A lot of Arizonans are in the same boat these days; a bad economy and a bad job market have caused hard times and put a lot of people behind on their bills. Waiting for the bill collectors to start calling can be a nerve-wracking experience, and dealing with the calls once they do come adds a lot of stress to an already stressful situation.
Understanding what is going on behind the scenes can give you the facts you need to make a clear decision about your future once financial troubles begin. In this series we will look at the life cycle of a bad debt to give you some insight into what to expect next and how to deal with it.
How it all begins – the first 30 days
This one is simple enough. You don’t pay your bill on time. Whether it just slipped your mind or you came up short that month, the net effect is the same. Don’t panic. You still have some time to keep things from getting out of control.
Depending on what type of bill it is, you will probably not get a call from the creditor until the bill is at least thirty days late. At thirty days the creditor will report the late payment to the credit reporting agencies and your credit score will take a hit.
The best thing you can do during the first thirty days is contact the creditor directly and let them know you are having a problem paying your bills this month. If your cash crunch is only temporary, let them know that. Then ask them to help you keep your account current while you get back on track. Many creditors these days are willing to help you stay out of deeper financial trouble, but you have to reach out to them first.
Your debt goes to collections – from 60-180 days
Once sixty days have passed without a payment from you, most creditors will pass your debt off to an in-house or third-party collection agency. These collectors are required by Arizona law to be licensed through the Arizona Department of Financial Institutions and must follow the Fair Debt Collection Practices Act, which is enforced by the Federal Trade Commission.
You will likely be barraged with letters and phone calls about the debt along with an official letter from the agency validating the debt. This is where most people make their second mistake. They refuse to talk to the collectors and start screening their phone calls. But ignoring debt collectors will not make the debt go away.
After about 180 days from the date the bill was due, the creditor will charge off the debt as noncollectable. This will put a black mark on your credit report that stays there for seven years.
What can you do? Debt collectors will try to get the full amount of the debt from you, but they are able – and these days more willing – to negotiate a partial payment to satisfy the debt. If you are able to negotiate a lower payoff, now is the time to do it. Just be sure to get the promise to clear the debt n writing.
After the debt is charged off – the whole process starts over again, and again
Once the original creditor charges off the debt, they will likely do one of three things; transfer the debt to another collection agency, sell the debt, or file a lawsuit against you. Some companies may transfer your debt to a collection agency as many as three times – and each collection agency will pursue you for the debt for another 180 days until moving on to the next step.
After the collection attempts have been exhausted, the original creditor will sell the debt to a debt buyer. This can happen anywhere from six months to ten years after the debt becomes overdue. The debt buyer will first attempt to track down your address and telephone number, and will then barrage you with yet another round of phone calls and letters.
There is a little bit of good news once your debt makes it to a debt buyer. Because debt buyers purchased your debt as part of a large group of similar debts at a large discount from the original amount, they have a lot more room to negotiate a lower payment to settle the debt. Again, get any deals you make in writing.
The worst case – going to court over your debt
A lawsuit can be brought against you over an unpaid debt by either the original creditor or by a debt buyer; it just depends on the original creditor’s policy. The suit can be filed anywhere between six months and six years after the debt becomes delinquent. If they can find you, you have a job, and you have been uncooperative with previous collection attempts, they may very well file a lawsuit against you.
While most creditors will only file suit against you for a debt of $5,000 or more, you can be sued for as little as $500. If you get a notice of a lawsuit and fail to respond to it, the creditor will ask for a default judgment – meaning the court will rule against you even if you aren’t there to defend yourself. The creditor can then garnish up to 25% of your paycheck.
Your best bet is to go to court and ask the judge to work out a payment plan based on your finances and budget. It may be hard to swallow, but you are likely to get a much more favorable deal than if you simply ignore the lawsuit.
Know your rights
Many people understandably get confused and flustered when they get a call from a collection agent, especially if the debt has been transferred or sold several times and they don’t recognize the name of the creditor. Unscrupulous debt collectors can take advantage of this confusion, or count on the fact that you don’t know your rights under the law.
In Arizona, you are not required to pay back an unsecured debt after the six year statute of limitations runs out. But debt buyers routinely purchase debt that is older than six years and attempt to collect it, relying on the fact that debtors don’t always know about the statute of limitations.
It is perfectly legal for a debt collector to ask you to pay a debt that is older than six years. If you do start making payments however, the debt buyer is within its rights to report the debt to your credit reporting agency and start the whole cycle over again.
At The Pew Law Center, PLLC, we believe that your life shouldn’t be defined by debt. We have helped hundreds of people just like you find the relief they deserve from harassing bill collectors, paycheck garnishment, foreclosures proceedings, and – most importantly – the constant worry about money and what to do about your debts.
We are a dedicated bankruptcy law firm. We help people from Phoenix, Mesa, Gilbert, Queen Creek, Chandler, Scottsdale, Apache Junction, Tempe and throughout Arizona file for bankruptcy or work through tough tax problems every day. We can help stop the debt cycle and give you relief from your overwhelming, burdensome, and crushing debt. Please don’t wait another moment. Call us right away – our attorneys will help get you the fresh start you deserve.