Dealing with Debt Collectors: When to Use Bankruptcy

Federal and state laws moderate the behavior of debt collectors. Debt collectors must obey the law when engaging in debt collection practices. Although laws protect debtors from abusive tactics, it does not eliminate the debt. In some cases, rather than deal with debt collectors, it may be best to file for bankruptcy if you are not judgment proof and you are unable to repay creditors.

Fair Debt Collection Practices

The Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. § 1692) prohibits a debt collector from using abusive behavior to collect a debt. The Act applies to debt collectors at collection agencies, companies that purchase consumer debt, and to lawyers that routinely collect debt. The Act, however, does not apply to the original creditor. State fair debt practice laws may apply to original creditors.

The Act prohibits covered debt collectors from engaging in abusive or unfair tactics when attempting to collect a debt. This includes harassment, using false or misleading statements, calling during certain hours, making threats, and using unfair collection practices, like sending a postcard or adding fees or interest not allowed by the original debt.

Under the Act, the debtor has the right to tell the collector to stop all contact. The collector can only reengage in contact to tell you that they plan to sue to recover the debt. If the collector violates the Act, the debtor may sue for damages in federal or state court and file a complaint with the Federal Trade Commission (FTC). A debtor may be able to recover actual damages and up to $1,000 in damages. A violation of the Act does not eliminate the debt.

Court Judgments

After a debt remains unpaid for a substantial period, if you owe a large sum, the debt collector will likely file a lawsuit against you. In many cases, the collector will obtain a money judgment. This means that the debt collector can garnish your wages. The debt collector can take 25 percent of your net wages.

Bankruptcy: A Fresh Start

If you are deeply in debt or have a money judgment against you, the best option may be to file for bankruptcy. Bankruptcy will eliminate all debt eligible for discharge. In Chapter 7, a discharge, which usually only takes a few months, can eliminate unsecured debt, judgments, and some tax debt. A Chapter 13 bankruptcy allows the debtor to repay creditors in a payment plan. Once the debtor completes the plan, the remaining debt eligible for discharge will be eliminated.

When to Get Legal Help

If you have fallen behind on your bills and you are unsure of the best way to deal with debt collectors, a bankruptcy attorney may be able to help. An attorney can give you advice on the bankruptcy process and can offer guidance on other ways to handle your unique situation.