2021-05-10

What should you do when your debt goes to collection?

What are debt collection services?

A debt collection service is an agency that recovers past payments dues on behalf of creditors. Such collection agencies generally get hired by creditors when payments are not made for 30 to 60 days. After 60 days of not paying the debt, these accounts are considered delinquent and may get handed over to the debt collection agency.

Once the debt is handed over to the collection service, they will try to recover the creditor's unpaid funds for a small fee or commission. This is when they contact you for payment. If you find yourself in such a situation, here are some things you can do to swiftly eliminate your debt and improve your credit score.

What should you do if your debt goes to collections?

1. Review the debt

If you're contacted by a collection agency, carefully cross-reference if the debt amount reported by the agency matches with your account books. After checking if all information stated is accurate, you may verify the debt within a period of 30 days.

This is also a good time to determine how old your debt is and if it extends beyond the statute of limitations. If this is the case, the debt may be considered time barred, which means that the creditor or collection agency may not be able to sue you for it.

2. Know your rights

As a consumer, the Fair Debt Collection Practices Act (FDCPA) in India gives you certain rights in order to regulate the behaviour of debt collectors.  For example - Debt collectors can only contact you from 8 am to 9 pm. They cannot contact you at your workplace, if you have indicated to them that it is inconvenient. They also can't engage in verbal abuse or threaten arrest.

These laws are kept in place so as to ensure that debt collectors don't engage in abusive behaviour to collect the payment. Instead, the debt collection services in India are encouraged to settle matters in a polite way. Knowing your rights prevents you from being harassed, and helps you to settle your debts with dignity.

3. Negotiate the payment

It's always better to pay the owed amount in full, especially if you don't want to hurt your credit score. However, if you are ready to pay your debt in instalments or want to settle on a lump sum amount that is slightly less than the disputed amount - you can always negotiate with the collection service to arrive at a mutually beneficial payment plan.

For this, you can also seek help from a non-profit credit counselling service that can work with you to set up a repayment plan or even negotiate on your behalf. If the negotiation works for all parties, get the agreement made in writing! Once your last payment is made, ensure that the creditor or collection service reports your debt as "settled" and closes the account.

4. Get it cleared about whom you need to pay

Once the amount that is needed to be paid is cleared out, it is time to decide whom you need to pay. Usually, one clears off the debt directly with a creditor. But in case a debt collection agency is handling the debt, you may need to settle the payments with them. Whatever be the case, it is highly crucial here to get it in writing about whom you need to pay, to avoid any possible confusions later.

5. Consider hiring an attorney

Worst case scenario - if the situation gets messy with a debt collector, it may be time for you to hire a lawyer! After that, all communications are done between the debt collection agency and your lawyer. Another thing to keep in mind is to never ignore a summons from the court, as it may then invariably rule in the favour of the collection agency leading to the freezing of your bank account or garnishing of your wages.

How to dispute a debt, if it is not yours? 

If a debt collection agency has made an error and contacted you about a debt you do not owe - you can dispute this matter. Once the debt collector has contacted you, you can send a letter within 30 days to the collection agency asking them to not contact you unless they can provide proof that the debt is legitimate. The agency will then verify its claim. You can also dispute the matter if you believe that the owed amount stated by the agency is incorrect.

You can refer to the sample letters on the official website of the Consumer Financial Protection Bureau (CFPB).

These are all the possible ways you can amicably work with debt collection agencies today to settle debts with creditors. We always recommend one to never ignore one’s debts, especially when one is being contacted by a collection agency. In such situations, it’s always best to tackle debts head on, take control, and settle your debts in full to avoid landing in court.