At times when I see an article online regarding delinquent debts and debt collections, I often wonder how many of these "experts" have actually been through delinquencies and collections, or even the "Full Monty" – i.e. court.
Recently BankRate.com published a presentation written by Janna Herron called "Debt Delinquency Timeline: What to expect". Some of what is in the presentation leaves me wondering what these "experts" actually know. And by now you’re probably wondering what gives me the gall to question BankRate.com. Well, I’ve been through not only collections, but I’ve been to court. Thankfully I’ve not had any of my debts turn into judgments or garnishments, but I’ve studied extensively what could have happened to me simply to be informed, not only informed of what might happen, but informed of my rights.
Further their definitions of "past due" don’t match what you would expect or what most creditors use. For example they define 30 days past due as: "You just missed your payment due date and are 30 days behind the start of the billing cycle." This isn’t 30 days past due, this is just a missed payment. The proper definition of 30 days past due means 30 days past the due date with no payment.
In this article, when I say "x days past due", I mean x days past the initial due date with no payment being made. The billing cycle has no bearing on how "past due" your account is. The due date is what is important.
Let’s go through this timeline one piece at a time.
Introduction: Delinquent debt won’t simply go away
Some may be tempted to try to outrun the debt by dodging collection calls and throwing away creditor letters. But sooner or later, your debt will find you.
This should be plainly obvious to anyone. Many debt collection agencies and collections departments are staffed with people with access to the kind of information that can be used to track you down. Many debt collection agencies are part of a law firm as well: people who will see debt collection through from start (initial communication) to finish (lawsuit) if necessary, and these are people who do it for a living.
Keep that in mind if you’re thinking of abandoning a delinquent debt, be it a credit card or mortgage.
Stage 1: 30 days past due
Again their definition of 30 days past due is only a few days past the due date:
You just missed your payment due date and are 30 days behind the start of the billing cycle.
According to Bankrate’s presentation, you can expect this:
Lenders likely won’t sound any alarms, but instead will use so-called soft tactics to get your payment in. They will call, email and send letters, but all contact will be friendly and helpful, says Bruce McClary, media director of ClearPoint Credit Counseling Solutions. McClary has also worked as a debt collector. The creditor may also contact the credit reporting bureaus to report your account as delinquent.
This is reasonably accurate within the proper definition of "30 days past due". What BankRate tries to imply is that you will get phone calls if you’re only a few days past due. With some creditors, you might, but I highly doubt it is common practice – I’ve worked with numerous creditors, companies and services and never have I been called when only past due a couple days. Instead they will typically wait at least 14 days, if not a full 30 days (that’s calendar days, not business days) past the due date before contacting you if you have not made a payment by then.
So if you fall 30 days past due, expect at least a phone call from the creditor in question. If you have just forgotten about the payment and can afford to make it, then make the payment as soon as possible – online options will get them paid quicker. Or they may ask for authorization to make the payment for you – this option is entirely your choice, but it may require you providing account information over the phone. If you make the payment online while they are on the phone, provide them with the confirmation number so they know you did make the payment. If you make the payment but they still call you back, answer the call and inform them a payment has been made or mailed.
If you are unable to make the payment, this is your opportunity to discuss options. Don’t ignore the phone calls. It may seem unpleasant talking with them when you are unable to pay your bill, but the sooner you talk to them, preferably before it becomes a problem, the better it will be for you in the long run.
One thing to bear in mind: many financial companies have automated systems that check account statuses on a daily basis. If end of business approaches on day 30 after your due date and you have not made a payment, your phone number will be moved into an automated queue for the customer support department, who will then call you. If they are unable to reach you, your phone number will be rotated back into the queue. Depending on the creditor, you may receive another phone call later that day, the next day, or not for a few days, but they will continue phone call attempts, escalating in frequency, until they get ahold of you or they have to turn the account over for collections, whichever comes first.
Any time you make a payment that is late, you subject your account to late fees. If you are late on a credit card account, any introductory rate goes away and your existing rate is escalated to a penalty rate. Your account will also be reported as delinquent to the credit bureaus.
Stage 2: 60 days past due
Their definition of "60 days past due" is actually 30 days past due (emphasis added):
It’s been a month since your due date and two months since the billing cycle started.
According to BankRate’s presentation, you can expect this:
Your credit card account likely will go into collections status and will be turned over to a department that specializes in obtaining delinquent debt, says McClary. The friendly phone calls, letters or emails will turn a bit more aggressive and less positive. The creditor will warn you that your account could go into serious delinquency if you don’t resolve the situation. Also, the creditor may contact the reporting bureaus to report your account as delinquent if it hasn’t done so already.
Every 30 days your account is delinquent, a report is sent to the credit reporting agencies. Much of that is likely automated.
But much of what Mr McClary says is more to be expected at 90 delinquency, not 60 days, and certainly not 30 days delinquency. No creditor of which I’ve read will turn your account over to an internal collections department at just 30 days past due. Instead the delinquency is likely to be handled by customer service representatives, as mentioned earlier, but it won’t be turned over to an internal collections department until the account becomes much more delinquent.
At 60 days delinquent, you can expect the phone calls to become more frequent (several per day) and a little less friendly and more pressing, but they’re still willing to work with you.
However the creditor may "turn off" the account, meaning start denying any transaction requests against it. If this is a utility, you will start getting threats of the service being shut off.
If you have not yet been talking to the creditor by this point, you need to start doing so. Again, the sooner you start working with your creditor, the better. The longer you wait, the less willing they become in working with you, and if you haven’t talked to them by this point, expect to provide a lot of explanations, and expect them to be less willing to discuss a variety of options as their main concern at this point is getting your account current within your contract.
Stage 3: 90 days past due
If you go three months without making a payment, things are now dire. Many creditors will turn your account over to an internal collections department, while others will still keep the account with a customer service department until the account is to be charged off. If this is a utility, service has been shut off by now or will be shut off within a couple days of reaching this point. In the case of credit accounts, the account has likely been disabled and credit requests against it are being consistently rejected. Your options are now limited.
According to BankRate, this is what you can expect:
More aggressive phone calls, emails and letters from your creditor. There’s a good chance your creditor will shut down the credit card account and you won’t realize it until you are denied in a store. That should prompt you to call the company and work out a solution. The creditor is most likely reporting the delinquency to the credit bureaus. At the same time, late fees and interest fees add to the total amount you owe.
If the phone calls haven’t escalated to multiple times per day at 60 days delinquent, they certainly have by the time you reach 90 days delinquent. And by this point with many creditors, if you cannot bring the account up to date in a short amount of time (read: less then 30 days), they’re going to be much less willing to work with you. With many creditors, 90 days delinquent is your last chance to keep the account from turning over to internal collections. In the case of most secured loans, such as for a car or boat, this is also your last chance to avoid repossession, so negotiation is absolutely necessary to save your property.
Once the account is turned over to internal collections and any security for the loan repossessed, you’ve lost out on virtually any options of recovering the account. Now your option is to set up a payment plan on the existing balance, against which they may still assess interest and late fees.
The account is now a black mark on your credit report: not only is it reported as 90 days past due, but it is also reported as being in collections if it has been turned over to a collections department. If there has been a repossession involved, that has also been reported and is now on your credit report.
Stage 4: Charge-off status
A creditor may not charge-off an account until it has been delinquent for 180 days for open-ended (revolving) credit accounts. For closed-end accounts, meaning a loan with a fixed term such as a personal loan, the charge-off minimum is 120 days past due. That is the minimum standard established by the Federal Deposit Insurance Corporation under what is called the "Uniform Retail Credit Classification and Account Management Policy".
When an account is "charged off", the creditor is deeming the account as not collectible. If the account has not yet been handled by an internal collections department, it will be turned over to one, if one exists. Otherwise it will be placed (assigned) with a third-party collection agency, and you will start receiving phone calls and written notices from them.
Once the account is turned over to a third party collection agency, your options become a little bit more open, and sometimes for a delinquent account, it may be in your best interest to have the account placed with a collection agency. While the account is handled by the original creditor, they are subject to only certain provisions of the Fair Debt Collection Practices Act (15 USC 1692). Third-party collectors, however, are subject to the entirety of that law, including an additional option that can delay collections activity on the account called "debt validation".
Note, however, that I said this will delay collections, not stop it. Well in some cases it might stop collection activity because a debt collector must stop all collections activity on the account until they can satisfy the validation request, which, at a minimum, requires they verify the debt account and amount with the original creditor. If they can’t do that when it is requested, then they cannot collect on the account. But you have only a limited amount of time to take advantage of debt validation, so be sure to not squander this opportunity.
Contrary to popular belief, debt collectors are actually relatively open for negotiation. Their only concern is collecting the debt, somehow, as that is the only way they get paid. But you’ve got to be able to give them something. Don’t ignore their letters and phone calls – if you’re unable to negotiate for payment at that time, say so. Some debt collectors may even send an offer with their first notice by mail. And if that offer is affordable, then take advantage of it, but only after going through validation. Then after they validate the debt, ask if they’d be willing to renew the offer, or make an identical offer to them with a payment included that is in line with your offer.
But don’t ignore the debt collector. Many debt collection agencies have lawyers associated with them, meaning if you ignore the debt collector, you will very likely be sued. If the debt collection agency is in a different state from where you live, they will place the account with an attorney in your area.
Stage 5: Court
If a debt collector has decided to sue you, you may receive notice of this in the mail ahead of the actual visit by the court representative. Now being sued does not mean you’re out of options. You can still negotiate and settle the debt out of court ahead of the court date provided on the summons. You can also do this at any point before a judgment is rendered.
But don’t ignore the summons. Definitely do not ignore this. Even if you settle the debt out of court, appear in Court on the date provided on the summons unless you receive a notice from the Court stating otherwise. You would think this is common sense, but you may or may not be surprised by how often people ignore it, probably because they are told by the debt collector that they can ignore it.
Now one thing the BankRate presentation mentions is a little inaccurate:
If the debt collector or creditor receives a judgment, then it may garnish your wages or seize assets such as bank accounts to satisfy the debt.
None of this can occur without a properly obtained order from the Court. This means once they receive the judgment, they have to file additional motions to receive permission from the Court for each thing they want to do: a motion to garnish wages, a motion to seize specific assets, and so on. I doubt they can seize the entirety of a bank account, though. Further State laws limit how much of your wages can be garnished – i.e. they cannot garnish so much of your wages that you are unable to live on what is left. As for seizure of assets, this also depends on the laws of the State in which you reside. One commenter on the Yahoo! mirror of this presentation implied that the creditor will seize everything you own to satisfy the debt:
I don’t know what credit card companies he’s been dealing with, but the ones that I have dealt with are NOT helpful in the slightest; this is because they don’t WANT you to pay your bills. They want you to stop paying, ignore the letters, be sued, don’t go to court, and here’s where the credit card companies start to get REALLY happy–if you don’t respond to the court notice, they will file a judgment against you, and be able to take all of your stuff–not just property, but your tv, furniture, etc.!
It makes me wonder what credit card companies he’s dealt with, and how willing he was to talking with them before his delinquency turned into a court summons. Further, I’d like to know what this person, who went by the name "C. Patrick" on Yahoo!, has to back up his statement, because the law doesn’t quite support what he’s saying.
A judgment is nothing more than the Court ordering you to pay the amount in question to the other party. You can negotiate payments with them on the judgment just like you could on the debt before it even got this far. However if you don’t pay the judgment, or negotiate a payment plan on it and stick with it, various legal remedies exist that can be used to secure payment on that judgment, but all options require they go through the Court, especially if they are going to garnish wages or attempt seizure of specific assets.
Yet many seem to believe that your creditor will just show up at your doorstep with a giant truck ready to cart everything you own off to the auction block, flashing the judgment in your face as tacit authorization. That would be grand larceny. Needless to say there is much misinformation floating around as to what creditors and credit card companies can do to recuperate what they are owed when there is a court judgment involved.
There is still plenty of misinformation floating around about what will occur if you fall behind on an account. What actually happens is going to vary from creditor to creditor, but what is reported in the BankRate.com presentation, however, is atypical of what someone is likely to encounter. What a creditor may do is also limited by the law. Yes, some don’t entirely follow the law, and that becomes the focus of "investigative reports" on your 10 or 11 o’clock news as well as the "television news magazines" on the various news channels.
The best defense you have against your creditors is to educate yourself on the laws in your State and the applicable Federal laws, as you are the best person to hold them accountable. Document everything when working with your creditors as well. Further, work with your creditors before you fall behind and you will find them willing to talk with you and negotiate something. The longer you wait, the more likely they it’ll be that they won’t accept anything less than paying in full, or paying in full with only a few payments.
Otherwise, do your best to keep your accounts current and you won’t have anything about which to worry.