Communicating with Creditors

by Toni

Hi, my name is Toni and I am a grateful recovering debtor. I have a lot of insight into dealing with collectors. To begin with, I used to be one. In addition, I have sure been on the receiving end of a lot of collection efforts. So please accept by Experience, Strength and Hope in this area.

In dealing with collectors, there is one very important thing to remember: YOU ARE IN CONTROL. This is the secret the collector does not want you to know. You are the one that decides how much to send (or not send) and when. There is nothing the collector can really do that will change that fact.

The collector may threaten you with legal action. In most cases (admittedly not all, but most) this is an empty threat.

WHY A THREAT OF LEGAL ACTION IS PROBABLY JUST A THREAT:

1. If the collector is an in-house account representative (they actually work for the company to which you owe money), they will lose a lot of money if they can't come to an arrangement with you. If they turn it over to an agency, they will have to split anything collected with that agency. If they turn it over to an attorney, they will have to pay legal fees AND split the take. The in-house account representative may be on commission, and will receive no commissions or bonus if you don't pay the company directly.

2. If the collector is working for a collection agency, then he or she is definitely on commission. Again, if they don't come to an arrangement with you, they receive absolutely nothing. Some collection agencies do have an in-house legal department, but the individual collector will lose his personal commissions if he has to turn the account over to someone else.

3. If the collector is actually a collection attorney, they are probably still a licensed collection agency or on retainer for a collection agency. They are also probably working for a commission, which gives you the same leverage as with a collector. Collection Agencies use attorneys for a couple of reasons, the main one being A COLLECTION LETTER IS SCARIER IF IT IS SIGNED BY A LAWYER. Collection attorneys are usually also in charge of making sure that the agency where they work stays in line with current laws and regulations - for example, they approve the form letters to make sure they don't have any illegal wording and contain all required disclosures. And finally, yes, the attorneys are responsible for taking legal action, if it comes to that.

ARE YOU LIKELY TO HAVE LEGAL ACTION FILED AGAINST YOU?

Statistically, no. Possibly, yes. When I worked for collection agencies, less than 0.01% (one hundredth of one percent) of cases resulted in legal action. Before we as collectors could even turn an account over to the legal department, it had to meet the following requirements:

1. It had to be over $2500 2. We had to have confirmed proof that the debtor had worked for the same employer for over one year OR we had to have proof that the debtor was the proprietor of a continuously operating business for over one year. 3. The debtor's credit report had to show an ability to pay and a collectible status - no other creditors could already have liens, and his outstanding monthly payments to active accounts had to be below a certain figure - I don't recall the exact amount. 4. We must not have received any payments whatsoever from the debtor for over 90 days. 5. The debtor must either have ignored our calls and letters, or have told us (in writing or over the phone) that he was refusing to make any payments.

Even if an account passed all the guidelines, the legal department still rejected about 90% of those submitted by collectors.

While I cannot tell you if these guidelines are normal, I know of other collection agencies and finance companies that have similar rules. The collection lawyers were usually either young attorneys who had just passed the bar, and did not have impressive enough educational credentials or test scores to get jobs with better-paying law firms, or older burn-outs. Even so, they were more highly paid than collectors or account representatives, and the companies did not want to waste their time with cases that would not be easy to collect. The lawyers themselves were lazy (or they would have had better jobs), and had a goal of never actually going to court, except for to get default judgements because the debtor never showed up. They knew that if the debtor actually appeared before a judge and did even a halfway convincing job of demonstrating that they could only pay $25 a month, the judge was probably going to rule that the creditor would accept $25 a month - and like it!

THE EXCEPTION:

Some larger companies, such as major credit card providers, have large, efficient, in-house legal teams. This does not mean that they do not also have guidelines before an account "qualifies" for legal action, but they might be less "lazy" - willing to attempt to get a judgement just in case a debtor is in a position to pay at some time in the future. Even with these companies, however, it costs money to actually go to court - if they select 50 accounts to file, it is because they know that 49 of them will be no-shows and they will get a default judgement without doing any additional work. If the debtor show up with all paperwork in hand, showing how they can only afford to make a small monthly payment and expressing a willingness to pay the debt, they still know the judge is likely to go along with the debtor's repayment plan, so they may as well accept it.

COMMUNICATION IS THE KEY:

Whether you are dealing with an in-house representative, a collection agency, the I.R.S., or a collections lawyer, the same rule applies. The best thing you can do is communicate with them, and the worst thing you can do is ignore them.

COMMUNICATING IN WRITING:

- Letters TO you - you have the legal right to request that a creditor confine his contact to written communication. Many debtors find this preferable, as they find speaking with collectors to be stressful and unpleasant. An example of a letter you can send to creditors requesting written communications only is included later in this email.

- Letters FROM you - when you take the time to compose a letter to your creditor, it is easy to remain calm and cover everything you want to say. You also now have a written record of what you promised the creditor - they cannot come back and claim that you promised to pay a higher amount or to make more frequent payments.

- "Form" letters. One disadvantage: if you have requested that your creditor contact you in writing, you will probably start receiving form letters. If they are well written, they may seem very personal and scary. Modern technology has made it very simple to personalize correspondence down to the finest detail.

Where I worked, for example, we had a form letter to reject a debtor's proposed payment arrangement! When we got a payment arrangement letter, we just entered the proposed amounts into the computer, and requested a letter. The system automatically sent out a letter that said: "Your proposed payment amount of <insert proposed payment amount> does not meet the minimum payment required by <insert name of company>. The smallest amount we can accept is <insert proposed payment amount times 3>. This absolutely did not mean we would not accept the smaller payment - just that we had set up the computer system to automatically try to triple any proposed payment arrangement!

If you are communicating with a creditor in writing only, you really have no way of knowing whether the threats or information in each letter is directed to you personally, or is just a computer-generated form letter.

USING THE PHONE:

- Calls FROM creditors. If you have requested that your creditor cease telephone communication, they probably will stop calling you. If they do not, you can report them to various agencies - but sometimes the wheels of government turn slowly. You may receive calls for a while until the appropriate agency "catches up with" the collector and puts a stop to it. Just remain calm, and present them with the facts - tell them, "What is your name? (Write it down and note the date). I'm sorry, but I sent you a letter on <insert date>. In it I requested that all future communications be made in writing. If your record does not reflect this, I will be happy to send you another copy. I'm sorry, but I can no longer accept your calls. Thank you." And hang up. Make a note on your copy of the letter that the collector called you, and the date and time. You can forward this information to the appropriate agency if the collector does not comply with your wishes and stop calling.

- Calls TO creditors. Just because they cannot call you, does not mean that you cannot call them! I find calling my creditors very useful. This is because I can ask questions and get answers immediately. If a collector is any good at all, he knows that communicating with you is to his advantage - he is more likely to get a commission from your account if the two of you are in communication. If he's smart, he'll listen. If he's not, he may try to take control of the conversation - after all, that is what he has been trained to do. However, he is probably not accustomed to a caller who is ready to do the talking!

Here's what I do. Before I dial the phone, I make a list of the points I want to cover, and the questions I want to ask. As soon as the collector has my account in front of him, I start on my list. If they interrupt me, I just say, "I'm sorry, there's just a couple of more things I want to go over first," and pick right up where I left off. Here's a sample list:

- Ask them their name and extension number (write this down). - (If applicable) verify they received my letter, asking that all future communications be in writing, and that my account has been correctly updated to reflect this. - (If applicable) verify that they received my last payment, and that it has been posted to my account. - Tell them the date and the amount of my next payment, if I know it. If I do not, tell them when they can expect to hear from me with this information. - Ask them anything I do not know or wish to verify about the account: The interest rate, the current balance, how checks should be made payable, the account number, whether they have copies of the original documents (and will send them to me) - whatever.

Often, they will reject my payment arrangement. They will say something like, "this creditor does not accept payment arrangements - you need to send the amount in full," or "based on our guidelines, that is below the minimum acceptable payments. I need at least $75." I just say, "I understand what you are saying, but this is the best I am able to do at this time. I am sure you do not want me to lie to you and promise more than I intend to send. Do what you have to do, but you can expect my $15 to be sent on the 16th."

I have occasionally asked dryly, "So, are you saying you plan to send me back the $20 payment I sent last month, because it was 'below the minimum payment amount?'" This will usually get a laugh out of them.

As I have become more comfortable and less intimidated talking with collectors, I give them more opportunity to speak. After I have completed my list, I will say - "Is there any other information you have for me?" Sometimes, they will start with a battery of questions. If I don't want to answer them, I will say, "I'm sorry, but I am not prepared to give you any further information on myself at this time. I just wanted to know if you have any new information, if you do not, I will have to end this call. Remember, I have requested that all communication from you be in writing. Have a good day!" And I end the call.

I have, however, gotten very good information from creditors with this method. It was a collector, for example, that told me that the company was required by law to agree to a refinance of my defaulted student loans, as long as I met a very short, easy set of requirements. She also informed me (just between us) that the company that would ultimately end up holding the refinanced loan routinely approved delaying the start of monthly payments for up to 6 months, provided the debtor could provide them with documentation that they needed a moratorium. This information turned out to be very helpful to me and my debt repayment plan!

NO MORE FEAR

By the way, I have now given all my creditors permission to start contacting me by telephone again. They even have my cellular phone number! I discovered I was only afraid to talk to them when I had broken promises or sent them bad checks. As long as I had nothing to hide, the conversations were no longer scary. "I you promised $9 and I sent $9. Yes, yes, I know the minimum payment was $50, but I notice you cashed the $9 last month, and will probably cash the $12 you will receive later this month! Hopefully I can send you larger payments at some future date, but for now I will only promise what is realistic. I'm sure you prefer that to lies, am I right?"

Some of us have even gotten friendly. When the very tenacious "Miss P." calls me at 8:05 AM on Saturday morning and wakes me up, I say "Wow, don't they ever give you a day off? Last time you called me at 8:45 PM! I hope they appreciate how hard you work. Let me pour myself a cup of coffee and wash my face, and get my records in front of me. I've been wanting to talk to you - I have some more questions. I'll call you back within a half hour." And then I do it. The long-suffering Miss P. has a $16K account of mine, and has so far received a total of $150 from me. But these days we get along just fine - now that she knows I will do what I promise, and not be pushed into anything more!

SAMPLE LETTERS:

An important note about these sample letters: Feel free to use them to formulate your own letters, but DO NOT SAY ANYTHING IN THE LETTERS THAT IS NOT TRUE. If, in a letter, you have promised to follow up and give the creditor certain information by a certain date, do it! If you ever do end up in court, having copies of these letters and having the information in them correspond with what actually happened will be of tremendous help.

The first letter is from "Release from Debtor's Prison" by Margaret St. John, the rest are my own suggestions.

Request for Debt Moratorium

PO Box 1000 Main Town, USA July 21, 2000

Anybody's National Bank PO Box 1111 Credit, CO 80161

Attention: Mr. J. L. Creditor:

I am writing to let you know that I am currently out of work and am therefore unable to make my Visa card payments. In light of my current financial situation, I am requesting a moratorium of approximately ninety days on my account. On or before October 21, I will be in touch with you about my employment status as well as a plan to resume payment of my debt. I intend to pay my bill in full and have joined a financial recovery program to get information about and support for debt repayment. Please do not contact me by phone: I will contact you as soon as I have obtained employment and can make payments. Correspondence may be sent to the address above. I reiterate that I DO intend to pay my creditors in full as soon as possible. Thank you for your consideration.

Sincerely,

Anonymous Debtor

* * *

Request for Contact in Writing

Today's Date

The Creditor Company P.O.Box 100 Anytown, USA

RE: Account #12345

To: John Q. Creditor

I am writing in regard to the above referenced account. I would like to inform you that I acknowledge that I owe this debt, and that I intend to pay it if full as soon as possible. I have recently entered a financial recovery program, and I am in the process of formulating a debt repayment plan. I will contact you no later than <insert date> and inform you of my exact intentions regarding the amounts and dates of my payments.

In accordance with the Fair Debt Collection Practices Act, I am requesting that all further communication from your company be in writing. Please update my account to reflect this request.

Sincerely,

Anonymous Debtor

* * *

Information Regarding Repayment Plan

Today's Date

The Creditor Company P.O.Box 100 Anytown, USA

RE: Account #12345

To: John Q. Creditor

I am writing in regard to the above referenced account. I would like to inform you that I acknowledge that I owe this debt and that I intend to pay it in full as soon as possible. I am participating in a financial recovery program, and I have formulated a debt repayment plan with this program's help. The intent of this debt repayment plan is that all of my creditors will be paid in full as soon as possible.

Accordingly, I will send you a payment of at least $<insert amount> each month, beginning on <insert date>. This is the maximum amount to which I can commit at this time. If I am in a position to increase this payment amount for any given month, I will do so. If changed circumstances cause me to be unable to meet this obligation for a particular month, I will contact you in advance and advise you of the situation. Please update my account to reflect this information.

Please permit me to remind you that I previously requested that, in accordance with the Fair Debt Collection Practices Act, all communication from your company be in writing. I thank you for continuing to comply with this request.

Sincerely,

Anonymous Debtor

* * *

Notification of Inability to Comply With Payment Arrangement

Today's Date

The Creditor Company P.O.Box 100 Anytown, USA

RE: Account #12345

To: John Q. Creditor

Previously, I notified you that I would be sending you monthly payments of at least $<insert amount> each month. Further, I promised that if changed circumstances caused me to be unable to meet this obligation for a particular month, I would contact you in advance and advise you of the situation.

Please be advised that, due to unusual circumstances, I will be unable to send the full payment this month. Instead, I will be sending you a good faith payment of $<insert amount> on <insert date>. I regret this situation, and promise to resume making the larger payments as soon as circumstances allow. Please update my account to reflect this information.

Sincerely,

Anonymous Debtor

* * *

Response to Creditor's Rejection of Proposed Payment Arrangement

Today's Date

The Creditor Company P.O.Box 100 Anytown, USA

RE: Account #12345

To: John Q. Creditor

I am writing in regard to the above referenced account. I would like to reiterate that I acknowledge that I owe this debt and that I intend to pay it in full as soon as possible. I am participating in a financial recovery program, and I have formulated a debt repayment plan with this program's help. The intent of this debt repayment plan is that all of my creditors will be paid in full as soon as possible.

I acknowledge receipt of your letter, whereby you informed my that you do not agree with my proposed repayment schedule. Nevertheless, my debt repayment plan has been carefully formulated in accordance with the principals of my financial recovery program, and I assure you that $<insert amount> is the maximum monthly payment that I can send you at this time. I regret this situation. If I am in a position to increase this payment amount for any given month, I will do so. If changed circumstances cause me to be unable to meet this obligation for a particular month, I will contact you in advance and advise you of the situation. Please update my account to reflect this information.

Sincerely,

Anonymous Debtor