Your guide to debt collection

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

As of March 2020, consumer debt totaled a whopping $14.3 trillion in the United States, and around a third of all Americans had at least one debt in collections. They weren’t just struggling with paying off debts—the Consumer Financial Protection Bureau noted in 2019 that about one-fifth of the complaints it received were about debt collectors. This isn’t a surprise when you consider that there are approximately 7,800 collection agencies in the United States, and the third-party debt collection market is a $12.7 billion industry.

If you’re dealing with a debt in collections, learning about your rights and the options you may have can help you take positive action. And that can help increase the likelihood of a more favorable outcome for you. Find out more below.

Your legal rights against debt collectors

The good news is that you’re not alone when you’re dealing with debt collectors. You actually have a lot of laws on your side. A number of federal acts specifically address debt collections, and government organizations are in place to help you protect your rights as a consumer.

FDCPA

The Fair Debt Collection Practices Act provides numerous provisions to protect consumers from unfair debt collection activity. Some of those provisions include:

  • Debt collectors can’t engage in harassment or abusive behavior, including calling excessively or outside of normal times.
  • Collectors have to disclose that their communication is an attempt to collect on a debt.
  • You have the right to ask debt collectors to stop contacting you. They have to abide by your written request, but that doesn’t mean you stop owing the debt.
  • When asked, debt collectors have to provide validation of your debt.
  • Debt collectors can’t violate your privacy by discussing your debt with others.

FCRA

The Fair Credit Reporting Act helps protect you from other types of abusive actions by debt collectors. Specifically, this law mandates fair and accurate credit reporting. If you find a potential error on your credit report, you can write to the bureau in question and ask them to investigate it. By law, they have to investigate, and if the reporting creditor or collection agency can’t prove those facts, the bureau has to delete or correct the information.

The FCRA also gives you the right to at least one free credit report per year from each credit reporting agency. Plus, you have the right to a copy of your credit report if it’s used to evaluate you for credit and you’re denied because of information in your credit file.

TCPA

The Telephone Consumer Protection Act restricts how autodialers and other phone call tech can be used. Specifically, debt collectors and others can’t use autodialers—aka robocallers—to call your cell phone.

UDAP regulations

Unfair or Deceptive Acts or Practices refer generally to behaviors in financial and accounting sectors that aren’t legal or ethical. They’re prohibited by Section 5 of the Federal Trade Commission Act and regulated by a number of entities at the federal and state levels. What you need to know with regard to debt collectors is that anyone dealing with financial products must be transparent and honest about certain facts, such as how much you owe and how it was calculated.

State debt collection laws

As a federal law, the FDCPA is enforced in all states. Some states enforce it differently than others, and some have their own laws that add even more protections. States that have their own fair debt collection laws include California, Colorado, Florida, Georgia, Illinois and Washington.

Summary of your rights

Overall, the list of rights and protections set out by these laws is designed to make debt collection fairer for consumers. The laws seek to ensure you have:

  • Access to fair and accurate information about your debts
  • Protection for your privacy
  • Protection against abusive actions by debt collectors

How debt collection agencies work

Debt collection agencies are required to follow all the laws above. But just because the law is on your side when it comes to fairness and accuracy, it doesn’t mean you won’t ever deal with a debt that puts some stress on you. Understanding how debt collectors work can help you know what to expect and when someone might be crossing the line into illegality.

When can a debt be sent to collections?

A debt can go to collections as soon as you default on it. The exact timeline depends on your contract with the lender and the lender’s policies.

Statute of limitations on debt

The statute of limitations on debt is how long a creditor or collection agency can attempt to collect through legal means, including filing a lawsuit. The timeline varies by state and usually starts when you first default. In some cases, you can reset the statute of limitations by making payments on old debt, so this is something to be aware of when dealing with collectors.

How debt collection agencies are allowed to contact you

Debt collection laws dictate when and how collectors can contact you. Debt collectors can’t call certain workplaces, and they can’t continue to call you at your workplace if you tell them to stop.

Debt collectors can also only call you between the hours of 8 a.m. and 9 p.m. in your time zone. They’re allowed to contact you via methods that include phone, email, fax or mail, and starting in fall 2021, debt collectors will also be allowed to contact you via text and social media.

What to do when a debt collector contacts you

It can be tempting to throw a collections bill in the trash or shove it into a drawer to deal with down the road. That’s even more tempting if you know you can’t pay the bill today. But ignoring the debt doesn’t make it go away and can lead to even more stress down the road.

Here are some steps to take if a debt collector contacts you:

  • If the collector calls you, ask for verification of the debt or something in writing. Never just pay debts over the phone that you don’t know the details of—even if the collector is trying to pressure you.
  • Once you receive the first notification of the debt in writing, review the information and see if you think it’s accurate. You can contest the information or ask for validation of the debt, requesting documents such as a signed contract or a statement. However, you only have 30 days to do this, so don’t put it off.
  • If you plan to make a payment right away, double-check all the information first. Making a payment is seen as acceptance of the debt, so doing so can make it harder for you to dispute something about the debt later.
  • In cases where you want to dispute the debt or don’t think the amount you owe is correct, gather your own documentation. Pull out old statements, contracts or bank statements that show you already paid the debt, for example.
  • Once you determine the debt is yours and is accurate, pay it off quickly if you can. That helps you avoid issues such as lawsuits or judgments that could lead to garnishments or liens.
  • If you receive a court summons because you’re being sued by a collector, show up in court on the hearing date. Not showing up usually means the judge decides for the creditor by default, which means a judgment will be entered against you. That judgment makes it possible for the creditor or collection agency to garnish your wages or checking account or enter liens against your property.
  • Bring legal representation if you can. According to Pew Research, less than 10 percent of people in these types of cases have legal representation, but those who do are more likely to win their cases or reach an agreed-upon settlement.

Remember that collection situations can be complex and your situation is unique to you. If you’re not sure what the best action for you is, you may want to consult legal professionals.

Illegal debt collection practices

Illegal or unethical debt collection practices are unfortunately more common than many realize. From January 1, 2020, through September 2020, for example, the FTC’s Consumer Sentinel Network received tens of thousands of reports from consumers about concerning collection practices—more than 85,000 reports, to be exact. And roughly 45 percent of those were from people who didn’t owe the money or who said they were targeted by threatening or abusive collector behavior.

The first step to recognizing whether you’re being targeted by illegal practices is knowing your rights. If your rights under any of the above laws are being infringed upon, someone might be doing something illegal. You can report those actions to various agencies—more on that below.

Before we get there, though, here are some red-flag behaviors to know about. These are all potential signs that something illegal is going on:

  • Someone claims they can or will arrest you for a debt.
  • Someone shares information about your debt with your family members or anyone who is not you.
  • Someone attempts to claim you owe a debt or must pay a debt that belongs to a relative.

How to report illegal debt collection behavior

If a debt collector violates any of the debt collection laws discussed above, you can and should file a complaint. There are several agencies where you can file these types of complaints, and depending on the situation, you might even file a complaint with more than one.

You can report a debt collector to:

  • The Federal Trade Commission. The FTC enforces the FDCPA and uses the FTC Act to help stop unfair debt collection practices. You can report issues such as bad business practices, scams and fraud to the FTC. Gather the following information and then complete the reporting process on the FTC’s site:
    • Your contact information
    • Details of the activity and product or service involved
    • Any amounts you paid and the dates you made payments
  • The Consumer Financial Protection Bureau (CFPB). You can submit a complaint online to the CFPB. Complaints are used to launch potential investigations and ensure compliance, and the CFPB says 97 percent of people who complete its form get a response within around 15 days. The CFPB does reach out to the collection agency in question to get a response about the matter too.
  • The Association of Credit and Collection Professionals (ACA International). The ACA is an industry association for collection and credit companies and professionals. Membership can bring important perks, but having members who aren’t compliant with collections laws isn’t ideal. If a collection agency that’s a member of this organization is acting illegally, you might want to let the ACA know.
  • The Better Business Bureau. The BBB is a go-to resource for many consumers. You can check with the BBB to find out if a collection agency already has complaints for the type of activity you’re dealing with. You can also file your own complaint.
  • Your state’s Attorney General. States have their own oversight and rules into collections. They also all enforce the federal laws listed above. You can report illegal collection activity to your state Attorney General’s office. Locate the website or contact information for your state’s office at USA.gov.

What to do if you can’t pay the amount in collections

So, what happens if you owe the money and the collector follows all the laws? You may need to pay up. If you can’t pay the amount due immediately, you have a couple of options to consider.

Debt settlement

A debt settlement occurs when you agree to pay a lesser amount and the collector agrees to consider the matter closed. Often, third-party debt collectors buy a debt for pennies on the dollar, so they can still make money even if you don’t pay the total amount due. That makes them more likely to settle for something over nothing.

Settling a debt means you don’t legally owe it anymore. But make sure you get the agreement in writing or the debt collector could try to come after you for the rest.

Paying off a debt—in full or via settlement—doesn’t necessarily improve your credit score, especially immediately. But it also doesn’t hurt your score, since the collection account is probably already on your report. And it may be better than a charge-off.

Bankruptcy

If you can’t pay the debt and are dealing with other financial issues, you might consider bankruptcy. Filing a bankruptcy petition puts an automatic stay in effect, so debt collectors can’t continue collection activity. However, bankruptcy can have serious consequences for your credit, so make sure to talk to an attorney first so you can make an educated decision.

Negotiation

You may be able to negotiate with the collection agency to make several smaller payments over time to pay off the debt. Again, make sure you get any agreement in writing to protect yourself.

Watch your credit during the debt collection process

Whether you’re dealing with collection activity on an account you don’t think you owe or you want to repair your credit after dealing with legitimate collection activity, Lexington Law may be able to help. Find out more about our credit repair services to see how we can help you dispute inaccurate information on your credit score and begin taking positive actions to potentially impact your credit score.


Reviewed by Brad Blanchard, Supervising Attorney at Lexington Law Firm. Written by Lexington Law.

Brad is an attorney at Lexington Law firm whose practice is primarily focused on corporate compliance. His focus is primarily in the areas of marketing and advertising of financial services. He regularly deals with issues related to FTC Regulation 5, UDAAP, FCRA, FDCPA, CROA, TCPA, and TSR. He also has experience in LLC formation, contract review and negotiation, and trial and litigation experience in the areas of consumer protection and family law. Prior to joining Lexington Brad worked on Department of Labor administrative law cases and federal class action lawsuits. He also externed for a Utah State Court trial judge where he worked on both civil and criminal cases. Brad is licensed to practice law in Utah and Ohio. He is located in the North Salt Lake office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.