Debt Collection Agencies

Debt and debt collection agencies can become extremely stressful situation when you’re dealing with a financial crisis cause by job loss, divorce or an illness. You may have fallen behind on your bills and wonder whether you will ever get caught up again. It’s important to have an understanding of the law concerning debt and debt collection agencies.

Will Creditors Take Legal Action?

A common threat collection agencies use when trying to collect a debt is the treat of taking legal action to recover money that’s owed. While it is true that some creditors do take consumers to court to sue, there is a lot more involved in this process. In many cases the money it would take to bring a suit against you in a court of law doesn’t make financial sense. This decision depends on the amount of the debt and several factors.

The statute of limitations is another consideration. Your creditors only have a certain amount of time to sue for nonpayment.

Debt and Debt collection agencies: Negotiating a Settlement

There are two types of debt: secured and unsecured. Secured debt includes your mortgage and car loan. Unsecured debt is from things like credit cards, personal loans and medical bills. Unsecured debts cannot be settled.

As a general rule, you can usually speak to a collection agency about reducing the amount of your settlement amount. The agency has purchased the debt from your original creditor at a fraction of the cost. That’s why it’s so easy for them to offer lower priced settlements.

Secured Debt

The general rule is that only unsecured debts can be settled. The creditors have no rights to any of your assets if you fall behind on payments. If for some reason a creditor does take an asset, it will be quickly sold to help cover the debt. If the amount that is received is not enough, the creditor can hold you responsible for covering the difference.

This is the type of debt most collectors spend time trying to collect. In some cases the situation may escalate to wage garnishing, or a lawsuit.

Is Bankruptcy an Option?

If you are completely overwhelmed by your finances and see no way to get caught up on your past due payments, bankruptcy may be an option. If you qualify, bankruptcy offers an opportunity to remove all of your current debt. A bankruptcy discharge will prevent creditors from making further attempts to collect on the debt.

Although bankruptcy can eliminate the stress of having aggressive collectors contacting you, it is not always the ideal solution. A bankruptcy will remain on your credit rating for the next 10 years, and you will need to start rebuilding your credit again from the ground up.