Are creditors at your door? Tips for keeping them at bay

On the Money
From the  June 14, 2002 print edition

During trying economic times, companies and individuals can often find themselves with more debt than can be comfortably handled. In turnaround situations, the income stream of a company can fall below the required payments on its debt. For individuals, this usually means they can’t make their minimum payments on credit cards. In financial circles, monthly payments are called debt service. When debt isn’t serviced, creditors are naturally less than thrilled.

If the debt goes unserviced for too long, you will no doubt have the opportunity to make new friends who work in the collection industry. Here are some tips, insights and suggestions for successfully handling creditors and collectors.

Don’t take it personally. It will help you to remember that a collection call, no matter how unpleasant, is a business transaction. Not an assault on your personal character. However, it is a frequent practice for collectors to attempt to intimidate and scare you. Remember that many collectors are paid based upon what they collect. Therefore, keep all conversations to the point, professional, and focused on the debt; not irrelevant passive-aggressive personal invective.

Return every phone call. Federal law prohibits collection calls before 8 a.m. and after 9 p.m. Nevertheless, many hard-hitting collectors would like to catch the debtor late in the day or early in the morning when they may be more susceptible to emotional pressure. Let the answering machine work for you at those times. But, when you’re ready, emotionally detached, and prepared to deal with it, return each and every call, even if it’s just to say, “I have nothing today. ” Not responding to phone calls will escalate your account through the collection process and the situation will quickly become out of control.

Remember your rights. In 1996, the Fair Debt Collection Practices Act (FDCPA) was enacted. It specifies that debt collectors cannot harass you. Specifically collectors cannot: call your office, call your home before 8 a.m. or after 9 p.m., address you in an abusive manner or call family or friends in an attempt to collect the debt. If you have an attorney, the collector may not contact anyone other than your attorney.

If you do not have an attorney, a collector may contact other people but only to find out where you live and work, but usually not more than once. In most cases, the collector is not permitted to tell anyone other than you and your attorney that you owe money. These protections should be held in your mind, not used as some arsenal to win a battle. After all, you do owe the money.

However, if there continues to be a problem with collectors contacting other people concerning your debt, you can file a complaint with The Federal Trade Commission, Sixth and Pennsylvania Ave., NW, Washington, D.C. 20850, phone: 202-326-2222.

You have already paid for some conciliation. Without going into an extensive dissertation on interest rate theory, bear in mind that unless you are paying about 1.5 percent on your loan, the creditor expects some delinquency. The risk structure of interest rates includes allowances for the creditor’s expected delinquency, liquidity, maturity and default risk. If your loan has an interest rate greater than 9 percent and you have a history of prompt payment, you have already paid for your delinquency.

This thought might be helpful in working out a plan for the creditor to receive their real rate of return.

Be ready to make a deal. Most creditors will be glad to negotiate a lower amount on the total bill you owe because it is better for them to get some money than none. Even if the loan is secured, it is often more desirable on the part of the creditor to renegotiate the loan than to seize and liquidate the collateral. This is particularly true with hospitals, credit card issuers and automobile dealers.

Tell the truth. Collection situations are never cheerful. As tempting as it may be to make a promise based upon a hopeful event, it will not help the situation at all. It is far better to say “I don’t know” than to say “Oh, the money will be coming next Tuesday.” Or even worse, “The check’s in the mail.” (With the advent of electronic processing, many collectors will tell you that the mail is so slow, your payment cannot possibly reach them in time, so just do an electronic transfer.)

Based on truthful statements, creditors have suspended debt service for up to six months; allowing the company to work out of the difficulty. At the end of the day, the only people that will fail in business are those who are incapable of adopting an approach of rigorous honesty.

As our economic climate improves, so will our ability to service debt. By invoking the items above you will be able to manage out of tough times and be ready to exploit the opportunities of the next surge in fiscal activity.

© C. Stephen Guyer for American City Business Journals Inc. All rights reserved.