130 – How to Respond to Collection Notices and Protect Your Credit

Wayne Kay 00:04
When you run into financial trouble, something happens. You start getting collection notices and you need to know how to respond to them and how to protect your credit when things go sideways.

That’s our topic today on the Debt Matters podcast. We’re happy to help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.

I’m Wayne Kay and we’re going to talk about the first thing you need to do when you get a collection notice. It is going to freak you out when you see it for the first time. What are some of the options consumers have to deal with their debt? Is there a time when someone should consult a lawyer? Is there anything consumers can do to reduce the impact on their credit report?

We’re going to find out about some advice that if you’re dealing with a collection company, what do you do exactly? My guest today, Mary-Ann Marriott with Allan Marshall & Associates, Licensed Insolvency Trustee from Nova Scotia. She’s in the Halifax and Bridgewater offices. Welcome back, Mary-Ann Marriott.

Mary-Ann Marriott 01:04
Well, thanks for having me back, Wayne.

Wayne Kay 01:06
You got it. Well, I think this is going to be a great topic for anybody who’s getting to that point where all of a sudden they’re starting to get notifications that they owe money, right?

Mary-Ann Marriott 01:20
Yes, absolutely.

Wayne Kay 01:21
And I mentioned in the intro that it’s got to be awful to get. It’s terrifying when you get it for the first time, I would assume.

Mary-Ann Marriott 01:29
Oh, absolutely. It is one of the reasons that drives people to call someone in our industry – those collection notices and collection calls.

Wayne Kay 01:38
Right. And there is the stress when you get that and you read that or you get the phone call because they’re not exactly nice when they do it.

Mary-Ann Marriott 01:47
No.

Wayne Kay 01:48
It can be terrifying. And you’re going to be awake all night stressing over this. And I’m glad that people make the phone call to the Trustees to find out exactly what to do. So let’s start off.

All of a sudden you get one of those collection notices. What’s the first thing you should do?

Mary-Ann Marriott 02:03
Yes, the first thing is really don’t panic. Take a deep breath and just, you need to keep your calm because chances are the person on the other end of the line is going to be in bully mode and try to intimidate you.

So you need to be in a position where you’re just not going to be intimidated. And I find that the best way to do that is just simply start asking for some information. Now, I will tell you, they don’t always like that because you’re switching the power position. But if an account is in  collections, you deserve the information. So request documentation in writing or by mail to verify the amount that you owe and question that.

I’ve talked to people who owed $5,000 and all of a sudden they’re getting a call saying $20,000. Well, if I owed 5 and now I owe 20, I would like to see a breakdown of that, please and thank you.

Wayne Kay 02:53
That’s great. So you can actually ask them for that. I guess you could, yes.

Mary-Ann Marriott 02:57
And the other little piece too. I don’t want to skip this because it’s so important. Keep a log. Who did you talk to, when and what did you say? Because that can be golden down the road if you need it.

Wayne Kay 03:08
That’s good for everybody. In any transaction you do, when you make a phone call to whoever, your cell phone provider, whatever it is, when you actually document and you can say, well, I called on this date at this time, it does give you a little more power. And they go, okay. Because they’re used to people being so unorganized, that’s great advice.

Mary-Ann Marriott 03:33
Yes, and most of the time the calls are recorded. So if you know the date and time, you have the right to request that recording if it’s of you.

Wayne Kay 03:40
Really?

Mary-Ann Marriott 03:41
Yes.

Wayne Kay 03:42
Oh, my goodness. Okay. I like where this is going. I’m feeling better already for anybody.

Mary-Ann Marriott 03:47
You’re feeling more powerful already if this ever happens.

Wayne Kay 03:50
Yes. It’s all about the power. What can people do? Consumers, when they have to deal with this debt. Let’s talk about some of their options.

Mary-Ann Marriott 04:00
The first thing is, and again, you don’t just want to jump in and do what they ask of you. You want some time. This is why you want to request the information. Sit down, look at it, think about it, and, and then, do you have this account in collections? Well, you can pay them monthly.

You could pay the note with a lump sum, but chances are it’s in collections, you don’t have that. You can pay it monthly. But you do want to make sure if you do that, the payment covers the interest and some more, because you don’t want to just pay interest only forever. It’s not getting you anywhere. And at some point they’re not going to be happy with that and they’re going to ramp up their collection efforts.

Ideally, if you could borrow money in some way, shape or form and pay it out. Great. But remember, we just said you had a debt of $5,000 that’s $20,000. You’re not going to pay them 20.

You’re going to pay them a settlement. And so you start negotiating. If I could pay you a lump sum, how much would.you take? They’re going to come in high. You would see what you can do. You would offer that.

So we’ll go back and forth, and more often than not, what happens is when you don’t pay them initially, eventually you’ll get a notice saying they will accept this amount. And that also isn’t written in stone.

If they’re offering to accept a settlement, chances are you can probably offer less. But I will tell you that I talk to a lot of people about this, and more times than not, there’s no way they have access to the funds to pay out a lump sum.

Wayne Kay 05:19
Exactly. If you did, you wouldn’t be in the problem that you’re in unless you get help from somebody. But I’m going to be asking them for full written documentation and a contract, am I not?

If they say, okay. I’m going to get working on this $5,000. So I’m going to give you $250 a month for two years. Throw in a little bit of interest. You don’t just do a verbal, do you?

Mary-Ann Marriott 05:49
Yeah, they would never put anything in a contract. However, I would recommend that you get something from them saying that you’re agreeing to this offer, but they can change their mind at any point. So that’s not really worth a lot.

But that’s where the log also comes in, where if you have really good records of who you spoke to and when and what was said, but, at the end of the day, you could do that for a year, and then someone else picks up the file and they start trying to collect the full amount and say that the payments are not acceptable. It’s not unheard of, really.

Wayne Kay 06:17
So they’re moving the target. I’m not happy with this at all. No wonder people are so angry.

Mary-Ann Marriott 06:23
You’re feeling bad now. See, it’s going to be a flip flop conversation.

Wayne Kay 06:27
It really is, though. Can you imagine that happening? Somebody gets into this situation, and we know that so many Canadians are going through hard times right now. They’re going to have some debt build up, and maybe they won’t be able to make a payment. Then all of a sudden, someone calls. You’re struggling to make that payment and then all of a sudden they go, yeah, we needed more back and it’s not enough. I would lose my mind.

Mary-Ann Marriott 06:51
Yes, absolutely. That’s why many times people will look at doing a proposal or Bankruptcy to clear it because at least then they know that that’s going to be cleared and they’re not left negotiating with someone on the other line who may or may not be reasonable.

Wayne Kay 07:05
If you’re having trouble financially, contacting a lawyer might not be feasible. But should you contact a lawyer at some point, yes or no?

Mary-Ann Marriott 07:14
Well sometimes that does make sense. And I’m currently working with a file on this and I can tell you we’ve been going back and forth, I’m going to say at least six months, eight months. It’s been a long time.

The collection company was just in my opinion uncooperative. And so the individuals had offered a settlement of $4,000 on a, I think it was a $5,000 or $6,000 debt, I don’t know, a year before, two years before. And then someone picked it up again and said guess what, it’s 20,000. So here we go, big jump.

And so they offered the same settlement and it was rejected and they requested documentation and were never given it. And then they were just told it was turned over to the lawyer and then the lawyer never got back to them. So I did say go talk to a lawyer and the lawyer sent a request and did get some information. So it does tend to speed that up sometimes. But I can tell you this is still ongoing and they’re still not getting an answer back and they’ve not heard anything.

And the debt I assume is continuing to accrue interest. Sometimes a lawyer letter will get them moving but not always.

Wayne Kay 08:16
Okay, this is much deeper than I actually thought when we were talking about doing a show about collection notices and protecting yourself. This is very interesting. So when they make that first phone call it’s not like I have to get this done in the next week even if they’re pressuring me.

Mary-Ann Marriott 08:34
No. And in fact I, if you’re going to negotiate with a collection company I typically do, offer the suggestion that you want to drag it out to some degree because they’ll be more willing to take less money if they’ve exhausted all efforts to get more.

So waiting it out, getting back to them, offering a settlement later. Sometimes those tactics do work and you get it settled at a much lower rate but you put up with them reporting on your credit report while you’re doing that.

Wayne Kay 09:01
Let’s look into the, I guess, hypothetical. If somebody owes money like this, let’s use your clients as an example. They owed $4,000 or $5,000, $6,000, and all of a sudden they start getting these collection calls. Is that just for that debt typically, or is it for a bunch of debts that they have accrued?

Mary-Ann Marriott 09:23
No, it’s typically one, because the one debt will be sold off to a collection company. The only time it would be a lot is, let’s say it’s a bank and you have a loan line, a credit and credit card, and they get lumped together. But more often than not, those are going to a legal firm, not a collection company.

Wayne Kay 09:39
And is it worth it at that point to go into a Consumer Proposal?

Mary-Ann Marriott 09:44
It depends on the circumstances. You know, in this particular case, the person does have some money, they have some equity in their home.

And so a proposal or Bankruptcy just doesn’t make sense. They’re really just trying to settle the debt at some reasonable amount and not, quadruple what it was to begin with.

Wayne Kay 10:00
Right. Okay. Now, the thing a lot of people worry about is their credit rating.

I mean, we’re told to protect that credit rating and do everything we can to build that credit rating up. So is there anything consumers could do to reduce the impact on their credit report when something like this happens?

Mary-Ann Marriott 10:15
Not really other than dealing with it as quickly as possible. So a lot of people think that because there’s a statute of limitations on collecting debt through the legal process. A lot of people think, ooh, once it’s ten years, it will just fall off and I won’t have to deal with it, which isn’t true. It just means they can’t take you to court, but it can still be with a collection company and still destroy your credit.

So, on one hand, I said, wait it out, take some extra time so you get a better deal. The problem with that is they’re still reporting, but that’s not the end of the world if you have a plan at the end. And so really dealing with it as soon as you can to get them so they stop reporting, so it stops pulling your credit score down. It is really better advice from a protecting your credit score point of view.

Wayne Kay 11:03
Okay. It’s still important to be thinking about it, though, isn’t it?

Mary-Ann Marriott 11:08
Oh, absolutely. Don’t put your head in the sand and ignore it. It will never go away, and you will destroy your credit and that will haunt you for a very long time.

Wayne Kay 11:16
And I was thinking, if this takes, you mentioned ten years, somebody can wait ten years. Then that’s where they’ll say, okay, well, we’ve given up, but that’s not the case. And I would think the stress of having something like this over you for ten years would be a lot.

Mary-Ann Marriott 11:30
Yes, and they bounce it around from collection company to collection company. So the thing is, if it goes stale with one, they can sell it off to another collection company, they get some money, and then that one starts calling you fresh. And that’s, you know, that’s important to know as well.

Wayne Kay 11:46
Okay. Any advice you offer someone dealing with collection companies, anything else we need to know?

Mary-Ann Marriott 11:54
Yes, just know your rights. It’s really easy to look them up.

Just type in collection company, consumer rights and they’re all there. And in many blogs the act is there as well. But like human language that we can understand. And so know your rights, don’t be intimidated. You know, just because they’re using tactics, know that you have a right. Once you look at the rights that you have, certain rights, that’s going to be important so that you’re not as intimidated.

And if you just can’t handle it, and quite frankly, some people just can’t handle it, it’s too stressful, then engage the services of a third party. That might be a lawyer or it might be a Licensed Insolvency Trustee, so that they can step in between you and the collection company and help you sort it out.

Wayne Kay 12:39
I know in the past when we’ve talked and somebody’s getting these collection notices and having people phone them. All of a sudden they contact the Trustee and you decide, okay, we’re going to make some changes here. And then the phone calls stop. Like you stop them almost immediately. Is that with a Consumer Proposal or Bankruptcy?

Mary-Ann Marriott 13:03
Yes, absolutely. The minute you file a proposal or Bankruptcy, a State of Proceedings goes into place. And you can think of that like a legal wall between you and your creditors. So they are no longer able to accept payment, so there’s no reason for them to call you looking for it.

Wayne Kay 13:16
Okay. Is there anything that stops them from calling and hounding you to make a faster decision?

Mary-Ann Marriott 13:23
Only a Bankruptcy or proposal. Without that, there’s nothing that’s going to stop them.

Wayne Kay 13:26
Except listening to this and listening to Mary-Ann’s advice on how to exactly deal with them. Ask questions. You want to see exactly what they’re talking about. That’s totally fine.

Do you, and ask for any kind of conditions or what they’re really proposing? You have to completely understand this before you can say yes to it.

Mary-Ann Marriott 13:46
Absolutely.

Wayne Kay 13:47
All right, final words of advice?

Mary-Ann Marriott 13:51
Be strong, don’t be intimidated, and be informed.

Wayne Kay 13:54
Okay, terrific. Mary-Ann, always a pleasure. Thanks very much for all the information.

Mary-Ann Marriott 13:59
You’re welcome. Thank you, Wayne.

Wayne Kay 14:01
Well, once again, my guest today, Mary-Ann Marriott. You can learn more or schedule a free consultation with Allan Marshall & Associates Licensed Insolvency Trustee through their website wecanhelp.ca.

The important thing to know there is your first consultation is absolutely free – wecanhelp.ca. And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca.

If you know somebody who needs this information in their life now, please share it with them. Thanks for listening.