If you miss several payments on a debt that you owe, it is more than likely that the debt will land in collections. This means that your creditor has sent your debt to a collection agency. Collection agencies will assign at least one collector to contact you in order to have the debt paid. Most collection agencies will either be assigned to collect on the creditors’ behalf, or they will buy the debt to collect. They will take any measures necessary within their power to collect – this will involve repeated collection calls, and even threats of legal action like wage garnishment or freezing your bank account in order to reclaim the debt owed. So, can I negotiate with debt collectors? In this article, we explore the possibilities around how to make a settlement with a collections agency, and how you can go about minimizing the impact of owing debts to your collectors. At Spergel, we have over thirty years of experience in helping Canadians to gain debt relief and protecting them from their creditors.
What is a collections agency?
When you are overdue on debts and miss your payments, you will receive communication from your creditors. Typically, this is the first stage of debt collection. Following this, if your creditor does not receive payment or sufficient communications from you, most companies will utilize their internal debt collection teams or hire an external collection agency or debt collector. Some creditors will choose to sell the debt to these companies; others will assign them with the task of collection. Their role is simply to take whichever measures they can legally to collect the debt they are owed. When contacting you, debt collectors and collection agencies must adhere to federal rules on debt collection. If the debt collectors are not regulated federally, they will need to follow provincial rules. No matter who you owe debt to, you will always be protected by either federal or provincial law that will determine how they can contact and communicate with you.
How to handle a collections agency
While there may be laws in place to prevent debt collectors or collection agencies from intimidating or harassing you, this kind of behaviour can still occur. After all, their main motive is reclaiming the money they are owed. By understanding the law around debt collection, it can be empowering for you to know what debt collectors can and cannot do. It will also make it easier when it comes to how to make a settlement with a collections agency. Here are a few tips for handling debt collectors:
- Know what to do when debt collectors call. Collection agencies cannot simply call you whenever they like. Are they allowed to be calling you at this stage? Debt collectors in nearly all Canadian provinces must first allow you to confirm that the debt is yours. Often, this is done by formally notifying you via mail or email that you owe the debt. At this point, you should check and ensure the information is accurate, and that you actually owe the debt.
- Check the statute of limitations on the debt. In Canada, there are laws that prevent a creditor from taking legal action against you once a certain time period has passed. After this point, wage garnishments cannot be pursued. The statute of limitations differs slightly by province, and although creditors cannot take legal action, they may still try their luck and continue to contact you to collect the debt. Should you acknowledge the debt or make a payment, the statute of limitations will reset.
- Know your rights. As a debtor, you have various rights. Firstly, you have a right to confirm a debt collector’s identity. You also have the right to be spoken to respectfully, and not harassed. For instance, they cannot call you non-stop, and must call within certain hours and not on holidays. You have a right to report them if they try to lie to you or manipulate you. You can contact the Consumer Affairs office in your province if you do not feel these rights are being respected.
- Learn what to say to a debt collector. Speaking to collection agencies can be a bit of a skill. They will ask you what appear to be harmless questions, but you will want to limit the amount of information you offer up. Giving too much detail about your circumstances can empower collectors to make assumptions about your spending, sometimes making them less open to negotiation. Avoid confirming any information they may think they know about you also.
How to make a settlement with a collections agency
Having an account in collections can remain on your credit report for a number of years, having a negative impact on your credit score too. For this reason, it is important to get it sorted as quickly as you can. Some debt collectors and collection agencies may be willing to negotiate to accept a smaller amount than the debt you owe. They might wish to accept a partial payment over going through an extended collection process. Collection agencies deal in quantity, and so for many it is better to settle multiple debts at a reduced figure than let one account simply drag on. You should only ever agree to something you can afford, so make sure you budget before entering negotiations with a collection agency. Although a negotiation with a debt collector is never guaranteed, here are some tips on how to make a settlement with a collections agency:
- Suggest a partial repayment. You should begin your negotiations with a debt collector low, as they will likely try to adjust it. Make it clear that you are unable to pay the full amount. Try offering 30% of your total debt – although optimistic, you have plenty of room for counter offers depending on their reaction. While many collection agencies will want to collect the full amount of their debt, some will be willing to reduce it slightly in line with your proposal.
- Request a payment plan. You may wish to spend some time pulling together a budget. You can figure out what you think you can afford to pay off your debts each month, and propose this to your debt collector. If you had been struggling making your full debt payments each month, you may be able to negotiate a reduced monthly payment with your collection agency, or to pay it back over a longer period of time.
- Get your agreement in writing. Before you fulfil the terms of any payment agreement you may be able to negotiate with your collection agency, you must ensure you get any settlement terms in writing. Sometimes, paid debts can resurface with other collection agencies trying to collect. If you have written documentation in place that you have settled a debt, it can save any potential headaches. Once you reach a deal, ensure that upon payment your debt is cleared and you will be left alone.
If you are unsure on how to make a settlement with a collections agency or feel uncomfortable negotiating yourself, speak to a reputable Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals legally able to file all forms of debt relief in Canada, making them a great port of call if you are struggling to repay your debts. They will review your financial circumstances and recommend an appropriate form of debt relief for you. Popular forms of legal debt relief in Canada include filing a consumer proposal or bankruptcy. Consumer proposals are a bankruptcy alternative that can reduce your debt by up to 80% while enabling you to keep your assets. Bankruptcy is for those in need of a fresh financial future, who wish to have all of their unsecured debts cleared. Both these forms of debt relief trigger a stay of proceedings, which offers you full protection from your creditors and collection agencies. Licensed Insolvency Trustees can negotiate with your creditors on your behalf, as well as offering advice on topics like money management and credit counselling.
If you want to learn more about how to make a settlement with a collections agency, book a free consultation with an expert Licensed Insolvency Trustee at Spergel. Our team of financial professionals have helped over 100,000 Canadians on their journey to debt relief. We will review your financial circumstances and recommend the best course of action for you. Reach out today – you owe it to yourself.