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All You Need To Know About Credit Card Debt Collection

Dealing with credit card debt can be stressful. If you’ve fallen behind on payments, you may be worried about debt collectors contacting you or even taking legal action. But there are things you can do to resolve the situation. This article walks through the key things to understand about the debt collection process and your rights and options.

Getting Behind on Payments

Most credit card companies allow you to miss one or two payments before considering you delinquent. But after 90 days without payment, they will likely charge-off the debt and sell it to a collection agency. The creditor does this to get the bad debt off their books. The collection agency then makes money by getting you to pay.Once debt goes to collections, it can seriously hurt your credit score. Collection accounts stay on credit reports for 7 years. And credit scores could instantly drop 100 points or more. So it’s important to act quickly if you get behind, before things escalate.

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Understanding the Debt Collection Process

If you don’t eventually pay the credit card company, here is typically how things progress:1. You get phone calls and letters. Debt collectors will start contacting you by phone and mail within a few weeks of getting your account. The calls may be frequent at first. Collectors can contact you between 8 am and 9 pm.2. You may be sued. If you continue not to pay after 6-12 months, the collector may sue you to try to collect. If they win the lawsuit, the court can order you to pay through wage garnishment. This means money is taken directly from your paycheck.3. Your wages could be garnished. If you still don’t pay after the lawsuit, collectors can get a court order to garnish your wages. Federal law limits wage garnishments to 25% of your disposable pay, so you would still get a paycheck.4. Your bank account could be levied. Collectors may also try to levy (seize money from) your bank account to satisfy the debt. Federal law protects $1,000 in your account if it’s levied.5. Your tax refund could be seized. The government can redirect your tax refund to pay defaulted federal debts like student loans. Collectors of other debts may also ask state agencies to intercept any refund you’re owed and use it to pay.So in most cases, collectors use phone calls and letters at first to persuade you to pay voluntarily. But if you refuse, legal action can eventually force payment by garnishing wages or seizing money from accounts.

Your Rights in Debt Collection

The Fair Debt Collection Practices Act (FDCPA) provides consumer rights and protections in debt collection. Here are key things to know:

    • Collectors can’t harass you with frequent annoying calls.
    • They can’t lie or misrepresent information about the debt.
    • They can’t discuss your debt with others without permission.
  • They must honor written requests to stop contacting you.
  • They can’t threaten illegal action like arrest or property seizure.

You also have a right to dispute debts you believe are inaccurate or fraudulent. Submit disputes in writing and the collector must provide verification of the debt before continuing collection.If collectors violate your rights under the FDCPA, you can sue them to recover damages plus attorneys fees. Many lawyers offer free consultations for FDCPA cases.

Settling Credit Card Debt

If you can’t realistically pay the full balance owed, a good option may be trying to settle debt for less than you owe. Here is how it works:

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  • You negotiate to make a lump-sum payment that satisfies your debt. Often settlements are for 50% of the balance or less.
  • The collector agrees to forgive the remaining amount owed once you pay.
  • The account gets updated to show a $0 balance, though it will still show on your credit report as “settled.”

Settling can stop debt collectors from suing you and prevent wage garnishment down the road. Just save up the settlement money first, then make the payment. Don’t settle unless the collector agrees in writing to forgive the remaining balance owed.Settling wrecked credit card debt won’t erase the damage to your scores. But it can help prevent things from getting worse. And your scores will gradually recover over time as long as you begin rebuilding credit responsibly.

Bankruptcy: A Last Resort Option

If your financial situation is truly dire, bankruptcy may be something to consider. This legal process eliminates eligible debt under court supervision. The most common types of consumer bankruptcy are:

  • Chapter 7: Liquidates assets to pay creditors, then discharges remaining debts. Best if you have little property or income for creditors to take.
  • Chapter 13: Sets up 3-5 year repayment plan to pay creditors over time. Lets you keep property by agreeing to make payments.

The impact of bankruptcy on credit scores is severe. Scores can instantly drop more than 200 points. The bankruptcy remains on credit reports for 7-10 years. This will make it very hard to get approved for credit or loans.Many people fear bankruptcy, but it exists to give a fresh start to those truly in need. Speak to a bankruptcy attorney if you want to explore whether it may be right for you.

Getting Help

Dealing with debt collectors is stressful. But you have rights and options. Don’t hesitate to seek help from credit counselors or lawyers to understand the best path forward. The most important thing is taking action before your situation spirals out of control.

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