Believing What Debt Collectors Tell You
I meet with a lot of people struggling with debt. Often times, they are late on one of more debts and the debt has gone into collection. This means that they have received correspondence or spoken with a debt collector.
The debt collector's job is to get you to pay the debt. It is unlawful for a debt collector to lie to you in order for you to pay the debt. A primary collection tactic is to tell you some of the truth, but not the whole story, in order to scare you into payment, without technically having lied to you.
This results in many people asking me if the things that the debt collector told them is true. I will describe the collection process and address some common questions below.
The Debt Collection Process
The collection process is governed by state and federal laws. However, many issues are determined by company policy (how long to attempt collection; level of aggressiveness, etc.) Once you miss a monthly payment on a credit card or other loan, the lender will send you a letter reminding you that the payment is late and requesting prompt payment. At first, the notifications are polite. However, the later and later your payment becomes, the more and more aggressive the collectors will be - eventually calling you repeatedly. Most large credit card companies and banks have internal collection departments that pursue the collection efforts of the company for 30-120 days late. There are also debt collection companies that provide collection services for the banks. After the lender pursues internal collection the file is turned over to one of these third-party collectors. At some point, the original lender will cease collection effort and write off the debt as bad debt. This is categorized for tax purposes as a business loss. The company however, can still sell the rights to collect on your debt. The debt collection companies will buy these rights for pennies on the dollar and begin collection against you even more aggressively. Of course, during this time, late fees, interest and collection costs have greatly increased the balance of the debt.
Legal Process and Garnishment
Usually, somewhere between 8 and 18 months, the lender (or a debt collection company if they have purchased the debt) decides to pursue their legal remedies. The creditors legal remedies include garnishment of wages and levying of bank accounts. In order to obtain these rights, the creditor must obtain a judgment against you. To do so, they must use the legal process. The legal process begins with being served with a summons and complaint. Once you are served (in person or by certified mail) you have 20 days to put forth an answer. Your answer is your response to the complaint and what is alleged. If you do not submit an answer within 20 days, the court may find for the plaintiff by default: this is called a default judgment. Note that the court will not set a hearing date until an answer is submitted. Once the creditor has a judgment, they can docket it with the county court where you reside and serve it on your employer. Under MN state law, your employer's payroll must take 25% of your net wages and forward the amount to the creditor holding judgment. Simultaneously with the notification of garnishment to your employer, the creditor is obligated to send to you an exemptions form. This form is for you to fill out in order to claim an exemption from the garnishment if applicable. Typical exemption grounds are receipt of assistance from the state or county within the previous 6 months (such as food, rent, medical, daycare or heat assistance). If none of the exemptions apply to you, then the creditor can garnish 25% of your net wages for a period of 70 days. If the judgment balance is not satisfied at that point, they begin another 70 day garnishment cycle until the balance is paid. The creditor can also elect to freeze your bank account, and take the balance if the exemptions do not apply to you. The creditor can only do one or the other. The creditor cannot garnish while also levying your account. However, if you have multiple judgments against you, 2 different creditors could do so simultaneously.
This process of serving you with a summons and complaint is time consuming and expensive for debt collectors. The collection company has to hire a law firm to file the complaint, so suing you on the debt is typically a last resort for creditors because it is the most expensive option. Given that reality, debt collectors will say what they think they need to say in order to get you to make a payment. Typically, the debt collector will tell the person a half truth, such as "we can garnish your wages." Technically, that is true, but what the debt collector has omitted, is that obtaining the legal right to garnish a person's wages takes time, effort and money. If you are 2 months late on a payment and the debt collector is telling you that they are going to garnish your wages, they are neglecting to tell you that if they do, it will be weeks, likely months, before they could garnish your wages because the legal process takes time. When you understand this, the urgency to make the payment goes away and the debt collector loses their leverage.
Who Does the Dirty Work?
There are a few law firms in Minnesota that focus their practice heavily in the area of debt collection. The 2 biggest debt collection law firms in MN are Messerli & Kramer and Gurstel Chargo. These firms capitalize on the fact that the law firm name in itself scares people into believing they are being sued or about to be sued. But even Messerli and Gurstel try to use more cost effective collection techniques before turning to the legal process. These firms employ many non-lawyer collectors that use the law firm name as a tool to threaten the debtor into making a payment he or she may not be able to afford. Debt collectors are prohibited by law from telling you they will take a course of action they do not intend to take. Therefore, they cannot tell you they are going to sue you unless that is what they will do. Collectors, knowing this, will instead say :have you ever been sued for an unpaid debt?" Now they have suggested they will sue you without technically telling you that they will.
Ask for a Better Deal
Another common debt collector statement is "I'm not authorized to accept less than X." The later and later a payment becomes, the more and more likely it can be settled for less than the full amount. If you are speaking to a debt collector and the debt is more than 6 months past due, you very likely can settle the debt for 30% of the balance. But that will require a lump sum payment. A typically negotiation strategy for debt collectors is to tell you they can only settle the debt for 75% of the balance and only if the payment is made that very day. Many debt collectors are paid on a commission basis, earning more for the more debt that is paid. The debt collector may very well have authority to settle the debt for much less, but wants to get you to pay as much as possible so they have a bigger payday.
More Dirty Tricks
Perhaps my favorite debt collector lie is: "we won't speak with your attorney." This is an attempt to discourage you from speaking with an attorney to learn your legal rights. In fact, the law requires the debt collector to speak with your attorney if you have one. If you are speaking to a debt collector, take everything he or she says with a grain of salt. Everything being said is to motivate you to make a payment immediately despite your circumstances at the time. The reality is that you have legal rights and the debt collector cannot simply snap their fingers and garnish your paycheck.
We Can Help
If you are struggling to make ends meet, before being persuaded to do something against your own self-interest , call Mike for a free consultation at (763) 229-7538. Know what your options are and make an educated decision.
© 2012 Atlas Law Firm, LLC
This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.