9 Things a Creditor Can and Can't Do to Collect on a Debt

What is a creditor allowed to do when trying to get you to pay an overdue debt?

Final notice to collect on a debt
Updated May 13, 2024
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If you're already struggling to get out of debt, getting contacted by your creditor about past due bills can raise your anxiety levels to the extreme. You may feel embarrassed and even unsure about how to handle the situation.

Before you take care of it, though, make sure you know what creditors are allowed to do when attempting to collect a debt. Plus, learn what’s illegal and how to take action.

5 things a creditor can do to collect

The Fair Debt Collections Practices Act (FDCPA) is a federal law that prohibits abusive and unfair practices when attempting to collect a debt. However, each state has its own debt collection laws. This means that how and when a creditor attempts to collect a debt could vary based on where you live.

If you have debt that’s overdue, here are the actions creditors could take when it comes to your money.

1. Call you and send you letters

Under the FDCPA, creditors can call or send letters, emails, and text messages to collect an overdue payment. However, they’re restricted in when they can contact you.

For instance, creditors can’t call you between 9 p.m. and 8 a.m. They’re also only allowed to contact you in approved settings. They can’t call you at work without approval. Essentially, they can’t call at inconvenient times or places unless you’ve agreed to it.

Sometimes, creditors call just to tell you that your payment is late and to serve as a reminder for you to get current on your balance. But the frequency can increase the longer you go without payment.

2. Repossess your collateral or property

Remember when you took out a mortgage or auto loan so you could afford to buy that home or car? You also agreed that if you didn’t make payments on time, those things could be taken away from you.

While your home and car are two of the biggest types of collateral you may have, they’re not the only ones. Your investments, savings, and future earnings could also be used as collateral for unpaid debt.

3. Sue you

If you fail to make on-time payments, a creditor can sue you for the amount owed. If it goes through the court system, you may be liable to cover collection costs and attorney fees. Because of this, you may end up paying much more than the original debt required.

In addition to the extra costs, creditors might be allowed to put a lien on your property, freeze money in your bank account, or take other serious actions if the court rules against you.

4. Garnish your wages

Wage garnishment is when a judge orders a portion of your earnings to be withheld to pay an overdue debt. Under the Consumer Credit Protection Act, maximum weekly garnishment can’t be more than 25% of your disposable earnings. They can be garnished by the original creditor or sent to a debt collection agency that may eventually garnish wages.

When your wages are garnished, your employer is required to take those payments from your paycheck. This is subject to change based on where you live; some states exempt you from wage garnishment if you’re the head of household.

5. Send your loan to debt collectors

A creditor can only try to track you down for so long. If it’s determined that you aren’t likely to pay, your creditor could turn your debt over to a collector.

While you may not think you’re obligated to pay the debt since you’re unfamiliar with the debt collector, your credit score will continue to drop the longer your account is delinquent. Before you ignore the debt collector or conclude that the debt isn’t yours, make sure you find out who the original lender is.

For the most part, you’ll deal with your creditor for a few months with a delinquent account before they send it to a debt collector. The amount of time it takes for a creditor to send your debt to a collection agency varies by creditor.

4 actions a creditor can’t take

While creditors are within their rights to collect late payments, there are some things they aren’t legally allowed to do. The FDCPA is made to protect you from deceptive debt collection practices while also allowing creditors to safely collect a debt.

1. Harass, threaten, or lie to you

While attempting to collect a debt, creditors can’t threaten you with harm or even harass you to make you pay. They can’t lie to you, either. For example, if a creditor tells you they work for a credit reporting agency (they don’t) or that you’ve committed a crime by not paying (you haven’t), they’re using lies or deceptive practices to get you to pay. They also can’t tell you that you owe more than you really do.

2. Tell other people about your debt

For the most part, your creditor can’t tell anyone else about your overdue debt, aside from your spouse. If you have a lawyer, a creditor can contact them about your debt.

3. Garnish federal benefits

While money can be taken from your paycheck, most federal benefits are exempt from garnishment. For example, Social Security, disability, and veteran payments can’t be taken away if you’re facing late payments to a creditor.

Keep in mind that states have their own laws about which state benefits can be garnished.

4. Arrest you

Falling behind on payments is bad, but you typically can’t go to jail for simply not repaying your debt. However, there are some cases where your debt could lead to jail time.

For example, you could go to jail if you defy a court order or don’t respond to a lawsuit against you. Tax debt could also land you in trouble, since not paying taxes is considered a crime.

If these special scenarios don’t apply and a creditor tells you that you could be arrested, they’re probably lying.

How to handle a bad creditor

Having a creditor chase after you for late payments isn’t the easiest situation to be in. But remember both sides have rights; it’s important to exercise yours if you feel you’ve been wronged.

When talking to a creditor, make sure you learn the details about the debt to make sure it’s yours. Find out the exact amount you owe and, if it’s been sent to a collection agency, make sure you know the original creditor you owe that amount to. This validation of the debt needs to be provided by the creditor within 30 days of your request.

Even though the FDCPA outlawed bad collection practices from creditors, it can still happen. You can report threatening creditors to your state’s attorney general or the Consumer Financial Protection Bureau.

The bottom line

If you're drowning in debt, you may have options. Debt consolidation or debt settlement may be just what you need to regain your financial footing. Do your due diligence to determine which option is the best for your financial situation.

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Author Details

Dori Zinn

Dori Zinn is a personal finance journalist with work featured in Huffington Post, Quartz, Wirecutter, Bankrate, Credit Karma, and others. She loves helping people learn to be better with money.