How Do Debt Collectors Make Money and Other Frequently Asked Questions About Debt Collection Agencies
Debt collectors and debt collection agencies work with companies to retrieve funds due from individuals who are delinquent on payments. Working with a debt collection agency will ensure that you make the payments that you agreed to pay and the monies are remitted to the original company owed.
What Are Debt Collection Agencies
Debt collection agencies work as the middleman between customers and businesses, collecting delinquent debts that are at least 60 days past due and remitting them to the business. Typically, a percentage of the debt is kept by the debt collection agency as payment. They will collect all types of debts, including: credit card, medical, car loans, personal loans, student loans, business loans, and unpaid utility and cell phone bills.
While collection agencies can collect all types of delinquent debt, they tend to specialize in a specific area or with specific requirements. For instance, an agency may only collect debts of at least $400 that are less than three years old or they may only work with medical debts.
Debt collection agencies must work within the statue of limitations set up by each individual state. If a debt is too old, an agency can no longer legally pursue it.
Five Frequently Asked Questions About Debt Collection Agencies
You may have many questions about debt collection agencies, but we’ve compiled a list of frequently asked questions about debt collection for your convenience. Read on to find the answers to your most common debt collection agency questions.
One: How do debt collectors make money?
Some debt collectors earn money by taking a percentage – 25 percent to 50 percent – of the delinquent debt that they seize. The original creditor concedes this amount in exchange for getting some payment on the debt owed to them.
Other debt collection agencies buy debts. If the original creditor realizes that they are unable to collect a debt, they may sell the debt to a debt buyer. These individuals or companies purchase similar accounts that have been grouped together as a package. For instance, they may be older accounts that other debt collectors have failed to collect on or they may be new delinquent debts with no prior collection activity.
Debt buyers purchase the collection packages outright, usually through a bidding process. They may pay as little as four cents for every dollar of debt, but if they are able to collect, they can keep all the profits. The opportunity for collecting on low-priced debts are minimal. Debt buyers take on the risk of purchasing delinquent accounts which may never profit, but if they do collect on these debts, they can make a huge profit.
Two: Can a debt collector harass me?
No. Laws have been put into place and the old method of debt collection harassment has gone the way of the cassette tape and the telephone booth. Debt collectors can’t contact you at inconvenient times or places. They can only call you between the hours of 8 AM and 9 PM, unless you agree to different times. They also are not allowed to contact you at work if they are told that you can’t get calls there. They cannot just show up at your home or office and can only call you or send letters, emails, or text messages to collect a past-due account.
A debt collector can only speak about your debt with you or your spouse, and if you have an attorney representing you about the debt, the collection agency must contact the attorney instead. However, a debt collector can contact family and friends to ask about your address, home phone number, and where you work.
Three: Should I talk to a debt collector?
It’s always a good idea to speak to the debt collector at least once, even if you know you can’t immediately repay the debt. You want to find out more information about it, confirm that it really is your debt, and make sure that the amount is accurate. The debt collector has to send you a written validation notice stating how much money you owe, the name of the creditor, and what to do if you believe the debt is not yours. You are not required to share any personal or financial information with a debt collection agency.
If a debt collector is bothering you, you can send a letter by mail asking for all contact to stop. Keep a copy of the letter and send it by certified mail with a return receipt so that you have verification that the agency received the letter. Once they receive it, they can only contact you to confirm they will no longer contact you or to inform you of further action, such as filing a lawsuit.
Four: Can a debt collector take money from my paycheck or federal benefits?
Federal benefits, such as your income tax return, are generally exempt from garnishment for delinquent debts. However, they could be garnished for other things, such as delinquent taxes, alimony, child support, or student loans. Laws vary by state.
A debt collection agency can take money from your paycheck, but they must go through a court order. If you are sued and the debt collector wins, they can then garnish your wages to retrieve the money owed for the debt. An agency can also use a court order to take money directly from your bank account. Never ignore a lawsuit. Taking action and remaining part of the process could be the difference between losing and fighting a court order.
Five: What is a time-barred debt?
From the moment you miss the first payment on a debt, debt collectors can begin contacting you regarding that debt. They have a certain number of years within which they can sue you, which is called the statute of limitations. Once those years, which vary by state, are over, a debt is considered to be time-barred. A debt collection agency can still contact you about a time-barred debt, but they can no longer legally sue you over it. However, in most states, if you make a payment or even provide written acknowledgment of the debt, the statute of limitations restarts.
Debt collectors are simply trying to get a payment on a delinquent debt. They are not out to harass or annoy individuals and are typically willing to work with them to create a payment schedule that fits both parties’ needs. The answers to these frequently asked questions hopefully helped you gain a better understanding not only of what debt collectors do but how they do it.