The key to effectively dealing with collectors is communication. It is also important to know the type of collectors and what they can and cannot do. You do have rights that protect you from unfair collections practices. By knowing your rights and options the relationship between consumer and collector becomes congenial and productive.

Types of Collectors

Credit Grantors
Most original credit grantors have internal collections departments. Delinquent accounts are grouped by level of delinquency called buckets. These buckets are categorized by stages of delinquency 30, 60, 90 and 120 days of delinquency. Accounts are usually referred to an outside agency after bucket 120.

Collections Agencies
Collections agencies are given the authorization by the credit grantor to collect money owed on a commission basis. Generally, a percentage of the total debt collected is retained by the agency. If the collections agency owns the debt (purchased from the credit grantor) they have the right to implement legal action against the consumer.

Attorneys
Attorneys have special means for tracking consumers and confiscating delinquent payments. They can obtain information from voter registration records, credit bureaus, utility companies, post offices, family and friends, landlords, or former employers. Following the course of the law attorneys can take legal actions against a consumer by filing a lawsuit.

What Collectors Cannot Do
Per the Fair Debt Collections Practices Act, collections agencies are limited to what they can do. Below is a listing.

Wage Garnishment

A wage garnishment is a legal procedure in which a portion of your paycheck can be withheld for the payment of a debt. Rules vary by state, but generally the limit for what can be garnished would be: 25% (or 1/4) of your net disposable income, or 30 times the federal hourly minimum wage. However, there are Claims of Exemption. Some claims could be granted if all of the following apply to you:

You cannot be fired from your job for any one garnishment. This is enforced by the Secretary of Labor through the Wage and Hour Division of the U.S. Department of Labor.

Wage Assignment

Wage assignment does not have the legal force from a court as wage garnishment does. It is a legal agreement between a lender and a debtor that permits the lender to collect part of the debtor's wages from an employer if the debtor fails to make regular payments. The employer is not legally compelled to honor a wage assignment arrangement. If you don't have a job, the lender can get a court order to "attach" or seize some of your property to pay off the debt. This will also vary by state, and the lender's policies on attaching property.

Repossession

Your creditor can take your car if you default. They cannot, however, use physical force or threats of force to do so. In other words, they cannot commit a breach of the peace. THEY ARE NOT ENTITLED TO KEEP OR SELL ANY OF THE PERSONAL PROPERTY IN THE CAR, such as your backpack, briefcase, or purse. Improvements to the car, such as a stereo or a luggage rack, could be kept by the creditor or sold to pay back part of the debt. You do have the right to buy back your car by paying the full amount owed, plus repossession expenses. This is usually very expensive, so be sure you talk to your creditor before you get to the point of repossession.

What many people do not realize is that you are still responsible for the amount of the debt if the creditor cannot sell the car for the amount owed plus some costs. The "deficiency balance" is the amount of debt that you still owe after the creditor has sold your car. This can sometimes be a very large sum of money.

Exercise

Prepare yourself for a bill collector:
Consider all of the available sources of money that you have. List them below.

Call the collectors before they call you.

Go through all your bills and determine which are past due. Make a list of due dates and amount owed. If you are going to have trouble paying any of them, call your creditors and try to work out an arrangement.

Determine if you are going to be able to pay them

Be prepared and in control.

Quiz

1. Collectors can call you after 7:00am or before 10:00pm.
True False

2. Collections agencies must follow the Fair Debt Collections Practices Act.
True False

3. Attorneys can file a suit against you for the amount owed and cost.
True False

4. The regulations for wage garnishment vary per state.
True False

5. Collections agencies cannot deposit a post dated check before the date on the check.
True False