Financial crisis can happen to anyone. Many families live from paycheck-to-paycheck—and an unexpected bill, medical emergency, or change in employment can result in past due bills and harassing calls from debt collectors.
If you want to stop debt collection, you have several options. You should carefully consider all of your options before filing for bankruptcy.
How Can a Debtor Stop Debt Collection?
If you cannot pay your creditors, you may not have to file for bankruptcy. Instead, consider other options first.
- Non-Bankruptcy Options
- Send a Cease and Desist Letter
Under the Fair Debt Collection Practices Act (FDCPA), you can order a debt collector to stop contacting you. You must send this “cease and desist” letter in writing. Once it receives a cease and desist letter, the debt collector cannot contact you except to:
- Tell you that it is ending communications, or
- To advise you that a lawsuit or other legal remedy is being pursued.
- If the debt collector ignores your cease and desist letter, you can sue the company for violating the FDCPA.
However, a cease and desist letter does not erase your debt. In fact, some lawyers believe that cease and desist letters encourage debt collectors to file lawsuits against debtors. (Since the debt collector cannot communicate with you, it may feel it is forced to file a lawsuit.)
Notably, the FDCPA applies only to collection agencies and debt collectors—not your actual creditors (like a mortgage company).
Request Debt Verification or Validation
If you do not think you are responsible for a debt, you can request verification or validation. Once you dispute a debt and request verification, the debt collector must stop collection attempts until the debt is verified as yours. Verification requests must be made within 30 days of your first debt notice or bill.
Consolidate or Negotiate Your Debt
Some creditors are willing to negotiate with debtors. You may be able to negotiate smaller monthly payments or a reduction in debt in exchange for ongoing and consistent future payments. However, debt settlement may have a negative impact on your credit score.
Debt can also be consolidated. When you consolidate debt, you combine unsecured debt (like credit card debt) into a single loan. Typically, the new loan charges fewer fees and a lower interest rate. Consolidation can help improve your credit score if you make consistent monthly payments.
Hire a Credit Counseling Service
Credit counselors work with debtors and creditors to create debt repayment plans. Many reputable credit counseling services are non-profit organizations. These non-profits may charge little or no fees for their services. Typically, a credit counseling service gives financial advice and may create a debt management plan.
When you enter a debt management plan, you must make monthly payments to the counseling service. The credit counseling service will then issue payments to your creditors.
Filing for Bankruptcy
Bankruptcy should always be your last option. The Federal Government now requires that you undergo credit counseling before filing for bankruptcy. Additionally, bankruptcy does not erase certain types of debt (like student loans). There are two kinds of bankruptcy: Chapter 13 and Chapter 7.
Chapter 13 Bankruptcy
Since 2005, the Federal Government has favored Chapter 13 bankruptcy. When you file under Chapter 13, you may be able to keep your home, car, and other assets. You will make payments to your creditors under a court-ordered repayment plan. Typically, you must have evidence of a consistent income to qualify for Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy involves selling most of your property and assets. You may be able to keep some exempt property (like a car, work-related tools, and basic household goods). In order to qualify for Chapter 7 bankruptcy, your income cannot exceed a certain threshold (which varies from state-to-state).
When Does Debt Collection Become Harassment?
The FDCPA sets strict limits on debt collection practices. A debt collector can only contact you between 8:00 AM and 9:00 PM. Debt collectors are also prohibited from:
- Harassing you,
- Making false representations or threats,
- Calling and failing to identify itself as debt collector, and
- Calling you at work (if personal calls are forbidden at your workplace).
If a debt collector violates the FDCPA, you can sue it for economic, non-economic, and statutory damages. You also may be entitled to an injunction and payment of your attorney fees.
Can a Lawyer Stop Debt Collection?
It is important to understand your debt collection rights. If you are struggling with debt, you may want to contact a lawyer for help. A debt collection lawyer may be able to negotiate with your creditors, and resolve your debt problems. He or she can also help you file a lawsuit for FDCPA violations or pursue a bankruptcy.