What Should You Do when the Debt Collector Calls?

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Americans collectively have the largest consumer debts of any country in the world.  Economists shift the focus from our buy-now-pay-later culture and low savings rate to the amount of consumer debt we have as a percentage of our economy.  Since we also have the largest economy in the world, our consumer debts as a percentage puts us in 13th place on the list of consumer debtor countries.[1]  But behind those numbers are individuals who are simply unable to pay the debts that they have accumulated, and are facing the guilt, embarrassment and fear from incessant phone calls and letters from debt collectors.

In this series of articles, I will suggest various ways of finding light at the end of the debt tunnel.  Your ultimate goal should be to put your debts behind you, start to live within your means, and to save for a healthy financial future.  To do that, you must face your financial mistakes, develop a plan to address those mistakes, and change your lifestyle.  But before we can start on that journey, you have to know what to do when the debt collector calls or writes demanding payment.

Rule #1.  Don’t pay anything unless you have a plan to pay everything. 

Your most important legal protection is known as the statute of limitations.  Every state sets a time period for creditors to file a lawsuit against you to collect a debt.  In some states the period is one or two years after you first default, in others the period is a long six years or more after default.  You can look up the period in your state here.  You should check the actual referenced statute and not rely on the summary.

After that statute of limitations period runs, the creditor cannot legally bring or win a lawsuit against you to collect the debt.  Nevertheless, if you are wrongly sued, you have to answer the complaint as discussed in Rule #6.

However, in many states, if you pay the creditor anything (or even confirm that you owe the debt), a new statute of limitations period begins – even if the old limitations period had already expired.  The oldest trick in the debt collector’s book of tricks is to ask for a small payment to show good faith – knowing full well that by making the payment you will be reviving the debt.  Don’t pay them anything if the statute of limitations period has expired.  If the statute of limitations has not expired, you can wait and see if they timely file a lawsuit against you.  As a general matter, once your are in default and unable to pay all your debts, you should not pay anything to a debt collector unless you have a plan and written agreement that your payment will fully satisfy the debt.  I will discuss the settlement process in a future article.

If the statute of limitations period has expired, there is nothing that the creditor can legally do to collect the debt, other than to try and get you to voluntarily pay.  If the statute of limitations has expired, laugh in their face and hang up the phone.  Ignore their letters.  Legally, you do not owe the debt.  If the statute of limitations has not yet expired, wait and hope that it will expire before the creditor sues you. 

A different, and much longer, statute of limitations will usually apply after the creditor obtains a judgment against you from a court, and in many cases state laws allow the judgment to be renewed for even longer periods.  Your options are very different after a judgment is rendered against you.  I plain to discuss your options after a judgment is entered in a future article.

Rule #2.  Do Not Give the Debt Collector any Information.  

Police Officers making a criminal arrest are required to tell you that “anything you say can and will be used against you in a court of law.”  That’s true of debt collectors too.  They will use any information you give them against you, and nothing you say will help your case.  Ask them for their name, address, and telephone number, write it down with the date and time of the call, tell them that you are unable to pay them anything, and hang up the phone.  Don’t worry about the debt collector’s feelings.  If they call back, hang up again.  Then follow the rules below.

Rule #3.  Send a Written Demand for Verification. 

The Fair Debt Collection Practices Act (known as the “FDCPA”) provides significant protections for consumer debtors, but unfortunately, it only applies to debt collectors who are not also the owners of the debt[2].  Creditors who collect their own debts are not subject to the FDCPA.  A third-party debt collector must comply with the FDCPA, which (among many other protections) requires debt collectors to mail what is known as a “mini-Miranda” letter to the debtor within five days after making any contact with the debtor.[3]  Within 30 days after receiving a mini-Miranda letter, you should send the debt collector a letter (preferably by certified mail or with a certificate of mailing) stating:  “In accordance with the Fair Debt Collection Practices Act, 15 U.S.C. 1692a (§ 809), I hereby dispute the debt, demand that you obtain verification of the debt or a copy of the judgment against me, and send me a copy of such verification or judgment along with the name and address of the original creditor.”  If the verification provided by the debt collector is incomplete or inaccurate, you may follow it up with a further dispute letter challenging the validity of the verification.

Rule # 4.  Send a Cease and Desist Letter to Stop Communications. 

The FDCPA also allows a consumer debtor to demand in writing that the debt collector cease most further communications with you.[4]  You can combine this with the demand for verification by adding the following to your verification letter:  “In addition, I hereby notify you in accordance with Fair Debt Collection Practices Act , 15 U.S.C. 1692d (§ 805c), that I refuse to pay a debt and that I wish that you cease further communication with me, except to provide me with the verification that I have requested above.”  Keep a log of any further communications made by the debt collector to you.

Rule #5.  Write Down but Ignore Debt Collector Threats. 

Debt collection is a dirty business, and there are many debt collectors who engage in illegal activities, such as making false threats to extort payments.  It is illegal for debt collectors to falsely threaten that you will be arrested, or that your children will be taken away, or that you will lose your property if you do not pay your unsecured debts.  Write down any threats for use in future litigation.  In most cases, the only thing that a debt collector or creditor can do to collect debts is to file a lawsuit against you to recover a money judgment.[5]

Rule # 6.  Timely File an Answer to Any Lawsuits. 

If you are sued by a creditor, it is important that you timely respond to the complaint.  You have a specific amount of time (which will be listed in your summons) to file an answer to the complaint with the court, and serve the answer on the complainant.  Debt collectors sloppily file collection lawsuits by the hundreds in the expectation of obtaining quick default judgments because debtors do not timely file their answers.  Most courts and legal aid agencies will provide you with instructions on how to answer a complaint.  If the statute of limitations has run on the claim, it is very important to asset that defense in your answer – otherwise the defense is waived.  Many debt collectors will drop the case, let it sit in the court for years, or offer to settle cheaply, if you answer the complaint timely.  It is often not cost effective for them to actually prove their claims.  Once the creditor obtains a judgment, however, they may be able to garnish your wages or bank accounts, levy on your property, discover the location of your assets, and take other actions to collect the judgment.  In a future article, I will discuss your options once a judgment is entered against you.

About Gregory Germain

Professor Gregory GermainThis series of articles is written by guest columnist Gregory Germain, a lawyer who has practiced and taught bankruptcy law for 35 years.  He is a Professor of Law at Syracuse University College of Law, and has represented hundreds of consumers in bankruptcy cases as part of the Syracuse University Bankruptcy Clinic and Pro Bono Bankruptcy Program during the past decade.  Professor Germain will offer general guidance to consumers who are dealing with financial problems. Readers should understand that he is not providing individual legal advice.  Readers may have special needs or problems that will not be addressed in this series of articles.  Readers in need of specialized legal advice should consult a lawyer who can evaluate their individual needs and circumstances.

[1] These statistics are reported by the International Monetary Fund, available here:  https://www.imf.org/external/datamapper/HH_LS@GDD/CAN/GBR/USA/DEU/ITA/FRA/JPN.

[2] The original creditor is not a debt collector and is not subject to the FDCPA.  See FDCPA, 15 U.S.C. 1692a (§ 803(4) and (6)).  In Henson v. Santander, 582 U.S.  —, 137 S. Ct. 1718 (2017), the Supreme Court held that a debt buyer (who became the owner of the debt after it was in default) did not constitute a “debt collector” either, because they were not collecting a debt owned “to another,” but the court left open the possibility that a debt buyer could be a “debt collector” under the FDCPA if “the principal purpose of [their business] is the collection of any debts.”

[3] FDCPA, 15 U.S.C. 1692a (§ 809). 

[4] FDCPA, 15 U.S.C. 1692a (§ 805(c)). 

[5] If you gave a creditor a security interest in some of your property, such as a security interest in your car for a car loan, the secured creditor may have the right upon your default to repossess the specific property that they have a security interest in, if they can do so without breaching the peace.  Once they obtain possession, they can sell the property in order to pay down your debt (a process known as foreclosure).  Unsecured creditors, on the other hand, may take no action against your property without first obtaining a money judgment from a court (or after filing suit and obtaining an unusual pre-judgment writ from the court).  If you have not been sued, and are not at risk of repossession for secured loans, you have time to develop a plan to deal with your financial situation. 

It is a crime in most states to write a check when you know that you have insufficient funds in the bank to cover the check.  Creditors may ask the district attorney to file criminal charges against you for writing a bad check.  But a creditor is committing the crime of extortion by threatening to cause criminal charges to be brought against you if you don’t pay.  It is very unusual for criminal charges to be filed unless someone is regularly writing bad checks.  It is also not a crime to write a bad check by mistake.


Opinions & perspectives expressed in this article are those of the guest contributor and not necessarily Pocket Your Dollars.