Collection Practices

We are switching gears now, and I want everyone to read this. You may feel inclined to skip this section if it doesn't apply to you; however, someone you know may need your help, and by reading this section you can give it to them.

Bill Collectors

Even if you have bill collectors calling you, you are most likely not bankrupt - so get that thought out of your head. You just need to devise a plan on how to deal with it.

The first thing you need to learn when in this situation is that bill collectors are not your friends, and they are not your financial advisors. They are in it for their money, and they will employ many different tactics to try to get it.

I knew someone who was a bill collector by profession. He ended up working his way up to VP over collections at the bank he works at. He could get results and was good at what he did. However, I learned a lot of lessons from him. I learned that they are not your friends and they will say whatever they need to say to get you to pay. Every single night, I’d hear collection stories, and in every single story, he would refer to the person (or people) as “deadbeats.” The newly divorced mom of 3 – deadbeat. The man who just lost his wife to cancer – deadbeat. The husband and wife who both lost their jobs at the same factory – deadbeats. He didn’t care about those people, but he played “financial advisor” to talk them into paying his company. It was toxic and corrosive just to hear the stories and the venom he had for those people, and the bill collector on the other end of your phone is no different. Do not allow them to "befriend" you or to become your "financial advisor" because they are not looking out for you.

Don't get me wrong, there are some good collectors, but many are not. Now when I say some are good it doesn’t mean that they are your friends. It means that they follow the rules, while others don’t. Why wouldn’t they all follow the rules? Well…..it’s a little known fact about the collections world, but the turn-over rate is astonishingly high. The average lower level collector is only on the job for an average of 92 days. That’s not long enough to really learn how to do their jobs much less learn the rules. Because they do not have adequate training or experience, most are ignorant to the federal laws protecting your rights. They are just there to do the job and go home. They do whatever it takes to get their money.

They have a database on you, and they will try many different tactics until they find one that works. When they do, they will log it in the computer, and they'll try that same trick over and over and over again. So let's learn their tactics so we aren't caught off guard.

Their Tactics:

1. Evoke strong emotion (anger or fear): Their goal is to make you very afraid, very angry, very something. If you’re in a bad financial situation, chances are you’re paying stuff intellectually you’re taking care of necessities, and if Master Card wants their money, they know they cannot get to the top of the list with logic. If they make you emotional, then they know they stand a better chance of getting you to bump them up to the top of the list. Some use confusion to evoke strong emotion. They ask you to tell them what’s going on (like they’re your friend) and half-way through your story (when you’re nice and vulnerable) they will scream into the phone, “I don’t care about your sob story – you need to pay your bills!” It takes you so far back that it can’t help but evoke emotion – mostly anger.

In his Financial Peace University course, Dave Ramsey tells a story of a bill collector who called his house and asked his wife, "Why do you stay with a man who doesn't take care of you and pay his bills?" His wife naturally told him this, and he got so mad, so angry, that he ended up paying them. Sure enough, next month rolled around and the guy on the end of the phone said, "Well, Mrs. Ramsey, I'm surprised you're still there." In that time both she and Dave learned their tricks, and she was able to say "You'll get your money when you get it." She didn't let them evoke strong emotion.

2. They call at inopportune times. The most likely time you will get a call is during dinner time – why? Because they know it’s a bad time, and they know that if they call you, then you’ll either agree to get them out of the way, or they will make you so mad that you will end up paying them just to get some peace. Again – evoking strong emotion.

3. They will call at work or at a friend or family member's home. They sometimes will call the homes of your friends and family to ask them how they can get in touch with you. That is in large part to embarrass you because who wants a neighbor to say, “This guy with Visa called about you today so I gave him your number.”

4. Act like they care / help you by being your financial advisor. We already talked about how they are not your friends and they only have their interests in mind.

It is easy to let them get to you, and it’s especially easy to feel like victims after one of their phone calls, but it is important for you to know that You DO Have Rights.

Your Rigths

In 1977, this lovely little law was passed called the Federal Fair Debt Collection Practices Act. This act protects YOU against rogue debt collectors, and we all know that there are some of them out there. So let’s look at just some of your rights. I recommend going home and doing a google search for the Federal Fair Debt Collection Practices Act to get more in depth information, but for tonight, this will give you some basic rights you have.

1. They can only call you between 8 a.m. and 9 p.m. YOUR time, not theirs. That means that if the company is on the West Coast and you’re on Central time, then they, by law, cannot call you after 7 p.m. their time, which is 9 p.m. our time. If they do, then you can tell them that they are violating the Federal Fair Debt Collection Practices Act by not calling you between the hours of 8 a.m. to 9 p.m. – your time. As soon as you say that you’ll get a dial tone.

2. They must stop calling you at work if you reqest that they stop. Many times they will call you at work. They may even threaten to call so much that your boss gets tired of it and fires you. They told a friend of mine that once. You can request that they stop calling you at work, and they have to honor it. The best way to do that is to send them a letter requesting that they no longer contact you at work – certified mail return receipt requested. That way if they do it again, you can say that they are violating the Federal Fair Debt Collection Practices Act by contacting you at work after you requested that they stop, and that someone at their company signed that certified letter on ____ date, so they are no longer in compliance. Again, you’ll probably hear a dial tone.

3. They cannot discuss your account with anyone other than yourself (or co-signer). Often they will threaten to tell your friends, family member, or even employer, but under this law, they cannot disclose any account information to anyone who is not on the debt. Now if you and your husband are both on the account, then they can talk to him about it.

4. By law, they cannot use profane language, threaten you, or berate you. They should conduct their business professionally, but this is the number one violation of most collectors. If you have a rogue debt collector who is verbally abusive you have a couple options – 1. you can inform that collector that under the FFDCPA they cannot verbally abuse you and use profanity, so they are in direct violation of that law by the way they are speaking to you, and then you’ll hear the dial tone. Or 2. you can let them hear the dial tone first. You do NOT have to tolerate that kind of behavior, and you can say something like, “You can call me back when you can be nice” or something along those lines if you wish.

5. They cannot take control of your bank account or paycheck without first suing you. The only exceptions are the IRS and Student Loans that are federally insured. Those are the only two entities that can garnish your wages or extract money from your accounts without first suing you and getting a judgment to do so.

6. They cannot have you arrested. Seriously, many people have had collectors tell them that they will alert the police and tell them that they committed a crime. There was even one story of how a collector told the person’s child that if mommy and daddy didn’t pay their bills, they were going to be locked up for a long time. They cannot do that.

7. They cannot misrepresent the amount of money owed.

8. By law, they must stop contacting you if you send them a cease and desist letter – certified mail, return receipt requested. However, be prepared for them to make the next step, and that is sending you to an attorney. That can be both a good thing and a bad thing. Once an account goes to an attorney, you finally have someone with a brain holding your debt and you can usually work out a reasonable repayment plan. The down-side is that you are going to get attorney fees on top of what you owe, and of course there’s always the whole getting sued thing that isn’t very fun. I certainly do NOT recommend going down this road if it can at all be avoided.


Now that you know that you have rights, it will be easier for you to set your own terms of repayment – not let them dictate how much you pay, knowing full well that if you pay that much you won’t be buying groceries.

Set Your Terms of Repayment

If you (or someone you know) find yourself in collections, the best possible thing you can do is to communicate with them. Call them more than they call you, send them paperwork, go over your budget with them, and work with them on something that is reasonable for you. Let them know ahead of time if you aren’t going to be able to make the payment. Often there is something they can do to skip a payment, reduce payments, etc before you are delinquent. If you cannot work something out, then you need to communicate with them more than they communicate with you. Send them paperwork. Show them your budget, that you got laid off, where you’re money is going, and that you just don’t have it to pay.

Give them a 2 week window. You can set up a stipulation with them that they can call you once every 2 weeks (if you get paid bi-weekly). Explain that your situation isn’t going to change within the next 2 weeks because you get paid and that’s when the stand the most chance of getting some money – when you get paid. If they’d like to call you once every 2 weeks, that’s okay but explain that you will only talk to them once every 2 weeks. If they call within that 2 week window, you can simply say “You are violating our once every 2 week agreement – call back in ___ days.” And hang up. You do not have to talk to them. Do not avoid them, but talk to them on your agreed upon terms.

Realize that your credit report will be shot, and that’s okay. You just worry about getting from point A to point B and sorting this all out in time. You have to realize that if you cannot pay your bills, you cannot worry about your credit report.

Send them what you can, when you can. If you can’t make an entire payment, send them what you can. I have yet to find a company that won’t take your money when you send it to them. There is a great solution to paying your creditors what you can – and that is called:

The Pro Rata Plan

The Pro Rata plan works like this. After you’ve paid the necessities – tithing, shelter, food, utilities, and reasonable transportation, and you find that you are unable to make the minimum payments, and you are doing ALL you can….then you need to add up your debts. Let’s say that you have 3 debts that you can’t make all the minimums for. 1 is for $3,000, another is for $5,000 and the other for $2,000. So, that’s 10,000 total.

Next, you figure out how much “disposable income” you have. This is what you have left over after you have paid the things I listed above. Let’s just say that you have $200 of disposable income.

Then, you take each debt as a percentage of the whole. In our example, the debt that is $5,000 is 50% of your total debt, so they get 50% of your disposable income as payment. The debt for $3,000 is 30% of your total debt, so they get 30% of your disposable income, and the same goes for the debt of $2,000….it’s 20% so they only get 20% of your disposable income.

That would mean that you’d pay $100 to the $5,000 debt, $60 to the $3,000 debt, and $40 to the $2,000 debt. Yes, your creditors will all kick and scream and throw a tantrum because you aren’t paying the full amount, but you can show them (again, communicate and provide documentation) that you are giving them their fair share of your disposable income. They are equally as important as your other debts, so you are giving them their fair share. You are doing all you can, and that is all you can do.

This will keep you from being sued 99% of the time. It messes with their system when you do this. It doesn’t know to send you off to the attorney when you’re paying something, so that's why it works and is effective of keeping you floating along until you can work out a long-term solution to this problem.