If you’ve been in debt for some time, you may be contacted by an individual that says he or she is working for a debt collection agency.
This can either mean that your creditor has hired a collection agency to extract the money you owe or that your debt has been sold to a debt collection agency.
It’s not your fault. Complaints to the Financial Ombudsman have risen this year from 830 to 2,006, so it’s safe to say that you’re not alone.
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What is a Debt Collection Agency?
Debt collection agencies are companies that specialise in chasing debts. This means that they will contact you in regards to any debts you have and get you to pay up.
There are two main types of scenarios through which a recovery agency might get involved. These are:
- Your Creditor has Hired a Debt Recovery Agency
Creditors often specialise in lending and collecting their debts. However, most of them do not specialise in chasing down debts if they are unable to get them repaid in a straight-forward manner. For cases such as these, creditors might hire a debt recovery agency which would then contact you on behalf of your original creditor in order to recover your debt and pay it back to them.
In this case, your original creditor is still the one to whom you owe the debt.
- Your Creditor is Dissatisfied with the Amount You’re Paying them and thus, They have Decided to ‘Sell’ Your Debt to a Collection Agency
The original contract you signed with your creditor gives them the authority to do this if your account has defaulted.
This involves your creditors essentially ‘selling’ your debt to a collection agency for a reduced lump sum of money. It’s an attractive option for creditors that aren’t confident you’ll be able to pay them back within a reasonable amount of time.
After this, your original creditor is completely out of the picture and the collection agency becomes the legal owner of your debt, i.e., they are not working on anybody’s behalf. You would have to pay the money directly to them.
Don’t worry, here’s what to do!
You could get rid of debt collectors by writing off some of your debt.
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What can Debt Recovery Agencies Do?
Keep in mind that a recovery agency, as well as debt collectors that are employed under them, do not have any extra-legal powers over you. They cannot threaten or force you with any kind of legal action as they don’t have that authority over you.
Not to mention that all collection agencies operating within the UK are authorised and regulated by the Financial Conduct Authority. They have strict guidelines in place that determine how debt collection services should operate.
If you feel that a collection service is violating any of the guidelines regulated by the Financial Conduct Authority, you can opt to report the debts collector to them.
Keep in mind that you are the one in control. A debt collection agent is not allowed to call you on weekends or at irregular hours. They can also not visit you at your home if you tell them not to. Debt collectors also cannot take your possessions or your wages forcibly in order to cover your debt.
Collection agencies can take you to court if you refuse to pay legitimate debts. However, this is unlikely to happen if you prove to them that you are trying your best to pay off your debts considering what you can afford. As long as they’re satisfied that you’re working on paying off your debts to the best of your abilities, they will not take you to court.
What Should I Do if a Debt Collector Contacts Me?
You must make sure that you don’t ignore a debt collector when they attempt to contact you. If your debt is legitimate, then ignoring debt collection agencies will just make it worse.
What if the Debt isn’t Legitimate?
This is the very first thing you must make sure of. Ask the debt collector for some ID; they are legally obligated to prove they work for who they say they work for. Once you are satisfied that the collector is who they say they are, ask them what debt they are contacting you in regards to.
If you do not recognize the debt that they are talking about, tell them so and tell them that you’ll look up whether or not you have such a debt.
Afterwards, you should look through your credit report to make sure you’re not forgetting about any debt that you have. If you’re absolutely sure that the debt the collector is talking about does not exist, then you don’t have to follow up with them.
If they contact you again, you can inform them that you don’t recognize the debt and that they should stop calling you. If they keep on calling you after you’ve proven that the debt isn’t yours, you have the right to report to the FCA in the UK.
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What if the Debt is Legitimate?
On the other hand, if the debt they are talking about is legit and you are indeed liable to it, then I suggest you cooperate with them as much as possible. Explain to them that you are doing your best to pay off what you owe.
If you have a copy of your income and expenditures, it’s a good idea to send it to them in the form of a letter. This will help you prove that you’re doing all you can to pay back what you owe and will also work towards making your debt collectors more understanding of your situation.
If you feel that you are unable to pay off the money you owe, you don’t have to worry as there are several different options for you in the UK that you can opt for. Some of these options are an Individual Voluntary Arrangement (IVA), a Debt Management Plan (DMP) or a Debt Relief Order (DRO).
Debt Solutions if You Can’t Afford to Pay Off Your Debt
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement typically lasts for about five years and it involves you paying back your debt over the course of these five years through monthly payments. You can also choose to pay one lump sum to the debt collection agencies in order to pay off your debt all at once if you have the resources to do that.
An IVA is a great debt solution that is very accommodating to debtors, however, it will definitely have a significantly negative impact on your consumer credit score.
Debt Management Plan (DMP)
A Debt Management Plan (DMP) is quite similar to an IVA in that you enter into an agreement with your debt collectors to pay off your debt in the form of monthly payments.
One major downside of a DMP compared to an IVA is that you are not protected from court action during a DMP like you are with an IVA.
Debt Relief Order (DRO)
A Debt Relief Order (DRO) is a way in which most of the money you owe can be written off. However, you can only qualify for a DRO if you meet all of the eligibility criteria. A DRO may seem like a very attractive option since it allows you to write off your debt in one fell swoop. However, it does have its disadvantages.
Firstly, not many people can qualify for a DRO as it’s designed only for people that have little or no resources to pay back their debt collectors.
Secondly, a DRO has a very negative impact on your credit score.
If you’re thinking of opting for any debt solution, I highly suggest you seek advice from a professional that can help you draw up your proposal and set up a payment plan that would be affordable for you. You can seek help from an independent debt charity such as StepChange.
Can a Collector Visit My House to Collect Debt?
While this is definitely a possibility, it is quite uncommon. You will more than likely receive a letter or phone call from a collection agency regarding the debt you owe as these options are much cheaper and less time-consuming than a home visit.
That being said, you can definitely receive a visit from a collector. If this happens, keep in mind that they do not have any extra-legal powers. You don’t even have to open the door for them if you don’t want to.
If you prefer that they don’t visit your home in the future, you can tell them that and they are obligated to respect your request according to FCA guidelines.
You should preferably request them to contact you via either of these two ways:
Phone calls are very common for a collection agency. The advantage of phone calls is that they are convenient and comparatively less time-consuming.
The disadvantage of talking to collectors over the phone is that you won’t have any proof of any agreements that you make with them. I highly suggest for any significant agreement that you make with them, you must get it in writing.
Being in contact with your collectors via letters is also quite common. The advantage of communicating via letters is that you’ll have all the proof you need to state your case in the case of any disputes during the debts collection process.
The disadvantage of this is that it can be quite time-consuming.
It may be very intimidating to receive a call from a debt collection agency. However, once you know what they can and can’t do, it becomes a lot less scary.
Knowing your rights helps a lot when trying to take steps towards financial freedom and now that you know how collection agencies work, I’m hopeful that you will not let any of them get the better of you.