How to Handle Personal Debt Collection

If you are facing personal debt collection, you should know your rights so that you can properly protect yourself from your lenders. When you sign a debt contract, you provide your lender with legal rights. This contract exists to protect the lender's rights to collect, but it also protects your rights against harmful collection practices.

Debt Limitations

All debt obligations must be lawful. If you took a personal loan from a lender, you are only legally bound to the debt if the lender followed all fair lending laws in your state. If you are contacted by a collections agent, ask the agent to verify their right to collect a debt. This is particularly applicable on debts that have gone unpaid for more than five years. In most states, personal debts that are not collected within this period, are beyond the scope of lawful collection practices. You may no longer be responsible for payments, fees and penalties associated with the debt.

Fee Limitations

A lender cannot charge excess fees on your debt, in absence of a fee agreement. If you did not agree to interest rates, late fees and charges, the lender cannot impose them in hindsight. This is particularly important to note when the lender is individual or small finance company. While large lenders are more aware of the rules, many individuals are not familiar with the policy. Review your contract to determine the schedule of fees you agreed to pay and never pay fees that you were not included, without first allowing a judge to review the agreement.

Property Limitations

You cannot lose property to a lender if you did not place the property as collateral. For example, a personal debt collector cannot come to your home asking for payment and seize your automobile in order to collect a debt, unless you placed your auto as collateral. Further, personal debts are often subordinate to other senior debts. If you have an auto lien from a lender, it is up to a judge to determine which lien is superior and how to handle collection. 

Undue Hardship Limitations

A lender cannot continue to attempt to collect from you if the collection will cause undue hardship in your life. It is hard to prove undue financial hardship, but this option is available through court procedures. If you have become disabled, lost your job or are facing another fiscal emergency, your lender can reduce your personal debts. If you feel repayment of the debt is crushing your financial reality, contact a lawyer to determine if you qualify for bankruptcy protection.


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