One of my friends is a debt collector, and I asked him what advice he would give to his mother for how to deal with a debt collector. Here is what he said. First, the best way is to never need to deal with them, by paying your bills, but if you are forced into a situation where you must, here is what you should do.
1. Talk with the collectors. Ostrich technique does not work with debt collectors, they tend to get more aggressive, and eventually sue. That first call or letter will not be the last if you don’t respond. Request verification of the debt. Start with making sure they are collecting an account that you owe. Dealing with a mistaken identity or ID theft is different from dealing with your own accounts. Verify the amounts they are requesting.
My comments: I agree, but with a variation. You should communicate in writing. It makes the record so much clearer.
2. There may be tax consequences if you settle a debt, rather than pay the full balance. Debt collectors cannot give tax advice, and if they write down the debt by more than $600, they are required to send a 1099 to the IRS, and you could pay taxes on the money.
My comments: Yes, that is true, but if you are going to compromise a debt, tax consequences should be discussed with the collector before the deal is inked. Some collectors have authority to discuss tax consequences, some do not. Be on the lookout for a 1099 for the entire balance, or the forgiven balance, as this is not correct. You should not pay taxes on the interest, only the principal. Consult a tax professional for the details on that.
3. If you have problems, complain to the Federal Trade Commission customer service hotline.
My comment: And the Attorney General of the US, the Attorney General of your state, and you should find a lawyer who deals in collection abuse, like us.
4. Request a supervisor. If you are trying to pay, but the collector on the phone cannot make the deal you can afford, request a supervisor, who may be able to make a better deal.
My comment: If you cannot make a deal pretty quickly on the phone, you should not be talking to them on the phone. It is pretty rare that a supervisor can make a deal that a line collector cannot, and they often are just another line collector on the phone anyway. Better to send them a letter that says that you request no more phone calls, and that all communications should be in writing. Better still is a letter telling them to communicate with your lawyer.
If you have been impacted by anything we mentioned here, please make an appointment to see us.
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