What is a Debt Collection Agency and What Do They Do?

Let’s be real: dealing with debt is never fun. Whether it is a missed payment here or there, or larger amounts that feel overwhelming, when debt collectors get involved, things can feel even more stressful. However, understanding what debt collection agencies do—and how they operate—can help take some of the anxiety out of the situation.

If you are struggling with debt and need a way out, our debt relief services can help. In the meantime, let us break down what a debt collection agency is, what debt collectors do, and how they affect you.

What is a Debt Collection Agency?

So, what exactly is a debt collection agency? When a company—whether it is a bank, credit card company, or service provider—cannot get its money back from someone, it will often hire a debt collection agency to step in and collect the debt.

Let’s say you miss payments on your credit card for a few months. At some point, your credit card company will stop trying to get the money from you directly and pass your case on to a collection agency. These agencies specialize in tracking down people with unpaid debts and working out a way to recover the money.

How Debt Collection Agencies Work in Canada

When a debt collection agency gets involved, their goal is simple: recover the money that is owed. But how they go about that can vary. Typically, the process starts with a debt collector reaching out to you (the debtor) by phone, email, or even by mail.

Now, you have probably heard horror stories about non-stop calls or aggressive tactics. While no one loves getting those calls, a legitimate debt collection agency should remain professional and stick to specific guidelines (like not harassing you or contacting you at unreasonable hours).

Some debt collectors might try to work out a payment plan that you can realistically handle. If you cannot pay the full amount right away, do not panic — there is usually room for negotiation. Their goal is to recover some or all the money, so they are open to figuring out a plan that works for both parties.

What Debt Collectors Do

Debt collectors have specific jobs, and while their end goal is to get the money back, they do more than just ask for payment.

• Contacting Debtors: Their first step is getting in touch with you. This could be a phone call, a letter, or an email. Their job is to let you know what you owe and give you options for paying it back.
• Negotiating Repayment Plans: A good debt collector will not demand full payment if you cannot afford it. They will often work with you to create a repayment plan that fits your budget. This could be smaller monthly payments over time instead of one lump sum.
• Reporting to Credit Bureaus: If the debt is not resolved, the collector may report it to the credit bureaus, which could negatively impact your credit score. This is why it is essential to deal with collections sooner rather than later.

Legal Rules Debt Collection Agencies Must Follow

If you are worried about debt collectors doing whatever they want, do not be. In Canada, there are strict laws and regulations that debt collection agencies must follow.

Debt collectors cannot:

• Call you at all hours of the day
• Harass you with endless calls
• Use aggressive or threatening language
• Misrepresent themselves or the amount you owe
• If they break these rules, you have rights, and you can report them to the proper authorities.

Methods and Techniques Debt Collectors Use

Debt collection agencies use a few key methods to try to get the debt back:

• Communication Methods: You will probably hear from them via phone, but they might also reach out through emails, letters, or even social media.
• Skip Tracing: If they are having trouble finding you, debt collectors will track you down. They use publicly available data to locate people who have moved or changed their contact information.
• Legal Actions: If all else fails, a debt collector might recommend legal action. This could mean taking the debt to court to get a judgment, which allows them to ask your employer to send a portion of your paycheck to pay your debts — or they may even freeze bank accounts.

Step-by-Step Guide to the Debt Collection Process

Here is a look at the typical debt collection process:

• Debt Assigned to Agency: Once you have missed payments, the company you owe might assign your debt to a collection agency.
• Initial Contact: The agency will contact you to tell you what is going on and what you owe.
• Negotiation: The debt collector might offer a repayment plan or give you options to pay off the debt over time.
• Follow-up: If you do not respond, they will keep trying to contact you (within reason).
• Legal Action: If it still is not resolved, the agency might take legal action to recover the debt.

Your Rights and Responsibilities as a Debtor

If you are dealing with a debt collector, it is important to know your rights—and your responsibilities.

• Right to Be Informed: Debt collectors must inform you about the debt, including the amount you owe and who you owe it to.
• Right to Dispute the Debt: If you believe the debt is not yours or there has been a mistake, you have the right to dispute it.
• Right to Request Verification: You can ask the debt collector to provide written proof of the debt, which they must do.

Your Responsibilities:

• Communication is Key: Do not ignore a debt collector. It will only make things worse.
• Avoid Further Debt: If possible, try to stick to a budget and do not take on more debt while you are dealing with a collection.
• Seek Financial Advice: If you are feeling overwhelmed, it is always a good idea to talk to a financial advisor who can help you figure out your options.

How Debt Collection Can Impact Your Credit

Debt collection can hurt your credit. If a debt goes unpaid and is sent to collections, it can stay on your credit report for up to seven years. This can make it harder to get approved for credit cards, loans, or even rental applications.

However, if you settle the debt or work out a repayment plan, you can start to rebuild your credit. It is not the end of the world, but the sooner you handle it, the better your financial future will look.

How Farber Can Help if You Are Dealing with Debt Collectors

Feeling overwhelmed by debt collectors? You do not have to handle it alone. At Farber, we specialize in helping people find solutions to their debt problems. Whether you need help negotiating with collectors or finding a way to get out of debt, we’ve got your back.

If you are struggling with debt, reach out for a free consultation today and let us work together to get you on the path to financial freedom.