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How To Deal With Debt Collectors (When You Can’t Pay)

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In a Nutshell

If you’re receiving calls from debt collectors about unpaid debt, there’s an obvious way to make it go away: Pay off the debt in question. But what if you’re at a point where it’s impossible for you to pay? It might seem like you’re out of options, but don’t despair — there’s a way out of this.

Written by the Upsolve TeamLegally reviewed by Attorney Andrea Wimmer
Updated December 11, 2021

If you’re receiving calls from debt collectors about unpaid debt, there’s an obvious way to make it go away: Pay off the debt in question. But what if you’re at a point where it’s impossible for you to pay? It might seem like you’re out of options, but don’t despair - there’s a way out of this.

File for Chapter 7 Bankruptcy

Depending on the type of debt you’re getting calls about, there is one way to make it all go away: File for Chapter 7 bankruptcy and discharge the debt. It might seem like a nuclear option, but bankruptcy isn’t necessarily the end — it’s a fresh start. 

Bankruptcy can give you a fresh start by clearing your unsecured debt with a bankruptcy discharge. A discharge can cover credit card debt, past-due medical bills, old cell phone bills, back utility bills, old debts from store cards, and certain personal loans. The U.S. Bankruptcy Courts reports close to $50 billion worth of nonpriority unsecured debt was scheduled in bankruptcy cases in 2018 alone. 

Not all unsecured debt can be discharged through a Chapter 7 bankruptcy. If you have child support, alimony, taxes, or a government student loan, the debt won’t be discharged through a Chapter 7 bankruptcy. Those debts are considered non-dischargeable—debt that doesn’t go away in bankruptcy. When you file bankruptcy, your unsecured debts are discharged, meaning they go away forever.

When you file your petition for bankruptcy, you’ll get an automatic stay. An automatic stay tells debt collectors and credit collection agencies to stop collecting. It will stop collection agencies, wage garnishments, most civil lawsuits, evictions, foreclosures, and utility shut-offs—at least temporarily. Once your debt is discharged near the end of the bankruptcy proceeding, those debt collectors are barred from contacting you. Bankruptcy won’t stop collection activity from the IRS, child support creditors, or criminal court matters, but you’ll be in a better position to manage those debts. 

You have a few options with secured debt during a Chapter 7 bankruptcy. You can pay remaining loan installments to keep the property, let the creditor take the property, sign a reaffirmation agreement, or file a Chapter 13 bankruptcy and enter into a repayment plan. If you aren’t low-income, the court may tell you that you need to file a Chapter 13 bankruptcy. 

When you file for a Chapter 7 bankruptcy, you must pass a Means Test to see if your personal financial situation allows you to pay your debt. In a Chapter 7 bankruptcy, your unprotected assets, if any, are liquidated to pay your debt, and in a Chapter 13 bankruptcy, you make a repayment arrangement. If you’re low-income and have few assets, you’ll probably qualify for a Chapter 7 bankruptcy. 

A Chapter 7 bankruptcy will be on your report for ten years, longer than a Chapter 13 bankruptcy which stays only seven years. Your credit score will take a hit when you file bankruptcy, but if you’re smart about it you can rebuild your credit and achieve a higher score than before your case was filed. Bankruptcy is not a quick fix for your credit score, but it is a solution that puts you on a steady foundation. 

If you have complicated finances, assets you’re concerned about, or if you hate paperwork, you’ll probably prefer to find an attorney to help you with your bankruptcy. If you have limited income and few assets and are comfortable filling out forms and following detailed instructions, you can file bankruptcy by yourself. Upsolve has a free website application to help you with the bankruptcy process. 

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Know Your Rights

While it’s perfectly legal for creditors to send debt collectors after your unpaid debt, you have the right to not be harassed by debt collectors. You can’t make the debt go away overnight, but if you know and assert your rights, you can make the situation a little less painful. 

Debt collectors have to follow laws established under the Fair Debt Collection Practices Act and state laws. Debt collectors don’t always follow these laws and they get away with harassment even after a statute of limitations has passed because consumers aren’t aware of the laws. 

A statute of limitations is a type of law that sets deadlines. In debt collection, it limits the amount of time someone has to sue you for debt. State laws are different, but the range of time to sue is usually 4-10 years after the last payment was made. The clock usually starts ticking when the first payment is missed, but additional payments or actions can end up creating a new starting point. If you get sued by a debt collector, you can talk to an attorney to see if the statute of limitations has passed. They can also let you know if the FDCPA was violated.

The laws under the Fair Debt Collection Practices Act (FDCPA) cover debt for your house or car, household debt, medical debts, and credit card debts. Business debt is not included under the FDCPA. The companies the FDCPA laws cover are debt collection agencies, debt collection companies, and companies that buy debt. These are not the companies that gave you your loan, these are the companies trying to collect the debt from the loan. Banks, mortgage companies, car dealers, and credit card companies usually outsource debt collection. 

Under the FDCPA, debt collectors can’t call you before 8:00 a.m. or after 9:00 p.m. Also, if they know a certain time is inconvenient for you, they are not allowed to call you then. Have you ever gotten a call from a bill collector at work? You can stop them. 

To stop a debt collector from contacting you, first, tell the debt collector on the phone that they are not allowed to contact you at work or home and that it is inconvenient. If you can’t get personal phone calls at work, make sure you also tell that fact to the bill collector. Second, you’ll have to send a letter to the debt collector. The Consumer Financial Protection Bureau has sample letters you can use, or you can write your own. Be sure to include the account number for the debt and the date and time you were called. Specifically, tell them to stop all contact at your address and phone number. You can also mention that you dispute the debt and require a validation of the debt. You can dispute all or part of the debt separately, and you’re entitled to debt validation.

Under the FDCPA debt collectors must inform you that you can dispute the debt. When debt collectors reach out to you to collect money, they’re supposed to let you know the name of the creditor, the amount of money owed, and inform you that you can request the information on the original creditor. 

Once they do this, you can dispute all or part of the debt within 30 days. It must be in writing, and you should request the original creditor’s contact information. Chances are the debt collector has one address, and the original creditor has another. You’ll want the original creditor name and address in case you need to negotiate a settlement or file bankruptcy. Once your letter is received, the debt collection agency must end their collection calls and letters to collect the debt until they answer you. 

By law, debt collectors cannot harass you, your family members, your neighbors, or people on your contact lists. The debt collection agency can still serve you with legal papers, and they can still report your debt to credit reporting agencies. If you have an attorney, the debt collection agency must stop calling you and mailing you letters, they must send them to your attorney instead. If you decide to use an attorney to help you with your debt or to file bankruptcy, just give the debt collection agency your attorney’s information.

If a debt collector is harassing you, lies to you, uses obscene language, threatens you, or abuses you physically or verbally, there are legal actions you can take. The FDCPA lists standards of behavior for debt collection agencies. If they don’t follow the rules in the FDCPA, you can sue the debt collector. You’ll have to file a civil case in federal court, as the FDCPA is a federal law. If you use an attorney, a guilty debt collection agency will have to pay the attorney fees. You’ll have to file within a year of the violation, so be sure to document the date of the violation. Violations include threats to arrest you and pretending to be an attorney. 

Whether you sue the debt collector or not, you can still report the violation to your state's Attorney General through your State Consumer Protection Office. This can help others too. The state Attorney General’s Office will take notice if a certain debt collector is reported several times. The Bureau of Consumer Financial Protection (CFPB) reports that around 8,000 complaints are made a month about debt collection. Keep in mind, state laws and federal laws apply to debt collection, and laws may differ by state. Your state’s Attorney General’s Office will be able to direct you, or you can call the Consumer Financial Protection Bureau (CFPB)  hotline at (855) 411-2372 to report violations or receive assistance. 

Negotiating Debt Settlement

Once you know how much you owe and who you must pay, you may be able to negotiate a debt settlement. A debt settlement negotiation option allows you to make a partial lump-sum payment on your debt and have the rest forgiven. Your credit report will show that your debt wasn’t paid in full—which won’t be great for your credit score. 

Your total savings will depend on your personal financial situation, but financial advisors report people using the debt settlement option pay anywhere between 50% to 80% of their total debt. Not counting additional fees, that means you could have between 20% to 40% forgiven. You’ll have to include any debt forgiven over $600 in the calculation of your taxable income

Through a debt settlement company, you can develop a payment plan to pay off debt and have someone else negotiate. The company will also help you set up an escrow bank account if you’re making monthly payments toward a settlement. 

If you decide to work with a debt settlement company, it’s best to talk to an accredited credit counselor first. The credit counselor will be free, but there will be fees with a debt settlement company, and the company must reveal all of its fees first. Studies have shown that you should end up with over $2 in savings for every $1 you spend, but fees from the debt settlement company could be between 15% and 25% of the amount you have to pay on your debt. 

Be mindful that there are a lot of so-called debt-settlement companies that don’t have the best interest of their customers in mind. So, remember that you can also engage in debt settlement negotiations on your own.

Settling Your Debts on Your Own

If you’re not afraid to bargain, you can negotiate with your creditors. Just don’t expect it to be easy or be done with a single phone call. First, make sure you know the maximum amount you can afford to pay and the exact date you can make your payment. Preparation is the first step to a successful negotiation. Don’t start negotiations with your maximum payment. Knowing that most settlements are between 50% and 80%, it won’t hurt to start with 10%-40% of your debt. It’s also important to know when to stop. You don’t want to promise to pay 80% if you can only afford 50%. 

You can call your creditor or debt collection agency directly, or you can just answer next time they call. Write down the date and time of the call, and the name of every person you speak with, in the order that you speak with them. Ask each person you speak with if they have the authority to accept a debt settlement agreement. Tell the debt collector that you’d like to settle your debt and you can pay 10% (or whatever amount you decide to start with) and tell them the date you can make your payment. This could take several days.

If they accept your offer, they may ask for your bank information. Don’t give it to them. Simply tell them that you’ll send them a letter with the details and then confirm the company name and mailing address. After the conversation, write the letter with the details of the agreement, the date the agreement was made, and the name of the person that sealed the deal. Be sure to include your account number.

Send the letter certified mail, return receipt requested, and make a copy of the letter for yourself before you drop it in the mail. Keep your receipts! After the creditor receives and reviews your letter, you should receive an agreement from the creditor that outlines the settlement terms. 

Be cautious giving bank information and don’t send blank checks—there are many scams out there. Check the contact information with the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) to see if any complaints have been filed. Once your debt has been paid, check your credit report to make sure it shows that it is settled or marked paid as agreed. 

A debt management program is another option to negotiate payment. A debt management plan (DMP) lets you combine all your monthly payments into one monthly payment. Negotiations are made to lower interest rates, forgive fees, and change deadlines so that monthly payments are affordable. You’d first speak to a credit counselor at a nonprofit credit counseling agency, for free. If you enter a debt program, the agency can negotiate on your behalf, accept your monthly payment, and pay the creditors per a payment agreement. When the full amount of your debt is paid, your credit report will show the debt paid in full, making re-establishing your credit a little bit easier, and ending your time with debt collectors.

Let's Summarize...

Debt collectors can overburden you with stress, but you can exert your power to limit collection calls and manage payment options. Keep researching your debt relief options, and you’ll find a solution that will be a fresh start for you. 

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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