If you’ve ever gotten behind on your bills, you might have gotten a phone call from a debt collector. Dealing with debt collectors can be difficult, but you have rights and options for resolving your credit and debt problems.
A creditor is a person or company to whom you owe money. When a creditor sues you, it is the Plaintiff in the case. Once there is a judgment saying you owe money, the creditor is also called a judgment creditor.
Your creditor may hire a debt collector to collect the debt. A debt collector is someone who regularly collects debts owed to others. Collection agencies and collection lawyers are examples of debt collectors.
Not all creditors hire debt collectors. Some may try to collect the debt themselves by writing letters and calling you. Some will sue you without calling or writing first.
A judgment is a court decision. It can be made by a judge, a jury, a magistrate or sometimes a court clerk. If a judgment says that a person owes another person or company a set amount of money, it’s called a money judgment.
Types of Debt
The two most common consumer debts are secured and unsecured debts.
You have a secured debt if you signed a contract that gives the creditor collateral (security) for the debt. Often the collateral is the property that was bought with the loan. Some examples of secured debt are a mortgage, a car loan or a loan to buy furniture.
The contract you sign when you enter into a secured debt is called a security agreement. If you default on your loan by missing one or more payments, the security agreement allows your creditor to take or “repossess” the property that you gave as collateral. For example, if you have a car loan and your car is collateral (security) for the loan, and you stop making your car payments (default), your creditor can take (repossess) your car. This can happen without going to court.
You have unsecured debt if you did not give collateral (security) for the debt. Examples of unsecured debt are credit card debt, medical bills, utility bills, and paycheck advance loans.
If you owe an unsecured debt, your creditor must sue you in court and win a judgment before it can take any of your income, money, or property.
What Can a Secured Creditor do to Collect a Debt?
Secured debts are easier for the creditor to collect. The creditor can take the property that you put up as collateral for the loan and sell it. This is called repossession.
The secured creditor does not need permission from a court to repossess the property that is collateral for the debt, such as a car. As long as the secured creditor can take the collateral without disturbing the peace, it is free to do so. The secured creditor cannot break into your house or garage to take the property. You do not have to give the secured creditor permission to come on to your property.
The secured creditor can sell the property they repossess to reduce the debt you owe. But first the secured creditor has to give you notice of the sale. If your property is sold for less than what you owe, you will owe the secured creditor the difference. The difference between the amount of the debt you owe and the amount the creditor got from the sale is called a deficiency. The deficiency becomes an unsecured debt. The creditor can then try to collect the deficiency from you just like any other unsecured debt.
What Can an Unsecured Creditor do to Collect a Debt?
It is harder for a creditor to collect an unsecured debt. The creditor must file a lawsuit against you in court and get a judgment before it can try to get its money back from you. Read the article Defenses in a Debt Collection Case to learn about defending yourself in a collection case.
Contacting Your Creditors
As soon as you have trouble making payments, you can contact your creditors. Many creditors will work with you if they believe you are trying to pay your debt. Don’t be afraid to negotiate. You can ask creditors to:
Put you on a different payment schedule
Stop charging you interest
Not increase your interest rate
Not charge you late fees, or
Take a settlement amount of less than the balance
Keep records of all your conversations with creditors, both when they call you and when you call them. When you talk to creditors, remember that they can use any information you give them to collect the debt. For example, if a creditor knows who your employer is, it is much easier to garnish your paycheck.
If Creditors Are Calling You
If you have missed one or more payments on a debt or bill, a creditor will probably call or write asking for the money you owe. The first calls and letters are usually friendly reminders that you forgot to pay. If you still do not pay, you will probably start getting calls and letters demanding payment.
The best time to work with your creditors is before they start demanding payment. Look carefully at your budget and see if you can afford to make some payment to each creditor. Always pay necessities of life, such as food, rent or mortgage, and medicine, first.
If you want help making a budget to try to pay your debts, contact a credit counselor. Look for a non-profit credit counselor that doesn’t charge fees for its services. You might be able to find nonprofit credit counseling programs through your university, military base, credit union, housing authority, or MSU Extension Service. This usa.gov website can help you learn about choosing a credit counseling agency.
Creditors and debt collectors have the right to try and collect money you owe them. But you also have rights. The law protects you from harassment by creditors, their lawyers and debt collectors.
Creditors and debt collectors are not allowed to harass you. They are only allowed to contact you during certain times.
If you want a debt collector to stop contacting you, you can write a letter telling them to stop. You can adapt this sample Do Not Call Letter for each debt collector. This does not apply to creditors.
If all your income and property is exempt from collection, you might be uncollectible. Read the article Are You Uncollectible? to learn more.
The Fair Debt Collection Practices Act (FDCPA) is a federal law with rules about how debt collectors can and cannot collect personal, family and household debts. In Michigan, creditors must follow similar rules.
Creditors and debt collectors CANNOT:
Send you to jail
Threaten you, curse at you or lie to you
Call you at work if you tell them you can’t take personal calls there
Write or call you if you have a lawyer handling your case
Call you early in the morning or late at night
Give you false or misleading information, such as telling you a lawsuit has started when it hasn’t, or
Talk to your friends or family (other than your spouse) about your debt except for one contact to find out your address and phone number and where you work
Disputing the Debt
Within five days of first contacting you, the debt collector must send you a written notice of a debt. The notice must tell you:
How much you owe
The creditor’s name
What to do if you disagree that you owe the debt
If you do not think you owe the debt you can send a letter to dispute the debt. You can use our sample I Dispute This Debt Letter as a guide. If you don’t send the letter within 30 days of getting the notice from the debt collector, you will lose your right to dispute the debt.
Ask Debt Collectors to Stop Calling You
Debt collectors cannot call you at all if you write a letter telling them to stop contacting you. You need to send a “do not call” letter to each debt collector. You can use our sample Do Not Call Letter as a guide. This does not apply to creditors.
After you write a letter, a debt collector may only call you once to tell you it will no longer contact you or to tell you that the debt collector or the creditor is going to take some specific action.
Keep a copy of your letter. You might want to send it by certified mail so you have proof you sent it.
Your debt will not go away if a debt collector stops calling you. You will still owe the money and can be sued. In fact, sending a “do not call” letter to a debt collector may cause a debt collector to sue you sooner than it otherwise might have.
You Can Complain About a Debt Collector
You can report any problems you have with a debt collector to the Michigan Attorney General’s Office and the Federal Trade Commission. You can learn more about filing a consumer complaint on the Michigan Attorney General’s website. You can also call the Michigan Attorney General’s office at 877-765-8388 to file a complaint. You can also report problems to the Federal Trade commission. Visit www.ftc.gov or call toll-free, 1-877-382-4357; TTY: 1-866-653-4261.
You can report complaints about debt collectors to the Consumer Financial Protection Bureau. It will forward your complaint to the company and work to get a response from it.
If you think a debt collector has violated the rules of the FDCPA you may be able to sue the debt collector and get damages. You may want to contact a lawyer about this. Use the Guide to Legal Help to find lawyers and legal services in your area.