Debt Is Not The End Of The World
Perhaps you or someone you love is familiar with this situation. You have an endless pile of bills, but a limited income. Some of your basic needs have to be paid now and everything else is up in the air as to whether you can pay it or not. As it stands, you may not even be able to pay all of your basic needs let alone that credit card, loan payment, or other debt you have acquired in the past. Perhaps it has gotten so out of control that you have endless calls and letters from collection agencies wanting money now.
Are you tired of the letters coming in the mail demanding a payment now or an insincere offer to pay 50% or less of the total debt to be considered paid off? Are you tired of the automated voice mail messages trying to contact you or the tricks they use to find you at work or through your friends? Are you tired of talking to them to try and explain you have no money to send them and they won't take no for an answer?
Don't let those endless phone calls and threatening letters ruin your sanity and happiness. Learn the proper techniques with how to deal with owing money.
Respect For Your Sanity
First of all, if you are in this situation, you are in a very bad, dark, and scary place. You may not know what to do about the phone calls, the letters and all those "offers" to get yourself right with the system. This may fill you with a sense of shame, denial, anger, and frustration over the problem debt and you just want an end to it.
For starters, when you are in the privacy of your own home, you are in your domain, your safe area. No one has the right to make you feel bad or pressure you in your own home. Yes, you may have problems with the ones you owe, but under no circumstances does anyone have real power over you to make your life hell. Under the law, they have certain rules to abide by when contacting you and if they break those rules they may be unable to collect the debt from you at all (of course that may not resolve your end of paying it, it just means that particular agency may never deal with you again.)
Second, they have no power over your domain at work. If you really need to concentrate on your job in order to pay them in the first place, they need to respect that you need them to leave you alone at work. By law, if you tell them by certified letter not to contact you at work, they must never call you there.
Always know your rights. If you owe it and cannot pay in full or any part of the debt, make it clear what your situation is right now. Don't let them pressure you into making any commitment you cannot keep. If they won't take no for an answer or work with you, get an attitude. They can't get blood from a stone and they aren't going to get any further help from you. Make it clear, either they work on your terms or they will get no cooperation at all and hang up. The next time they call, they had better acknowledge they will work on your terms and if not hang up again and do not speak with them again. Instead, send a cease a desist letter.
Whether you owe or not is not the point, but they will respect you in your own home or have to find another way to get the money from you. Some will sell the debt to another agency while a others (the ones with rock solid proof that the debt is not SOL and the charges are not contested) will try and garnish your wages. Just make sure you send them the letter by certified letter with signature confirmation both asking to cease and desist contacting you and demanding proof that the debt is valid and they are licensed to collect in your state. That will get rid of most debt that is past the SOL and the debt that is inaccurate or cannot be proven.
Make A Budget
Just because you are in a financial mess does not mean you should avoid planning how to use the money you do have so you don't make it worse. Get out paper and pencil along with all your bills and receipts. First write down how much money you bring in for the month.
Once you know how much money you actually make in a given month, you will know how to budget that money. Your top priorities to place in the budget are your rent or mortgage, utility bills, groceries, car or travel related expenses (loan payment, gas, maintenance, fare...), and insurance. These are your basic needs that need to be addressed. After paying the basics, is there any money left? Or is it worse, can the money coming in not even cover your basics?
The sad fact is there is a growing population in the US in that category where the income they make only barely covers the basic needs or it cannot even cover the basics at all. This represents a category of people which debt collectors treat with the most disrespect because they know they cannot get money from them, but they do their job and hope they frighten you into paying something.
If you do have money after the basics, then prioritize which bills need to be addressed first. Try and make a payment to yourself and set some money aside for your own personal savings.
Handling Debt Collectors By Phone
Some of the debt collectors will keep nagging you with further collection action if you don't do what they want now. If that is the case, it is a false tactic. You are already in collections, the most they can do is take it to court and garnish your wages to get the money, and even in those cases it takes time before it can go to court (1-2 months) for the order and you can attend the hearing and present your side of the story to the judge. If you show up and can prove hardship, usually the debt will be delayed without garnishment.
If you don't have a job and no source of income which is preventing you from paying the debt, the most they can do is go to court and request a judgment against you. Basically it requires that you pay it off within the next 10 years and should you ever get a job or source of money, they can request a garnishment at that time. Even in those cases, most judgments are never pursued with garnishment if you make a payment arrangement within a reasonable amount of time in front of the judge.
Some will insist you post date a check with a certain amount, if you cannot supply funds into your account by that time, don't do it. This may buy you a few days away from the hassle of the agent, but when the check bounces you have more problems on your hands with the extra fees from your bank and the collection agency.
What's even more annoying are the automated dialers that call your home with a recording telling you they have an important business related matter and you either need to press a number or call a number. Don't do it, just hang up. If they cannot be bothered to have a real person call you, they cannot be serious about collecting the debt either. Treat the debt as such. If a company has resorted to such tactics, use the contest techniques to protest the debt and demand they stop contacting you.
Handling Collection Letters
Then there are the endless collection letters. What to do about those? Read them and see what they want. If they want to settle your account for less than the entire payment, usually they mean all at once. It is mostly a trap.
If you cannot make small payment arrangements, chances are you cannot afford the lump sum settlement either. Should you agree to the lump sum pay off, be sure to do it with a certified check and post in the memo that:
"Cashing this check means that this account is paid in full with no further collection required from you or any other agency."
If you fail to do this, they may try to pressure you to pay the rest of the bill. If they attached any other conditions to accept the settlement payment such as they would remove items from your credit record, be sure you post the terms of acceptance of your check because if they cash it, they agree to your terms and must abide by them.
Realistically, the possibility you will face by not paying your debt is wage garnishment. If the bill is not contested within 30 days of receiving the notification of collection, you are in danger of going down that road. It is always best to try and work out an amicable arrangement when the debt is less than 6 months old. If it goes on longer than that, you will have bad marks on your credit report and chances are your debt has probably been sold to an agency so the company can write it off.
What is a wage garnishment?
A wage garnishment is a legal procedure where part of your income or earnings are required to be withheld by an employer for the payment of a debt. Most garnishments are made by court order and you do have a right to attend the hearing to plea your case before the judge. (If the collectors have been unusually rude and/or aggressive, bring that up with the judge. If they have violated your rights, the case can be thrown out at that time.)
The law sets the maximum amount that may be garnished in any work week or pay period, no matter how many garnishment orders are applied. So there is a limit on how much they can take out. It doesn't matter if it is one garnishment order or 50, they have a cap on how much can be taken out of your check. Also, you cannot be fired for having a garnishment order because you could sue the employer if this is the case.
For regular garnishment orders (not related to taxes, bankruptcy or child support garnishments), the weekly amount may not be more than which one is the lesser amount (the one which will be less for you):
- 25% of your disposable earnings (what you make minus all the taxes and regular deduction)
- Or the amount by which your disposable earnings are greater than 30 times the federal minimum wage (minimum wage x 30 = garnishment amount).
If you work 30 hours a week or less at minimum wage, judges will not allow the attempt to garnish it.
Basically, if you truly are poor, they cannot garnish your meager paycheck. If you are barely squeaking by, they are more than likely to break it up into smaller payments depending on the amount required.
For more specific examples of how wage garnishment may affect you visit Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title 3 (CCPA) .
Should You Seek A Debt Counselor?
And as for those so-called non-profit debt counselors, make sure of their reputation before doing business with them. If they are advertising all over the place, those ads cost money so logically they are making money from some source and it usually is the client - YOU. There is nothing these counselors can do for you that you cannot do on your own. Many claim they will settle your debt for pennies on the dollar and will allow you to make a smaller payment to them each month for them to pay off all your creditors. The reality is they can work out a deal with several companies, but not every company will agree to their terms and you will still have to pay the full amount of your debt. If these companies accept the deal with this third party, they no longer call you unless you fall behind on your payment to the third party. They also will put on your credit record that the account is a charge off which is a heavy negative to have on your report. And while you are making these small monthly payments, some of it is going towards administrative costs of the third party (this is where they make the money).
Remember, once you make an arrangement to pay any debt, the statue of limitation on that debt starts over from that point. So be sure you really want to pay it off instead of letting it go.
What you can do for yourself that these companies claim to do for you will take a bit of extra work on your part and some courage. Gather all your debt statements and contact them yourself with an offer to pay off the account at 25% of the full amount to be paid in 12 months without interest or extra penalties. Some might accept something instead of nothing. Others will use this as a wedge to hook you in further and extend the statue of limitation on the debt because you made the arrangement.
What Can You Expect If You Take Them On?
What you realistically can face at the most is a slew of choices and consequences.
You could contact them and agree to make payments you can afford. This is the only surefire way to make sure they stop the phone calls and threatening letters. Once the debt is paid, it cannot be sold and you will not have endless numbers of debt buyers trying to get you to pay it. You will still get a bad mark on your credit record and a notation that a collection agency was involved which does not look good, but once it has been paid off and a year has passed, you can attempt to dispute it from your credit record and it might get taken off.
You could refuse to pay it. Send them a letter via certified mail with signature confirmation and let them know you have no intention to pay it and state your reasons. Also send them a cease a desist letter telling them they are no longer allowed to contact you by phone at home or at work. If the debt has passed the statue of limitation, the debt is not yours, the debt amount is not correct, or there is no proof given to you to validate this debt, then there is nothing more they can do. If the debt is still in the statue of limitation, is yours and correct and they have given you proof you owe it, they will no longer contact you but take it to court for garnishment or if you have no income a judgement.
You could file bankruptcy, but that is easier said than done. Even a chapter 13 will take money you probably don't have to file it with the court, but that would be the easier one to acquire. It would allow you to list all your debt (the amounts owed and the companies who are owed) with the court so they can put you on a specific payment arrangement to pay them all off in a manner you can afford. If you choose this method, you must keep the payment schedule or the court will side with your debtors and garnish your wages and/or freeze any assets you may have, plus it would damage your credit report even more than the bankruptcy itself.
Bankruptcy will stay on your records for 10 years. 10 years can go by so quickly and it is not the end of the world. You may want to use that time to improve your budgeting and spending habits so by the time it is over you don't get into that situation again. Credit cards, lending institutions, applying for a job or getting an apartment will be tricky, but not impossible and it will cost you more money. The realistic story is once you apply for bankruptcy, you will have to live mostly paying everything off in cash, watching you don't get in further trouble, and saving for bigger ticket items. You don't want to go there unless you have no other options.
You could contest your debt if the bill older than the statue of limitations. If it is and you made no attempt to make payment arrangements, it cannot be pursued in a court of law. It could be as little as 3 years in some states and as much as 10 in others. The national average is 4 years. It starts on the date when your last payment was made to that account and the clock starts again once you make any form of payment arrangement.
Let's say you had an account with the Uptown Credit Card company for $500 back in 1999. You made faithful payments on it up until October of that year when you had some financial misfortune heaped upon you, but you were too ashamed to talk to them and months went by and a collection agency took their case in March of 2000. The amount owed was at $500, but with interest and the collection agency fee they now want $750 and there is no way you can even pay a fraction of that, so you avoided the calls and did not have any source of income to make reasonable arrangements, so you go into hiding. Years go by and the bill has been passed over to one after another collection agency. It is now 2004 and you live in the state of Utah where the statue of limitation is 4 years and your last payment on that account was well over 4 years. Someone calls you from yet another collection agency demanding you pay the debt, they will pressure and shame you into committing yourself to a payment arrangement. DON'T DO IT!!! If you agree to it, you are committed to paying it. If you don't, they cannot do anything to you and you can send them a cease and desist letter that they can no longer contact you.
You could also contest it on grounds that the bill is wrong or not yours. If the bill has not reached the limitation yet, you still have an option. Send them a letter to contest the amount owed or that it does not belong to you. and demand proof in detail about the charges owed and/or the contract agreement along with a cease and desist letter. Chance are if has been more than 3 years and in collections, there will be no record to show the proof because the company has already charged off your debt and washed their hands of it. Without the proof, you are not required to pay and they cannot pursue further collection action.
You could dodge it. I know that sounds bad, but you need to empower yourself if this is what you decide to do. You are not hiding from them, you are just not allowing them to intimidate you any longer. Get caller ID. Throw the bills in the garbage or return to sender. If you move, do not use a forwarding address. Get an unlisted number or use a cell phone. If they contact your family or friends to try and reach you, send them a cease and desist letter from that person's address. Earn your pay under the table or become self-employed so your wages are harder to garnish and your location is harder to find. After the statue of limitation passes, there is nothing they can do so long as you do not agree to make payments on the debt.
Bottom Line
Once your bills have reached collections, it is already on your credit record, there has been damage done to your reputation whether you pay it or not. You could pay it off, wait 1-2 years and contest the entry with the credit agency telling them it is wrong and hope the offending entry will not be supported by the one who put it there and it will be removed (it will happen in almost 70% of the cases, but don't count on it for everything). That will at least remove the damage in less than the 7 years if you do nothing.
Your best option is to take a look at all your bills and everyone you owe. Prioritize by making a budget. Consider the things you really need to take care of before you start on the outstanding collections letters. Remember, once in collection, the damage is already done so they do not come before paying rent, utilities and groceries. If there is money in your budget after the basic needs and current accounts are paid, then you can decide if you wish to pay the collection agencies. If the debt is more than 3 years old and no serious action has been made against you yet, that is your last priority. If it just came into collection and you want to do business with that company again, that is your first priority.
Make use of caller ID. If they are constantly calling you on a debt that is older than 2 years, you really don't have to talk to them if you have no money or intention to pay them. Why be hassled in your own home? Why let them talk down to you? Why let them pressure you into paying off something you cannot afford right now? That's their problem.
What really does happen when people don't pay the bill? Eventually, the company where the debt originated writes it off as a loss on the taxes within a year...yes, taxpayers are paying for your debt. If you pay taxes, you are paying for your debts uncollected and the debts of others. When the company charges off your debt, all you get is a bad mark on your record and the collection agencies after you...but wait, if the bill was charged off and written off in taxes, they already got paid in a backhanded way and they still want you to pay the debt??? Yes. They get money deducted in taxes owed and some even get a refund for the bad debt so your debt was paid by taxpayers, but should they get you to pay they will pay it back in the tax system. If they cannot collect, at least they already got their money. After the statue of limitations, the debt is usually sold and can be passed on for the rest of your life by people trying to collect money from you, but unless you agree to it, you cannot ever be forced to pay it.
See how it works? Now can you eliminate the guilt and shame? You are the little guy with a hard time making ends meet fighting against big companies that would use your small payment as toilet paper. Put it in perspective. In your home, you have rights. Don't let them get the best of you because it is not worth it. They will do what they can to the fullest extent of the law, but everything they throw at you can be survived and at most will end in 10 years.
Once you have dealt with the bullies, try attending free courses at community colleges or sponsored by the government on how to plan a budget, save money and stay out of debt. It is best you try not to get to that point again.
