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When Does Debt Collection Occur?

Debt Collectors – The Truth

Baseball bats… Midnight phone calls… Huge muscle-bound guys that look like they’ve been on steroids since they were toddlers. The mind races when we think about debt collectors. This can certainly be the case when we have one of our unpaid bills handed to a debt collector for them to put the squeeze on us.

The reality is quite a bit different. There are regulations, guidelines and codes that debt collectors follow. And the truth is that a vast majority of debt collection staff never leave their desks! That’s right. The thought of a scary man knocking on your door late one afternoon and scaring the kids is probably a bit over the top. Generally speaking, debt collection firms use letters and phone calls to contact you to try and get a debt paid. Of course, there are always some cowboys in any industry, but on the whole, debt collection firms are law-abiding, professional businesses.

So why panic then? If they’re not going to physically approach me, why should I worry about paying the debt?

Let’s look at why you should enter discussions with the debt collector and some of the topics those discussions will cover

Legal action
Debt collection firms usually have either in-house lawyers or a closely associated law firm. This means they have the capacity to sue you and get a judgment against you. This could severely damage your credit rating, so you should try to avoid this.

Given that most have these ‘legal tools’ available to them, they will want to use them… otherwise, why have them there? This means they’ll be looking to sue a certain number of debtors. You don’t want to be one of the unlucky ones… So how do you avoid it?

The debt collector will try and work out how much leverage he/she has against you. If you own a house, have stable well-paid employment, or own a lot of luxury items, then you may be a target for legal action.

They’d much rather sue a home owner or well employed individual as opposed to an out of work teenager living in a caravan park with no real assets. This is because they want to be able to continue legal action beyond the point of judgment if you still don’t pay. One method by which they can do this is bankruptcy (Bankruptcy – read more).

Most of us work hard to build up our assets and a collection of valuable items. You don’t want an unpaid debt damaging all that you’ve worked so hard to achieve.

Regardless of whether or not you’re going to be a target for legal action, the debt collector will try to find out if there’s a reason why the account remains unpaid. Are you disputing liability for the debt? Are you disputing the amount (quantum) of the debt?

Example: You may have had somebody build you a fence and a week later it fell down. You had to get somebody else in to fix it. Therefore you feel you should only pay the original price minus the cost to fix the poor workmanship.

In this case you would need to gather the facts. This would include all quotes, invoices, and the attempts you made to contact the original fence builder to notify them of the fault. With this information to hand, you would need to discuss your dispute with the debt collector. (Be sure to document all your conversations and events relating to the case).

If you’re liable for the debt and there are no issues about the amount that you owe, the debt collector will look to have you prioritise payment of the debt over any others you may have. He/she is acting for one of your creditors and just wants you to pay that particular bill.

Commitment to pay
The debt collector will be looking for a commitment from you – How much you can pay, and how quickly. Be realistic about your capacity to pay. And if you have to pay by several installments, let the debt collector know a little about the reason(s) why. Generally, if your reasons sound legitimate and your payment plan is relatively quick, then you should be able to negotiate a fair settlement arrangement.

Debt collectors – Things to remember
When dealing with a debt collector, there are some basics to remember:

  • Don’t ‘bury your head in the sand’
  • If you have a legitimate dispute (liability or amount) then raise it as early as possible (using facts and/or evidence to support your argument)
  • Be realistic about how much you can pay / settlement terms
  • If you have to alter your agreement with the debt collector or you’ve missed a payment date, then you need to communicate this to her/him
  • Generally speaking, debt collection firms have ways in which to sue you and are willing to do so in certain circumstances
  • If you think a debt collector won’t sue you for a relatively small debt, then you could be sadly mistaken. Don’t risk it!

Your personal situation – financial capacity
When all’s said and done, if you don’t have capacity to pay a debt, then you may need to look at borrowing money in order to avoid the debt collector taking legal action against you.

The following are some common sources of finance that debtors use in order to satisfy debts already with a debt collector:

  • Refinance / debt consolidation (Debt consolidation application)
  • A purpose driven credit card. Remembering to pay the debt then pay the credit card off as quickly as possible. (Credit card application)
  • Sell some unwanted valuables. Unfortunately this can either be slow and time-consuming or you may only be offered a fraction of what your goods are truly worth
  • Ask friends and family for help. Unfortunately it can be awkward asking a friend or family member for money and deals can easily sour if they go off track at some point in the future

In Summary, if the debt collectors are chasing you:

  • Gather your thoughts
  • Assess your liability for the debt and the amount you owe
  • Assess your capacity to pay – if necessary, consider arranging finance
  • Discuss your situation with the debt collector
  • Once a settlement is agreed upon, try to stick to it and if you can’t, communicate this with the debt collector