Collections process

If you've ever had the unfortunate experience of dealing with a collection agency, you know they certainly can be aggressive, if not downright intimidating.

They may contact you by phone, mail and FAX, but by law (the Fair Debt Collection Practices Act), cannot harass you by threatening violence, arrest or embarrassment. Collectors also cannot falsely represent themselves as lawyers or government officials, overstate the amount of the debt or force you to accept collect calls. They also must respect your privacy and cannot contact you by postcard. If more than one debt is involved and you can't or won't clear all of them, the collector must let you chose the debt to which you want to direct your payment. You can report any irregularities to the state Attorney General's office and the Federal Trade Commission; debt collectors can be sued in state or federal courts if they violate the law.

Once you've been contacted, the collector is required to send a written notice within five days. Mistakes do happen, so always check your credit card statements and payment stubs if you think you might have received an incorrect collection notice. If the debt is, in fact, legitimate, try to pay up as soon as possible to prevent further damage to your credit history.

In some cases, you may be able to negotiate a repayment schedule with the collection agency. You can try proposing a lump sum settlement, in which case you might even be able to pay less than the full amount due. If the agency agrees to a lump sum payment, have them mail or fax you a letter that states the amount. It's not unheard of for collection agencies to try to collect the full amount after verbally agreeing to accept less. Once the debt is settled and reported to the credit bureaus, your credit report will reflect a settled amount. Although this is a little better than having completely defaulted on a debt, lenders still view it unfavorably because the debt was not paid as initially agreed. Ignoring a collection agency won't work. Depending on the size of the debts, the collection agency might initiate legal proceedings against you.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.