails to appear at the court hearing or respond to the creditor's petition, the court will automatically find in the creditor's favor (called a "default judgment")

Once the court enters a judgment against a debtor, the creditor may pursue post-judgment options for collecting the debt. For example, the debtor might be required to appear for an "asset hearing," which is exclusively to establish whether the debtor has any assets the creditor may sell to offset the debt amount. Creditors might alternatively or additionally garnish wages, among other methods. Oftentimes, creditors submit default debt to consumer reporting agencies (before or after legal proceedings), which damages the debtor's credit. Low credit scores might prevent debtors from obtaining a loan, mortgage, financing, or credit cards, and/or increase the interest rate charged for the same.

Get an Attorney

Martuch Law represents creditors and debtors at all stages of the collection process. Whether you're a creditor trying to collect the unpaid debt and need a demand letter or representation, or a debtor fighting a debt, we can help. We offer free 1-hr. no-commitment consultations. Contact us today to make an appointment!

Best Practices

1. Act promptly and pay attention to dates. Failing to meet a deadline might result in accidentally waiving your rights. Debt dispute letters must be sent within thirty (30) days of receiving a debt collection notice but should be sent sooner to stop debt collection efforts. The Consumer Financial Protection Bureau has sample dispute letters on their website along with other free resources.

2. Notify the creditor's billing department if you are disputing charges to an account or a bill you received. Some billing departments put a hold on a disputed account and might prevent it from going to a debt collector or damaging your credit score. 3. Keep important financial records. Get copies of financial records such as contracts, payment histories, bills, and account statements, along with other documents. Keep financial documents in a safe place. You should keep some financial records for 2-5 years (e.g., large purchases or loans). Debtors sometimes only discover account or payment problems after the creditor begins collection efforts. Financial records can help clear up mistakes and might be useful if the creditor starts court proceedings.

4. Use written agreements. Written agreements help to keep all parties accountable for what the parties actually agreed. Written agreements should, at the least, provide the date of the agreement (and other relevant dates e.g., delivery, closing, payment, etc. ), names of the party(ies) and their signature(s), payment amount and details for making payment(s); quantities, and other essential terms. You should consult with an attorney before signing a contract.

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