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b&b167 What to do When Debt Goes into Collections

How do you handle your accounts in collections?

When a creditor can’t get you to pay, they sell the debt to a collections agency. By the time the debt is sold, your original creditor will not speak with you about it, it’s out of their hands, and from there the situation becomes complicated. Medical bills and student loans are handled differently, depending on the collection agency, and though there are set rules, it is still overwhelming to deal with ongoing debt.

So now…what are your options? Pam and Dyalekt talk about just that. How can you negotiate with the collectors, setting up payment plans, and many other options. We also posted some links to helpful resources below.

Music Featured in this Episode:
1). Debt Collector – Blessed House

2). Debt Collectors – Soul Cannon

3). Destiny – Debt Collectors

Medical Bills Info

Statue of Limitations:

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Episode Highlights:

Now, if you’re at the point where you’re borrowing money from your stock broker to buy stock, than maybe you shouldn’t be buying stock. [This is called buying on margin.]

Collections is basically you haven’t been making payments to your original creditor, whether that’s the hospital or your student loan company or a credit card company, and at some point, usually around the six month mark so you’ve missed six payments in a row, they end up selling your debt to a collections agency for pennies on the dollar.

The thing about collections is, when that happens, your debt is sold from the original creditor to the collections agency, the collections agency has paid pennies on the dollar, literally like ten cents, twenty-five cents on the dollar. So when the debt is sold, your original creditor is done with it. They’re not gonna talk to you about it. If you try to call American Express or Capital One, whoever originally had your debt, they’re like “We got rid of that, and you gotta call this collections agency instead.”

One thing about collections to keep in mind is it usually takes seven years, sometimes ten years, to drop off your credit report. Bankruptcy definitely takes ten years to drop off your credit report. Usually seven is the magic number for a collections mark to drop off your credit report. I’ve seen it take longer, but in general it’s seven years.

A collections agency is actually allowed to sue you if they haven’t been able to get the debt or to get you to start paying it back. And so there’s this thing called a statute of limitations. It’s the number of years that a creditor has to sue you for debt.

The thing that a collections agency can do if they sue you and successfully win…that is when a creditor can start to garnish your wages, freeze bank accounts, put liens on your property, all of this stuff. So a creditor has to sue your first to be able to do this.

One thing to keep in mind with the statute of limitations is it can actually be reset…It’s called re-aging your debt…Any time that you acknowledge that you owe the debt, or that you make any small payment on the debt, you’ve basically re-aged the debt. So if you validate in writing, or even agree verbally on a recorded line that the debt is valid and that it’s yours, or you agree to repay the debt, then you may have extended the statute of limitations or reset the clock essentially.

So here’s the thing that I would do if you know it’s a collections agency. Don’t pick up the phone. Call then when you’re ready and you know all the facts.

Make sure it’s really clear that you are paying off this debt to this collections agency, because debt collection agencies has also been know to re-sell debt that’s already been paid to other debt collection agencies, ‘cause that’s how great this system is.

It’s not worth it to talk to a debt collections agency if you can not afford to pay the debt back yet. If you cannot afford to pay it back, just let it ride for now.

I would personally recommend saving up enough to pay down something [your debt] as a lump sum.

Don’t ever give them [a collections agency] your bank account information..the safest way is probably to have your bank send a check through billpay. Another option that people have done is to have a separate checkings account just to pay the collections. Another option is to load a prepaid card every month and use that to pay off the collections payment.

Federal debt is never discharged, even in bankruptcy, and federal debt never comes off your credit report.

Private loans can be discharged at bankruptcy, but you have to specifically ask for it.