What Is Debt Collection? How to Deal With Debt Collectors?

Last updated on February 5th, 2024 at 06:42 am

If you’ve any type of debt that is unpaid, you can face a debt collection.

Data shows that in the USA around 30 million people have one debt in collection.

It doesn’t matter which type of debt you have.

Whether it’s a medical bill, credit card debt, student loan, auto loan, a mortgage.

That’s why it’s important to have intense knowledge about debt collection and debt collectors. 

And in this article, you’re going to learn about what is debt collection. How to deal with a debt collector? And lots of other simple concepts. All of this is going to help you gain deep knowledge and avoid debt collection scams. 

Here is the exact breakdown.


What is debt collection?

Image of money in hand

Debt collection is the process of collecting debt from people who are late on their payments or have past-due debts. 

If you’ve taken a debt that you’re unable to pay on time, you’re likely to face debt collection. 

The individuals and agencies who collect these amounts are called debt collectors. They collect debts on behalf of the lender or creditor where you obtained the loan or any type of debt.

Debt collectors include individuals, lawyers, agencies, companies, debt buyers, and first-party and third-party collectors. 

According to the Fair Debt Collection Practices Act, a debt collector is a person who collects debts or attempts to collect directly or indirectly. He can use any instrumentality,  interstate commerce, and mail. 

But these collectors don’t include: 

  • Non-profit organization
  • Any employee or officer of the USA or any state
  • A person whose main business is not debt collection
  • Any employee or officer of the main creditor

The FDCPA clearly defined the debt collector and who can fall under this term. Now you have a better understanding of who is a debt collector.

Debt collectors usually collect unsecured debts. Because the lender has no way to recover the money due to a lack of collateral. Therefore they hand over this task to an individual collector or agency.

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What are the types of debt collectors?

There are three main types of debt collectors. They include first-party agencies, third-party agencies, and debt buyers. 

Here is a brief explanation of each one:

1. First-party agencies

First-party agencies are the subsidiaries of the original credit company that lends money to the consumer. These agencies are separate departments but part of the main lender. Usually, they collect debts very early when the payments are due after taking a loan from a debtor. 

2. Third-party agencies

Third-party agencies are separate entities having no relation with the original lender. In case the consumer doesn’t pay and gets late on his payments the original creditor writes off the debt. And hand over its collection to a third-party debt collector. These collectors don’t work under the original creditor that’s why governs under the FDCPA legislation.

These third-party agencies work on the basis of fees. They get a certain percentage from the debt amount they recover. The fee rates vary from 10% to 50% but normally stay between 25 to 40% of the total debt recovered. 

The fees also depend on the difficulty of recovering the debt. The number of attempts previously made and the age of the debt. They charge more fees for difficult debts.

Third-party debt collection agencies are specialized in terms of mortgage debts, student loans, or car loans. 

3. Debt buyers

These agencies do their work in a very different manner. They buy the debt from the original creditor at a discounted price and redeem it for the full amount including the due. 

For example, a creditor has a debt due of amount $10,000. A debt buyer will purchase it for an amount of $4,000 lump sum. Means 40 cents for everyone $1. And the creditor writes off the debt. After that, these agencies start collecting it from the respective debtors and if they become successful in that, the profits are huge.

These buying rates differ depending on the type of debt. Mortgage debt is purchased at a higher price compared to student loans and auto loans.

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What is the history of debt collection?

History of debt collection

Debt collection is in practice for thousands of years. When there was no money and the system was based on bartering, debt collection was also in practice. 

According to Wikipedia, its history starts from Sumer in 3,000 BC in the times of ancient civilizations. 

But in those times debt collectors used to have several methods for recovering debt. Some of them include:

  • Recovering the debt in the form of money 
  • Ceasing the property or items in the house of the debtor according to the law
  • Put the debtor into prison and his children and housewife do physical labor until the debt amount is recovered.
  • The creditor forgave the debt given to a person if he is unable to pay it back

These methods were so cruel. And in today’s world, governments have given lots of protection to the debtor. And in case he can’t pay back then normally his credit score will suffer and lack trustworthiness but don’t torture him physically or mentally. 

In the great Roman Empire, the debt collectors used their power and other abused ways to recover the debt. While in England during the medieval age freelance tax collectors used to do this job. They were official people who work for bailiffs ( the managers with authority and some kind of jurisdiction ). Commonly, use their power and threats to recover the debt.

In 1833 USA government terminated the debtor imprisonment in federal law.  

The secured debt is recovered with payments or selling collateral if the consumer defaults. This happens in the case of mortgage debts. 

In the case of unsecured debt, the consumer either pays in terms of money as normally the process works. But if he defaults then the creditors give this task to debt collectors. 

If he defaults then his credit score will suffer. He will be unable to obtain further loans from the lender. The bankruptcy also stays for 7 to 10 years on the credit report. 

But the creditor or debt collector can’t use abusive ways to recover the amount. They can’t use threats, harassment, and other wrong ways. Because these activities are unlawful under FDCPA rules. The debtor, in this case, can complain to the required authority and recover damages if any. 

The debt collector and creditor can sue the debtor and the court can order to recover the amount from his property or paycheck. But if the debt collector wins the case.

How does debt collection work?

Now let’s understand the process of debt collection. 

If you took any type of debt from the bank or lending institution, you must pay it back. The payments can occur monthly or in a lump sum according to the rules. 

But if you get late on your payments usually 2,4 or 6 months then it becomes a sign of delinquency. And the creditor hands over these delinquent debtor accounts to third-party agencies. 

There are two methods of doing this. First, if they hand over the work of collection to these agencies based on a certain percentage of commission. While the second method is to sell your debt to the debt buyers at discounted rates. For example, a $1000 debt for $500. But the buyer redeems for the full amount.

These third-party agencies and debt buyers are called debt collectors.

When the debt account is given to them they start contacting the respective debtor for the payment. They use different strategies and tactics like mailing letters, phone calls, and emails to communicate with the debtor.

But there are rules and regulations that protect the debtor. For example, the debt collector can’t threaten, harass, or use abusive language. He can’t call the prospect before 8 am and after 9 pm. Also required to avoid contacting if a person is at the workplace.

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What is the Fair Debt Collection Practices Act?

Fair debt collection practices act

The FDCPA act is a federal law that protects the rights of a debtor. The act imposes limits on the debt collectors working on behalf of creditors. This act has a number of rules and regulations that a debt collector must follow. Otherwise, if he violates them, a debtor can sue the collector and charge for damages. 

Main points of the FDCPA:

Here are some important points you should know. 

  • The debt collector doesn’t communicate more than once to a person other than the actual debtor. Unless the person doesn’t give him complete info or is allowed to contact him.
  • He can’t tell anyone in your family, friends, or co-workers about your debt. But can take any information. 
  • Without the consent of the debtor or the court, a collector can’t communicate with the consumer. Also, he can’t communicate at times like after 9 pm and before 8 am. 
  • Similarly, the debt collector can’t communicate with the consumer at his place of employment if the employer prohibited such communication.
  • If the consumer notifies the collector to not communicate with him then he must follow that. Except that the collector notifies the debtor about no further communication and invokes a specific remedy.
  • A debt collector is prohibited to do any harassment, use of abusive language, threats, harm, and violence to acquire the amount.
  • He can’t use false representation like being affiliated with the USA or any state including badge and uniform. Also the false representation of the amount of debt and legal status. 
  • He must send notice of debt including the correct amount and name of the creditor. And the debtor has thirty days to respond in case of any dispute. If he didn’t respond then the collector’s information is considered valid.

Here are some of the main legislations a debt collector must follow. For further information and the rights of the debtor, you can visit this link to read the pdf version of this act. 

How to handle debt collection?

If you get contacted by a debt collector then it is important to know the steps so you can easily handle him. This will help you avoid any potential mistake that leads you to pay more than you owe or confirm the wrong information. 

1. Verify the details

The first and foremost step is to verify the information. If a collector calls you or sends a letter then first verify details about the amount of debt, your name, and the creditor’s name. If all the information disclosed to you is correct then good.

But in case you do not agree then you can file a dispute before 30 days end. Because not responding on time will confirm that the collector is right. And make sure you get all the information in written form. Do not try to contact me solely over the phone or email. 

2. Don’t share information

Avoid giving your sensitive information over the phone or by email. There is the possibility of debt collection scams. In the first contact and without written information don’t share your personal as well as banking information like account number, debit card number, etc. 

3. Negotiate the payment

If the debt information is confirmed and you agree that you owe this amount. Then negotiate on your debt amount. You can also try the debt settlement with the collector. This way you don’t pay the debt in full amount instead save some money.

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4. Don’t ignore debt collectors

Don’t ignore him if he is continuously contacting you. Because doing so will actually impact your credit score. The debt in collection stays for 7 years on your credit report.

5. Take necessary action

In case your debt collector uses abusive ways, like threatening, showing authority, abusive language, multiple calls during your work hours, and other unlawful tactics then you can use legal ways to fix him. 

You can file a lawsuit against him, or you can call the number (855) 411-CFPB (2372). You can also contact the attorney general of the respective state you live in.

These are some of the ways you can handle debt collectors. But this doesn’t end there. You also need to avoid scammers in this industry. So in the next section, you will learn how to avoid debt collection scams.

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How to avoid debt collection scams?

How to avoid scam.

Debt collection scams are a major drawback of this industry. The scams can happen to you in several forms. And therefore protecting before any mishap is important. Here is how to identify the scams and deal with them.

1. No written letter

If he didn’t disclose all the critical information in a written letter. This includes your name, the debt amount, creditor name and filing a dispute, etc. And force you to contact them over the phone then it is a sign of a scam. 

2. Use threatening

He threatens you and shows him as an authority or tries the wrong way. In this case, you should be careful that he is a scammer on your hands. And file a complaint to the respective authority like the attorney general of the state.

3. Debt you don’t owe

When a debt collector contacts you for a debt you don’t recognize. Then try to first confirm that the debt is yours. It is possible he is trying to put another person’s debt on your side. Or sometimes you don’t have any debt but they try to scam you.

4. Wrong payment methods

A collector who forces you to pay with a debit card, credit card, wire transfer, etc. Then don’t do that. Because these kinds of situations are alarming that he is a scammer. On these payment methods tracking the scams.

5. Incorrect information

He doesn’t give you his contact information including the original business address and website. And also if he threatens you to leak your debt information to people close to you then it can be a debt collection scam. You don’t disclose your information to him but instead, complain to the respective authorities.

In either case, if you get followed by these scams, then hold on and take the necessary steps. You can take the steps like contacting your original creditor and confirming any debt collector he handed over your account. 

More than that you should know your rights and file complaints if needed. Keep a record of all the documents like emails, phone messages, letters, and calls so you can present them as proof if you face any debt collection scam.

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FAQ (Frequently asked questions) about debt collection

Frequently asked questions

In this section, there are dozens of questions answered related to debt collection. This will help you get answers to any query you have in mind and enhance your knowledge.

So let’s get started. 

How debt collection agencies can contact?

Debt collection agencies use different methods to contact the respective debtor. The most common ways they use are phone calls, mailing written letters, and even meeting in person by sending their agent. 

If they can’t contact using the given information obtained from the original creditor then they use private ways of investigations and software to obtain information about the debtor. 

Which debt types are covered in this law?

The Fair Debt Collection Practices Act ( FDCPA ) is made for loans and debt which are consumers related. This includes both secured and unsecured consumer debt. The debt types that they cover include:

  • Credit card loans 
  • Auto loans 
  • Mortgage debt 
  • Student loans 
  • Medical bills 
  • Household loans 
  • Other personal loans 

This act is not for dealing the business loans. It doesn’t matter whether the kind of business is a partnership, company, limited liability company, small business, or medium-sized business. There are other laws that deal with these loans.

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Who other parties a debt collector can contact?

Other than the original debtor to which collection agencies are concerned, they can contact their family, friends, parents, sisters, and co-workers. But can’t open up the information regarding debt. He can only communicate with all of these parties for taking any contact or address information of the original debtor.

It is mentioned in the actions that debt collectors can’t contact more than once to all of these parties. Unless if they give him consent to call or any information obtained from them is not complete. 

Along with that, he can’t communicate with consumers if he didn’t give them permission. Especially when you’re at the workplace and the employer prohibited this kind of communication. The collector can communicate with the attorney of the debtor if he advised him to do so.

Which time do the debt collectors contact me?

According to the guidelines of FDCPA, the collector can’t contact before 8 am and after 9 pm. The only slot for contact is between 8 am and 9 pm. In violation of this rule, a debtor can submit a complaint against the debt collector. More than that the debt collector can’t call multiple times. 

What notice a debt collector should give you?

As mentioned in the FDCPA, the debt collector must provide the completed information regarding the name of the creditor and the total amount of debt owed. And must mention that the debtor can verify this information as well as file a dispute if he doesn’t agree with it. All this information must be sent via written letter to the debtor.

What if a debt collector breaches the law?

The act clearly explains that debt collectors must not use any unfair practices. These practices include the following:

  • Charging any fee, expense, or charges that are not in the agreement
  • Threatening the debtor to make payments.
  • Doing any other non-judicial action like ceasing the property
  • Using postcards to communicate with debtors 
  • Using symbols, language, and addresses on the envelopes that don’t represent the debtor collector or its business 

In case your debt collector does these kinds of violations you can take legal action against him. You can do a lawsuit against him and complain to the state attorney general. And the debt collector will be liable for paying any damages that occur in violation of the rules.

How to stop a debt collector from contacting you?

Yes, you can stop the debt collector from further communication. You need to send them a letter to not contact you next time. The act clearly states that a debt collector can’t contact a consumer without prior authorization of the court at:

  • Unusual times from 9 pm to 8 am
  • If the consumer has a representative like an attorney for this purpose
  • The consumer employer prohibits this at the workplace

Therefore the consumer notifies the debt collector that he refused to pay the debt and ceases any further communication. 

Is a debt collector allowed to tell other people about my debt?

No. This is a violation of the FDCPA rules. He can only take any contact information and address from other people for contacting the debtor. But while hindering the debt information from them.

How to report a debt collector for illegal activities?

In case your debt collector is doing unlawful activities like threatening, abusive language, and telling your debt information to your family and friends, then you can take action. You can do a lawsuit against him and submit a complaint to your state attorney general. And he will be liable for paying any damages to you due to a violation of the rules.

Should I pay off the debt in the collection?

Yes, you should pay off collections debt if you legitimately owe it. This will stop the continuous communication and letter headaches you face from the debt collector. It also improves your credit score and builds trust with your lenders.

What information does a debt collector provide me?

A debt collector must provide you with the following information when he notifies you about the outstanding debt. His written letter should include:

  • The total amount of debt owed to you
  • The name of the debtor
  • The name of the original creditor
  • Also filing a dispute if the debtor doesn’t recognize 

This is must-have info according to the FDCPA Act of consumer protection.

Can I choose which debts my payments apply to?

In case you’ve multiple debts outstanding. And debt collectors notify you to pay them back. You can choose any debt to which you’re liable to make payments. And for all the other debts that you don’t recognize, get disputed. 

Does a debt in collection affect credit score?

The debt in the collection is a negative sign for your reputation in the eyes of creditors and for your credit score. And the answer is yes, it hurts your credit score. As many debts you’ve in the collection the impact becomes more serious. 

One thing to remember is, as older the debt in a collection impacts less on your credit score. But if you pay it back then it doesn’t impact. According to the new FICO and VantageScore unpaid collections impact your credit score.

What a debt collector can say and do according to limits?      

Following are some actions that debt collectors can take according to the limits provided.

  • He can contact the consumer’s family, friends, and coworkers for getting information about the debtor. But while hindering the debt information.
  • Can take legal action against the debtor to get interested in his property. But he must file that case only in the judicial district where the property is located.
  • Allowed to file any lawsuit in the court against the debtor to take money from a debtor’s bank account. This is called garnishment. And the debtor may need to follow the court order.

These are the legal things that a debt collection agency can do against the consumer.

How to deal with old debt?

There is a statute of limitation on debt starting from the last payment made. If a debt collector calls you to pay the old debt then you must first see the statute of limitation. If it is passed then in some states of the USA you are no more liable to pay that debt. And the lender or debt collector can’t sue you for that. 

But here is the problem. The creditors like banks and other lending institutions sell their old debts at discounted rates for pennies on dollars. Like a $1000 debt for just $40 or $100. And debt collector does their best to collect these debts to earn big profits. 

Therefore if in case the debt collector contacts you to pay the old debt then don’t get panic. You don’t need to first make the payments. This can become a mistake and the debt gets renewed again. You first see the statute of limitations according to state law. If it is passed then you can refuse to pay the debt. 

If in case the debt collection agency sues you in court. You should appear on the given judgment day. Because not appearing can lead a decision in favor of the debt collector. That’s why you should appear on the given date and provide proof that the debt is too old. The collector can’t legally enforce you to pay the debt.

Is the debt collector allowed to contact anyone else about my debt?

No, he can’t contact other than you like your family, friends, coworkers, or any other. Except for your attorney whom you specifically hired for this purpose. And also he can contact the above-mentioned parties for taking any information about you without disclosing the debt information. 

What is debt collection arbitration?

Debt arbitration is the process of negotiating the debt between the creditor and the debtor. The third-party work between the creditor and the consumer is called an arbitrator. He is a neutral party who comes up with a win-win solution that benefits both parties. 

If the debtor can not pay the full debt amount, then he tries to negotiate or settle the debt for a less amount between the lender and the debtor. And the less amount paid is considered as full and the debt is written off by the lender.

For more information, you can read this article: How to Reduce or Eliminate Debt Through Arbitration

What if I’m not sure if my debt is time-barred?

To make sure that your debt is time-barred, you can check the statute of limitations according to the state. And it is calculated from the time you made the last payment for paying it back. If your debt passed that statute of limitations then it is considered time-barred. This time frame can vary from state to state. 

What if a debt collector contacts me for a time-barred debt?

No. if your debt has passed time and becomes too old then the debt collector can no longer contact you. He can’t sue you for that amount and you also don’t make any payment or communication with him.

How can I stop debt collection agencies from threatening me?

First of all, you send him a written notice or letter to no further communication. If he follows that then well and good. But if not you should take action against him by reporting him to the Federal Trade Commission or the attorney general of the state. You can also file a lawsuit against him for using abusive ways.

What if I don’t think I owe the debt?

You can file a dispute against the information a debt collector provides you about the debt amount. But remember you normally have only 30 days to respond to the letter he sends. If you don’t respond then the information provided will be considered correct. And you can get into trouble.

Can a debt collector deduct money from a paycheck?

In case a debt collector filed a lawsuit against you and won, then it is possible. He can take some amount from your paycheck according to the court’s decision. Usually, the creditors do who are legally allowed to collect student loans, child support, and collect taxes.

Is it possible that a debt collector garnishes my federal benefits?

No, a debt collector can’t garnish your federal benefits. There are many benefits like social security, military annuities, survivor benefits, veteran’s benefits, etc are exempt from garnishment.

Final thoughts

Paying debt in the collection is good for your credit score and trust with the creditor.

But knowing the important aspects are important to deal with unwanted circumstances like paying old debts and avoiding scams.

Along with that, you should know your full rights in the FDCPA for debt consumers. This will help you manage your debt collectors and take the necessary actions if they do anything illegal. So you can protect your rights and charge for damages.

After reading this article, you get clear on what is debt collection.

If you’ve any questions in mind so please mention them in your comments below. You get the answer as soon as possible.

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Ahmad Ali