Job loss, an unexpected tax bill or other financial emergencies can dramatically reduce your available cash and may make it difficult to meet your monthly payments to creditors. Before you allow your credit card debt to go into collections, experts at the Federal Trade Commission and the National Consumer Law Center advise you to learn your options. Researching the alternatives and the collections procedures will help you understand the negotiation process, protect your assets and buy some time before a creditor files a judgment against you.
Notification of Debt
A collection agency may contact you in writing or by phone regarding delinquent payments on a credit card. Within five days of your first communication, the agency is required to send you a validation notice or a letter containing the following information: the creditor's name, the collection agency's name, address and phone number, the amount you owe and information on the dispute process. According to the Fair Debt Collections Practice Act (FDCPA), you can request in writing that the agency stop all contact with you at home and at work.
The Negotiation Process
It is possible to negotiate the terms of your debt. Creditors may allow the agency to accept a lump sum settlement for a portion of what you owe or you can offer to make payments until the original debt is paid in full. The agency may not agree to such a settlement, though. If you do reach an agreement, confirm the new payment terms in writing and keep a copy of the letter. Agree to pay only what you can afford, because missed payments can cause the agency to cancel the agreement. Use cashier's checks or money orders for payment rather than a personal check to protect your account information.
Lawsuits and Judgments
The collection agency and the creditor can file a lawsuit against you if you fail to negotiate acceptable payment terms for the debt. If you are going to file for bankruptcy or you are judgment-proof -- which means you have no assets or your primary income is Social Security or welfare -- the creditor may not pursue a judgment . If your assets or job earnings are substantial, the creditor will likely seek a judgment to garnish your wages, force the sale of property you own and empty your bank accounts.
Buy Some Time
You can buy some time in the collection process by disputing all or a portion of the debt you owe. After receiving the validation notice for the debt, send the agency a written request within 30 days for the following information: name and address of the original creditor, verification and existence of the amount owed or the amount of the judgment of the debt claim. The collection process must stop until the debt is verified.
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