Know Your Rights in Debt Collection

A wave of post-pandemic debt collection is coming. Here's how to dispute a debt and protect your assets.

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When the pandemic shut down travel in March 2020, Lew Moore gave up the lease on his Nashville, Tenn., apartment, which he had been renting out as an Airbnb since getting married a few years earlier. Moore, 51, sent a message through the apartment building's secure portal and figured he would lose his deposit and that would be the end of it. But a few months later, a debt collector called, claiming he owed $3,000 even though his $1,400 apartment was on a month-to-month lease. "There were all these fees, and none of that was in the lease," he recalls.

Moore contacted a consumer law firm, Sue the Collector, which successfully sued the collection agency for violating his rights. The debt was vacated, and he received a $1,000 check for damages. "They were trying to collect a debt in an improper manner. They were trying to collect a debt that wasn't owed," Moore says. "There were several strikes against them."

In the aftermath of the pandemic, a wave of bad debts and associated illegal collection practices is building. "Debt collection lawsuits are exploding right now," says Jarred Dean Johnson, founder of Sue the Collector, based in Franklin, Tenn. "In the next two years, we're going to be swamped." Marc Dann, a Cleveland-based consumer attorney and former Ohio attorney general, is preparing for the onslaught by training consumer lawyers all over the country. "The chaos that's going to follow the COVID experience is going to require an army of consumer protection lawyers," Dann says.

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Debt buyers purchase old debt from the companies that consumers originally did business with, often for pennies on the dollar, and aggressively seek repayment. In 2020, the Federal Trade Commission (opens in new tab) recorded 82,700 consumer complaints about debt collection, up 10% from the previous year.

Federal law stipulates what collectors can and can't do in pursuit of a debt, lines that some collection agencies cross. For example, under the Fair Debt Collection Practices Act, they can't harass, threaten you or lie, and they can't spread false credit information about you or engage in other unfair practices. If a violation of the law is proven in court, individuals can collect up to $1,000, along with compensation for their attorney's fees and actual damages.

Know Your Rights

Even if you do owe money, debt collectors must notify you and provide information about the debt and your rights to dispute it. If you don't recognize the debt or believe the amount is wrong, you have 30 days to dispute the claim after a collection agency notifies you. Always do so in writing by certified mail, says April Kuehnhoff, a staff attorney at the National Consumer Law Center. The Consumer Financial Protection Bureau (opens in new tab) lists sample letters to debt collectors (opens in new tab) that you can use. "The worst practices we hear about are people collecting what we call phantom debts, accounts that don't exist. They say, 'If you don't pay me, then the police will show up at your door or immigration will show up at your door,'" Kuehnhoff says. "That is a real red flag that you may be dealing with someone who is a fraudulent actor and perhaps not even a real account."

Collectors can't call before 8 a.m. or after 9 p.m., misrepresent themselves or use abusive language. They can't send a recorded message to your cellphone without your permission or autodial your land line if you're on the do not call list. If you ask them in writing to stop contacting you about a debt, they must comply. Unless debt collectors don't know how to reach you, they can't contact a third party, such as an employer or family member. Collection agencies can't tell a third party that you owe a debt, send you a postcard or mail letters in an envelope marked to indicate debt collection. Any single violation of these restrictions could entitle you to statutory damages up to that $1,000 limit.

A growing problem is collectors pursuing debts that are barred from collection because of state statutes of limitation, which can vary from three to 10 years. If you make a partial payment on a debt that's too old to collect, you risk restarting the clock. Collectors may trick you into doing that by offering to "settle" an old debt. "The word 'settle' is closely related to lawsuits. It carries with it the idea that you can be sued," says Kuehnhoff, who adds, "This can all be very misleading for consumers."

Be skeptical of calls and emails from collectors, says Dann. "Ask for verification of that debt before you even consider making payment on something that was overdue," he says.

A consumer attorney in your state can advise you about the statute of limitations or possible violations of federal law and will take cases on a contingency basis. You can find someone through the National Association of Consumer Advocates (opens in new tab) and learn more from the National Consumer Law Center.

Most important: Don't ignore anything from a court about a debt because if you fail to respond or show up as required, you risk a default judgment against you. Michigan prosecutors in April charged three lawyers with fraud for allegedly falsifying documents to show that process servers had contacted debtors, when in fact they hadn't been notified of upcoming court dates. Before these bad actors were charged, they won judgments worth more than $1 million against 1,000 people, prosecutors say. "Debt collection companies have found that it's much easier to collect from a debtor who doesn't show up in court; they can garnish your wages, have a sheriff seize your car," Johnson says.

Death and Debt

Heirs and executors should also be wary of anyone seeking to recover losses from an indebted, deceased family member. "The debt collectors will routinely call the spouse and say you have to pay all this," Johnson says. Chances are it isn't true. "Debt collectors lie. They love to collect debts no matter who owes them."

Collectors may prey on your sense of obligation for a deceased family member, says Dave Philipps, an attorney based in Palos Hills, Ill. "The elderly are particularly susceptible because they believe it's some moral failing on their part that they can't pay their debts," Philipps says. People should not feel that way, he says. "There's not a moral component to debt. It's dollars and cents."

If your spouse dies, a joint checking account becomes your property, and joint debts become your obligation. But loans, credit cards and other debt obligations held only in the deceased's name are a different story. "The only time the widow has any obligation to pay the debt is if she is co-responsible for the debt," he says. "You can tell them to file a claim on the estate."

If you're the executor for a family member's estate, it falls on you to administer all claims against the estate, including old debts. Your family member may have racked up extensive medical bills or other end-of-life expenses, and those creditors rightly have a claim against the estate's assets. Once those assets are exhausted, however, it's unlikely that you'll be personally responsible for those obligations unless you co-signed on the original loan.

An exception is the doctrine of necessaries, a legal principle that holds someone responsible for essential living expenses a spouse incurred. "There can be different rules in community property states as well," Kuehnhoff says. Executors should be skeptical and ask lots of questions if they're approached by someone about this, she says, although the claims "can be tricky to figure out."

Assets that are not part of the estate, such as irrevocable trusts and qualified retirement accounts with a named beneficiary, for example, are generally off limits to creditors. "Life insurance is not available to creditors for payment of debts of people who passed away," Dann says. "If your house has a right of transfer on death, that automatically vests in the heir's name. That's not available to pay debts unless there's a judgment lien on the house already."

Never make payment arrangements over the phone, no matter how official or threatening someone sounds or the pressure tactics they use. Keep good records of phone conversations, consult experts and above all, make decisions about repayment when you're in the right frame of mind. "There are a surprising number of really powerful consumer protection laws that are available to everyone in the country," Dann says. "You're not just at the mercy of someone trying to collect money from you."

Contributing Writer, -

Katherine Reynolds Lewis is an award-winning journalist, speaker and author of The Good News About Bad Behavior: Why Kids Are Less Disciplined Than Ever – And What to Do About It. Her work has appeared in The Atlantic, Fortune, Medium, Mother Jones, The New York Times, Parents, Slate, USA Today, The Washington Post and Working Mother, among others. She's been an EWA Education Reporting Fellow, Fund for Investigative Journalism fellow and Logan Nonfiction Fellow at the Carey Institute for Global Good. Residencies include the Virginia Center for the Creative Arts and Ragdale. A Harvard physics graduate, Katherine previously worked as a national correspondent for Newhouse and Bloomberg News, covering everything from financial and media policy to the White House.