December 7, 2012

What not to do with past due debt

Do not ignore calls or letters from creditors or debt collectors.

The biggest reason is that the first 30 days after a bill collector contacts you is the only window you have to dispute the bill. The Occupy folks suggest you dispute all the bills, even if you believe it's legitimate. That's because many debt collectors bought delinquent debt from the original credit card issuer, hospital or other business, and they may not have good enough records to prove you owe the debt, or that they own the rights to collect it. (For a sample, see Appendix D of the manual at )

The handbook also suggests that you have more leverage in negotiating a payment plan that is lower than the full balance in the first three to six months, before the creditor sells the debt to a collector. That's because the business takes a huge loss when it sells bad debts, selling them for just pennies on the dollar.

"We know that when people are getting hounded by creditors some people their method of coping is to ignore it and hope it goes away," said Thomas Gokey, an organizer with Strike Debt. "Being diligent is part of resisting. Staying on top of it is not just a good way to protect yourself, it's also a good way to start fighting back."

"The way that we started on the project was very early, from Occupy Wall Street we saw that debt was one of the ties that bind," said Gokey, 33. "I'm buried under decades of crushing tuition debt I'm never going to get out from under."

His student loans are in deferral as he works as an adjunct professor while perusing a doctorate. Gokey has made art about the more than $49,000 he borrowed for a Masters of Fine Art.

>> Send a letter by certified mail telling the debt collector not to call you at work, to only call you at home between certain hours, or, better still, ask for all correspondence in writing.

Strike Debt says sending a cease and desist letter (a sample is also available online in Appendix D of The Debt Resistors' Operations Manual) has two benefits.

"They are counting on you to be an easy mark and to be overwhelmed by Kafkaesque bureaucracy, harassment and shame," the manual says. "There is a decent chance that you may not hear back. Remember, the collection agency is most likely to pursue the people they think are the most likely to pay."

The other benefit is that some debt collectors make threats about what will happen if you don't pay that are both untrue and illegal. Those kinds of threats are much less likely by letter, where there's a paper trail.

Gokey, who helped research the section titled: "Debt Collection: Don't Feed the Vultures," said, "The most extreme cases we found, and are documented, [were] cases where debt collectors have threatened to murder the family pet, cases where debt collectors have threatened to rape debtors."

"What's very, very common is to have a debt collector claim they are working with a police force, [saying], 'You can pay us now or we'll come to your door and we'll arrest you.'"

You cannot be jailed for bad debts. The worst that can happen is you can be sued, and your wages can be garnished, or if the bad debt is tax debt or student loans, your tax refund or Social Security can be seized.

You may be asking yourself: Can I trust a bunch of hippie kids to give me advice about my finances and credit?

We asked employees at two national credit counseling nonprofits about the advice in the handbook.

In most cases, they agreed. You should dispute the debt, and ask the collector to document its ownership of it. You should dispute mistakes on your credit report, which are common. It is possible to negotiate partial payment, even after it has passed to a collector, but they cautioned that will damage your credit even more than the late and missed payments.