Credit Collections and Risks

When you fall behind on your bills, creditors may not wait long before turning your balances over to professional debt collectors. These collectors regularly contact people on behalf of creditors to collect debts, and unfortunately, the tactics they use can seem stressful and demanding.

Identification

• When you owe money to a creditor, such as a credit card company, bank or hospital, you usually set up a repayment plan that allows you to settle debt over time. However, if you default on your debt repayment agreement, the creditor may hire a debt collector to pressure you into paying your balance. You may receive multiple contact attempts from debt collectors wishing to obtain a payment from you. Collectors may give legal threats over the phone and/or contact your employer regarding your income and employment.

Risks

• If you allow your debt to fall into collections, you risk losing any payment agreement or structured installment plan you have set up with your creditor. In other words, your creditor or collections agency may demand that you make a full payment immediately, regardless of the amount you owe. Furthermore, if you ignore a collector's attempts to contact you and collect your debt, your creditor may legally sue you for the balance of your debt. If you lose the lawsuit, the creditor may win a court order to garnish your wages or part of your bank account funds.

Considerations

• The Fair Debt Collection Practices Act protects you from harassment regarding debts. According to the Federal Trade Commission, creditors cannot reveal information about your outstanding debts to third parties, and they cannot contact you at inconvenient times. Additionally, your creditor must supply you with information about disputing your debt, although the FTC states that you can send the collector a written dispute of the debt or request for verification, after which time collectors must stop contacting you until they provide verification of your debt. Additionally, collectors cannot make false claims, lie or harass you. If you believe you are unfairly or illegally treated by a debt collector, you may file a complaint with the Federal Trade Commission.

Solutions

• If you owe an outstanding debt that you cannot afford, you may consider filing for personal bankruptcy to alleviate your financial woes. While bankruptcy is usually a last resort decision for those facing financially bleak circumstances, the bankruptcy process imposes an automatic stay on your debts, mandating that collectors and credits immediately cease attempts to contact you in order to collect a debt. If you file chapter 7 bankruptcy, the court will discharge your qualifying debts and liabilities to creditors, eliminating collection calls and denying creditors the right to sue you for your unpaid balances. If you file chapter 13 bankruptcy, the court will arrange an affordable three to five year debt repayment plan that your creditors must accept.