How Does Debt Collection Work?

Debt Collection

Debt collection is the process by which debt collectors, anyone authorized by your creditor to demand payment on their behalf, recover a debt you owe. This includes mortgages, personal, student and auto loans, parking tickets and outstanding utility bills. Debt collectors are expected to follow fair debt collection practices stipulated by the Fair Debt Collection Practices Act, which is designed to protect consumers. Thus such acts as contacting you before 8 a.m. or after 9 p.m. are strictly prohibited. But debt collectors do not always comply.

How it Works

Creditors have different standards for deciding when to refer an account to a collection agency or debt collector. After the debtor has received a specified number of warnings the account is referred to collections, which could either be an internal department or an outside agency. If it is an outside agency the agency gets paid an agreed fee usually a percentage of the total amount of the debt they are able to collect. Within five days of a debt collector's first contact with you on the phone, you will be sent a notice in the mail stating how much you owe and how to make a payment. If you believe you do not owe the money, you have 30 days to respond in writing and the collection process should stop. However, if the debt collector has proof of your debt such as an outstanding bill, he may continue to contact you. If you do not respond, to the initial letter, it is assumed you owe the debt and the collection process will take its normal course.

Criticism of Debt Collectors

While debt collectors are barred by law from harassing debtors over the phone, falsely representing themselves or the information they are providing you, reports abound of them doing just that. Some debt collectors have threatened debtors over the phone. If you have been a victim of such acts you can report such collectors to your state's attorney general's office or the Federal Trade Commission. The law also provides for you to stop a debt collector from contacting you if that's what you want. You can write the debt collector a letter stating that and by law they are obligated to comply.