A University of Alabama Law School Clinical Program funded in part by West Alabama Regional Commission

4. Collections: Protections and Responsibilities

It is not only seniors with limited incomes who fall behind on their bills. Older consumers of all income levels can find themselves in a financial strain. Already vulnerable because of limited incomes, diminishing savings and unpredictable health care costs, the older consumer is also a favorite target for a constant barrage of slick ads and skillful solicitations that encourage thoughtless use of credit.

Like any business, a credit card company is entitled to a reasonable profit. It must try to collect what its customers owe. But aggressive lobbying by credit card companies has been a big factor in legislation expanding marketing practices, minimizing consumer protections and tightening bankruptcy laws. The seduction of easy credit combined with hard collection efforts is causing problems for many seniors.

What to pay first. The consumer facing a financial crisis must choose which bills to pay first, and the sooner the better. Ignoring a problem does not make it vanish. Here are suggested priorities for senior consumers:

1st Priority: Bills that keep a roof over your head, utilities turned on, food on the table, clothes on your back.

2nd Priority: Car loan and liability insurance, if having a car is critical for you.

3rd Priority: Vital health insurance. (The local Area on Agency insurance counselor can provide free assistance in deciding what coverage is vital.)

4th Priority: Secured debts other than those on home and auto; a loan secured only by household goods may be less critical than other debts.

Avoid consolidating debts and paying them off with a secured loan, especially on your home. In most cases this just adds to the debt load, it does not reduce it. When consolidation involves pledging a house, car or other asset, that turns unsecured loans into secured loans. Non-payment of a credit card debt might never cause a major problem, but once it becomes part of a secured debt, non-payment could cause loss of your home or other collateral.

Contact creditors. You have a contract with the credit card company and you owe it notice of the situation. Call any creditors you will not pay in full and follow up in writing. Explain that you are in a financial bind but want to pay this debt, and you will try to resume full payments as soon as possible. Give the reason if there is a good one. If you can pay something ask the creditor to work with you by reducing interest and removing penalties and fees.

Some creditors will work with you, but many take what seems like a counter-productive approach, refusing to make adjustments as long as payments are current. Do not agree to any plan that does not reduce the debt. In any event, stick with your priorities: shelter, utilities, food, clothes, auto, health insurance, secured debts.

There are rules about what collectors can do and say. The Fair Debt Collection Practices Act regulates the actions of collection agencies. Creditors trying to collect their own debts are not covered. By all means contact the creditor before it contacts you about a past due account, but if you cannot work something out with a creditor it may turn your account over to a collector anyway. This is not always a bad thing. Sometimes collection agencies will make arrangements a creditor would not, and they are subject to stricter rules about contacting you.

Don’t be pressured into paying non-priority bills first. Collection agents can be very aggressive. That’s their job. Your job is to protect yourself and your family. Do not make your payment decisions according to who is pushing the hardest. The less real clout the collector has the more aggressive (s)he is likely to be. (Mortgage and auto finance companies don't have to threaten, they can take the collateral.) Do not be moved by threats to report you to the credit bureau. The delinquency may already have been reported or probably will be, and in any event a negative credit report is less important than shelter and food.

Don’t tolerate rudeness. You are not a terrible person, you have just fallen behind on bills. You did enter into a contract and you do owe a reasonable explanation if you can’t pay a just debt as agreed, but you do not need to justify yourself to or tolerate abuse from a collection agent. Explain briefly that you cannot pay now but will pay when you can. Some collectors are experts at fast talk and mean jabs. Don’t be hooked. If a collector pressures you, say politely that you have responded and now you are going to hang up - then do.

Rules for collectors. Collection agents may not legally call before 8:00 a.m. or after 9:00 p.m. or make constant, repetitive calls. There should be no intimidation, no empty threats of legal action (see next paragraph) and no obscene or profane language. If you have an attorney and provide his/her name and number, that should end the call and you should not be contacted again. Promptly make notes of names, dates and times and what occurred during a call. It is surprising how fast memories fade (and how quickly what we remember becomes what we wish we had said). If any collector uses prohibited tactics, mention that (s)he is breaking the FDCPA rules. You can report violations to the Federal Trade Commission, Bureau of Consumer Protection, Washington, D.C. 20580.

Empty Threats. Do not be unreasonably alarmed by threats to “take your property”. No one can garnish wages or bank accounts or seize your home or personal property without first getting a judgment against you (filing and winning a lawsuit against you). If a collector threatens seizure ask if (s)he is claiming that the company has a judgment against you. You must receive legal papers when someone sues you. Such papers are more than letters though they may arrive by certified mail. They clearly identify the court in which the action is filed and state a time for you to respond. Collectors’ threats to seize assets are often just hot air; if so they are prohibited by the FDCPA.

Risk of suit. On the other hand, if an account is past due there is always the possibility of a lawsuit to collect it. The degree of risk varies. A few creditors sue on most debts. Many rarely sue unless the debt is very large, some not even then. Lawsuits and after-judgment collection procedures involve hassle and expense for the collector and the likely return often does not justify the costs. Do not ignore the risk but do not panic; hold on to your priorities.

Even when there has been a lawsuit and a judgment has been entered, part of the value of your homestead and some personal property are exempt from collection efforts. Public benefits and entitlements like Social Security and SSI are not subject to garnishment even after a judgment is entered. If you have significant equity in a home or other assets that are not within the state exemption amounts, a judgment creditor may be able to reach those assets. You would have advance notice of any such efforts, however, and it is very unlikely that they would include calls from a collection agency.

Cease Letter. If you are being harassed, you can write a “cease letter”. Reference your account number and state that, as provided by the FDCPA, you are writing to request that the collector stop communicating with you about it, and that you will take care of this matter when you can. Mention any abusive tactics that you have experienced and note any billing errors. A cease letter does not necessarily stop collection efforts; it only stops contacts with you.

If you do receive papers showing a suit has been filed against you, act immediately. Do not ignore them. Never allow a creditor to get a default judgment (one entered just because you did not respond). Once you are served you may have only a few days to file an answer with the court. Get legal advice. A lawyer will look for any legal defense you may have, but even if there is none, (s)he may be able to help you settle with the creditor. Also, creditors file suits assuming debtors will do nothing, because that’s what usually happens. When a debtor retains an attorney the creditor sometimes backs off.

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