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What is debt collection?

Debt collection is the process of obtaining money from an individual or company with an unpaid debt.

The usual process often involves a company assigning your financial account to a third-party collection agency, which will then contact you to recover the money you owe. The original creditor will attempt to contact you to ensure that you pay them what they are owed, however, if you fail to pay, they will pass on your details to a debt collection agency.

Passing on your contact details to a third party is the best way for the original company to reduce the resources it devotes to following up your case. It's also an effective tool to intimidate you into paying as quickly as possible. Fortunately, there are systems in place in Canada to protect you against the abusive behavior of collection companies often portrayed in the media. Managing your debt doesn't have to be as scary as you think.

Debt solutions

What happens if you ignore a debt collector?  

Ignoring a debt collector is not the best solution. Debt collectors can be relentless in their quest to get you to repay the loans you owe. From constant phone calls to floods of letters, they'll do everything in their power to get your attention. They may also go a step further and issue you with a summons requiring you to face the debt in court.

Accumulating debt will have a negative effect on your credit rating, so ignoring debt collection is not the solution. Open dialogue between you and the collection agency or original creditor is the best way to find a solution quickly and limit the impact on your credit rating.  

What not to say to debt collectors?

While collaboration and open conversation are encouraged to achieve an amicable solution with your debt collector, there are also some key elements to keep in mind when approaching them.

Negotiating with collection agencies is an art, so here are a few points to keep in mind when talking to debt collectors:

Do not divulge any of your personal information

Phone calls are their preferred way of contacting you. They'll often call to ask you personal questions. So make sure you don't share any personal information.

They will probably ask you for credit card information and personal details. Make sure they know from the outset that you will only respond to written communications, so that you have proof of all communications if you need to defend yourself at some point.

Don't give out your bank details

Do not give your bank details to debt collectors - you are under no obligation to give them this information. A debt collector's job is to try and get you to pay the full amount you owe as quickly as possible, and the best way to achieve this is to obtain your bank details.

Passing on your bank or credit card details removes any leverage you may have, so don't give them to them, no matter how often they ask.

Don't admit debt

Perhaps the most important thing to remember when dealing with a debt collector is not to admit your debt. The second you admit your debt, you become unable to fairly defend yourself against the debt or any other loan you owe.

Maintain an innocent mentality until proven guilty, as many debt collectors will even try to charge you more than you legally owe. It's better to say nothing than to share too much information.

What happens if your debt is sent to a collection agency?

When your debt is transferred from the original creditor to a collection agency, a specific protocol is followed, and different scenarios are possible.

The first thing you're likely to receive is a notice before debt collectors make direct contact with you. This notice sets out key information about the debt you owe, including:

• Name of collection agency
• Name of original creditor
• The amount of money you owe

Once this information has been communicated to you, you are then required to rectify your debt and repay your loans or any sums owed to you. If you are unable to repay the debt, there is a possibility of negotiation to reach an agreement:

• Offer to pay a lump sum
• Examine programs to help people in difficulty
• Negotiate a payment plan
• Consider debt consolidation loans

If, after considering all your options, you are unable to reach a negotiation that works for all parties involved, the collection agency's next steps could be:

• Subpoenas
• Ongoing collection attempts
• The agency abandons your file (best-case scenario)

5 tips for dealing with collection agencies

Now that you're fully aware of the processes and protocol involved in debt collection, here are a few tips for dealing with debt collectors:

1. Effective communication

Clear communication is essential to ending your business amicably with collection agencies. Maintaining a dialogue with debt collectors presents you as a reasonable person, which encourages them to work with you rather than against you. While it's important to be careful about the type of information you share, it's equally important to maintain a fluid conversation with them.

2. Don't be intimidated

A terrifying image of debt collectors is pre-established to scare you into paying without question; don't let them intimidate you. Take the time to review your account, credit and debt so you're not terrorized by illegitimate fees or interest. What's more, you may even be able to dispute the debt if you calmly examine what you're really dealing with.

3. Check chronology

If you fully understand where your debt comes from, you should be able to tell how long it's been outstanding and, more importantly, how far it's progressed since its inception. Credit bureau policy guarantees that any debt with six or more years of inactivity will be automatically eliminated from your credit report.

So there's no point in paying off a debt that won't affect your credit report in the near future-you could save a lot of money by keeping this in mind.

4. Write everything down

It is very important that all your dealings with the debt collection agency are in writing. By limiting yourself to written communication, you have proof of all your conversations.

If you negotiate a smaller repayment and are then reprimanded for not paying your original debt in full, without your negotiations being in writing, you can be sued, which could affect your credit report and further deteriorate your credit score. To protect yourself, make sure everything goes through official channels and that you have everything in writing.

5. Setting the record straight

Make sure you know your credit history, what you owe, your debt schedule and any other information related to your loan. This will help you make sure you're not overburdened, and find out if there are any payments you don't have to make. It's harder for debt collectors to intimidate you if you know your rights and have all the information about your debt.

Debt collection in Canada

There's a lot of false rhetoric about what debt collectors are legally allowed and prohibited to do. Fortunately in Canada, legislation is in place, with enforcement measures similar to those of the U.S. Federal Trade Commission, to ensure that your rights are protected and that debt collectors cannot abuse their power.

So what can collectors do and what can't they do?

What debt collectors can do

• In addition to contacting you, debt collectors have the right to contact your friends and family. However, they can only contact them to obtain your telephone number or address.
• There are specific times when you cannot be contacted. Monday to Saturday between 7 a.m. and 9 p.m. or Sunday between 1 p.m. and 5 p.m.
• If you don't pay and the collectors want to put pressure on you and go further, they can take you to court.

What debt collectors can't do

• Collectors cannot contact you during the vacations.
• They can't encourage someone you know to pay your debts for you.
• They may not display aggressive behavior. This includes bullying tactics and abusive language.
• Use misleading or false information.
• Debt collectors cannot contact you on your cell phone, unless you have provided them with this number.
• Some Canadian provinces limit the frequency with which debt collectors can call you. Check to see if local legislation applies to you.
• Debt collectors can't go ahead with lawsuits, wage garnishment or jail time without first taking you to court and winning.

Collectors should always go through the proper channels, demonstrating non-aggressive behavior when trying to obtain refunds. Keep this in mind when dealing with them; you still have autonomy and power in these situations.

The ultimate goal is to reach an agreement with your creditors or the collection agency in order to find a solution as quickly as possible and avoid any further damage to your credit report and credit rating.  

If you don't know how to manage your debt, there are different solutions to suit your situation and needs. Please do not hesitate to contact Groupe Serpone if you would like to find out more about our services.

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