If you’ve ever fallen a couple of months behind on your bills, chances are you’ve had to dodge a couple of calls from debt collectors. These aren’t the most pleasant people to deal with for the most part. If you’re not quite ready to throw in the towel and consider bankruptcy, or approaching a debt settlement company to help you out, you may want to consider negotiating with your creditors individually to try and alleviate some or your debt burden. If you’re going to do this you need to know what to expect, and what your rights are.
Know your Rights
Debt collectors will tell you just about anything they can to try and convince you to pay your debt in full, and to pay it immediately. They will use intimidation techniques, and they will talk to you with contempt in their voice so be prepared for it. No matter how much they try to convince you otherwise you do have rights and the protection of the law on your side.
There haven’t been debtor prisons in most advanced countries since the end of the 19th century so you will not go to jail for unpaid debts. While you can be taken to court for delinquent debt this is extremely rare. Debt collectors may threaten you with legal action, but they don’t actually have the authority to pursue such a course of action without first consulting the actual creditor they represent. In most cases, especially debts that are less than $5000, it’s simply not worth the expense of taking you to court.
Debt collectors may also threaten to garnishee your wages – don’t be fooled by such idol threats, they can’t garnishee your wages without a court order and as we’ve outlined above this isn’t likely. There is no chance of a judgement being made against you without your knowledge.
They also may threaten to talk to your employer about your delinquent debts, or even friends and family. This is definitely illegal so don’t let these types of threats concern you. The only thing that they can call your employer for is to verify your income. That’s it.
They’re not allowed to harass you by making multiple phone calls a day and in most jurisdictions there’s a limit to the amount of times they can contact you in a seven day period. In Ontario it’s 3 times per week once they’ve made initial contact. This means they’ve actually physically spoken to you.
Formalize All Agreements
When negotiating with debt collectors you must be sure to get everything in writing. It’s not unusual for a debt collector to accept a payment that’s only 40 to 60 percent of the original debt so don’t just jump at their first offer. Start by offering them a settlement that’s well below what you expect them to accept, they’ll likely come back with an offer that’s much higher but stand firm. A debt collector’s first offer is never their best offer. If you’re willing to put up with some harsh negotiation techniques on the part of the debt collector you can usually get a much better deal – especially if you’re willing to make a lump sum payment rather than payment installations.
Once you’ve come to an agreement be sure to get everything in writing. Don’t trust in the good nature of the debt collector to honor the agreement you’ve made. Send them a letter by registered mail outlining the agreement you’ve made and express that by accepting your payment they are acknowledging that your debt has been paid in full. If you’re sending a cheque you may even want to write a note on the cheque itself outlining the same sentiment.
Quite often you will have to put up with weekly calls with creditors, especially if you haven’t come to an agreement yet. Let’s say for example you’re out of work and you don’t have any savings in the bank – you may simply not have the ability to begin paying anything yet. Even if this is the case you should still document all calls and correspondence you have with debt collectors. Once you have the ability to make payments, don’t begin to pay until you have a formal documented agreement. Debt collectors often try to change the rules so be prepared for this. Protect yourself and get it in writing. Don’t ever pay in cash – only by cheque or money order.