Unsecured Debt Collection

An unsecured debt is one for which the creditor has no collateral to foreclose on should you default on the payment. For example, if you default on a car payment or your mortgage, then the creditor can take back the car or the house. He/she does not have this option with unsecured credit and when you fail to make the payments or respond to overdue notices, the creditor has no choice but to pass your account over to a collection agency.

What Sorts of Things Would be Considered as Unsecured Debt?

Some of the things that would constitute unsecured debt include credit card debts, telephone bills, cable or satellite bills, department store revolving charge accounts, unsecured line of credit at a bank or student loans. When the creditor passes this over to a collection agency, they also send the information to the credit bureau so it becomes an unfavourable item on your credit report. When you apply for a loan or other credit, it shows up making you a bad risk to repay and often results in refusal of credit.

Collection agencies have the authority to take you to court for unsecured debt collection. Before the process reaches this stage, however, they will send you lots of letters requesting payment in full. If you respond to the letter and ask to make payment arrangements, the agency can probably work out something with you. However, since your track record is already scarred regarding making payments on this account, this is unlikely.

The first letter you receive may be a friendly letter kindly requesting payment within a specified period of time or asking you to contact an agent to make payment arrangements. If you ignore this notice, the letters tend to take on a threatening tone and you will receive telephone calls looking for payment. Since the creditor does have the right to sue to recoup losses through missed payments, taking legal action against you for the balance of your account is not considered harassment. The collection agency cannot take you to court unless it owns the account. As long as the creditor has control over it, it is his/her decision to proceed with court action.

Does the Collection Agency Have to Abide By the Fair Debt Collection Agency?

The collection agency does have to abide by the Fair Debt Collection Act as well as the Privacy Act. An agent is not permitted to disclose anything about your account to anyone else. If an agent calls your home, he/she is not allowed to tell whomever answers the telephone the nature of the call. If you have voice mail or an answering machine, the agent can only leave a name and number for you to call back.

Your bank account is safe from a collection agency unless it takes you to court and wins a judgment against you. Then, if you have money in a savings or checking account, you have to pay the outstanding bill. However, the agency cannot make a public announcement about the debt nor can they have you fired from your job. Since court action is costly, it is often cheaper to keep sending you letters or to keep phoning you.