Dealing with Debt Collectors

Collection calls are stressful. Understanding your rights and having a strategy makes handling them much easier.

How Debt Collection Works

The Collection Process

Stage 1: Internal Collection (0-90 days)

• Original creditor tries to collect
• Phone calls, letters, emails
• May offer settlement

Stage 2: Collection Agency (90-180 days)

• Debt sold or assigned to agency
• More aggressive collection efforts
• May report to credit bureaus

Stage 3: Legal Action (180+ days)

• Lawsuit filed
• Court judgment possible
• Asset seizure, wage garnishment

Who Are Collection Agencies?

Your Rights as a Debtor

RBI Guidelines for Recovery Agents

The Reserve Bank of India has strict rules:

What collectors CANNOT do:

• Call before 7 AM or after 7 PM
• Call on holidays
• Use threatening language
• Physically intimidate you
• Contact you at workplace excessively
• Discuss your debt with others
• Use abusive language
• Misrepresent themselves

What collectors CAN do:

• Contact you at reasonable hours
• Send written notices
• Report to credit bureaus
• File legal action
• Negotiate settlements

If Collectors Violate Rules

1. Document everything (dates, times, what was said)
2. Send written complaint to creditor
3. Complain to Banking Ombudsman
4. File police complaint if threats made
5. Consult lawyer for harassment

Communication Strategies

Rule #1: Stay Calm

Collectors may try to provoke emotional responses. Don’t let them.

When they call:

• Don’t respond emotionally
• Don’t make promises you can’t keep
• Don’t provide unnecessary information
• Do take notes of everything

Rule #2: Get Everything in Writing

Before any agreement:

• “Please send me this offer in writing”
• “I need documentation of this debt”

Never pay based on phone conversation alone.

Rule #3: Verify the Debt

Ask for:

• Original creditor name
• Original amount owed
• Current amount claimed
• How they calculated interest/fees
• Proof you owe this debt

You have the right to dispute if something seems wrong.

Rule #4: Communicate in Writing

Benefits:

• Paper trail
• Time to think before responding
• Proof of agreements
• Less stressful than calls

Sample response to collector:

Date: [Date]

To: [Collection Agency Name]
Re: Account [Number], Reference [Number]

I received your call/letter regarding the above account.

Please provide:
1. Written verification of this debt
2. Name of original creditor
3. Original amount owed
4. Breakdown of current amount
5. Copy of original agreement

I will respond after reviewing documentation.

Please correspond with me only in writing at:
[Your Address]

Regards,
[Your Name]

Negotiating with Collectors

Understand Your Position

Collector’s perspective:

• They want to collect something
• They may have paid 10-30% of debt value
• Some payment > no payment
• Litigation is expensive

Your leverage:

• They need your cooperation
• Time is against them (statute of limitations)
• You can negotiate or walk away
• They may settle for less

Settlement Options

Negotiation Strategy

Step 1: Know Your Numbers

• What can you actually pay?
• What’s your best offer?
• What’s your walk-away point?

Step 2: Start Low If you can pay ₹50,000, offer ₹25,000.

Step 3: Be Patient

• Don’t accept first offer
• Counter their counter
• Take time to “think about it”

Step 4: Get It in Writing Before paying anything:

• Settlement terms in writing
• “Paid in full” or “settled” confirmation
• Credit bureau reporting commitment

Sample Settlement Negotiation

Collector: “You owe ₹1,50,000. You need to pay today.”

You: “I’m willing to resolve this, but I can’t pay that amount. What if I pay ₹40,000 as full settlement?”

Collector: “No, minimum is ₹1,20,000.”

You: “I understand, but I simply don’t have that. I can do ₹50,000 as a lump sum within 2 weeks if you can send me a written settlement agreement.”

[Back and forth until agreement or impasse]

What to Include in Settlement Agreement

Before paying, get written agreement stating:

1. Account number and creditor
2. Settlement amount
3. Payment deadline
4. Confirmation debt is “settled in full”
5. Creditor will update credit bureaus
6. No future collection attempts

Handling Collection Calls

If You Plan to Pay

“I’d like to resolve this debt. Please send me a written statement with the current balance and payment options. I’ll review and respond in writing.”

If You Need Time

“I’m aware of this debt and intend to address it. However, I need [X weeks/months] to arrange payment. I’ll be in touch by [date].”

If You Can’t Pay

“I’m in financial hardship and cannot make any payment at this time. Please note this in your records. I’ll contact you when my situation changes.”

If Debt Is Not Yours

“I don’t recognize this debt. Please send me written verification including original creditor, original amount, and proof that I’m the debtor.”

If Being Harassed

“Your collection methods violate RBI guidelines. I’m documenting this call. Further violations will be reported to the Banking Ombudsman and may result in legal action.”

Handling Aggressive Tactics

Common Tactics

Document Everything

Keep a log:

Filing Complaints

Against bank recovery agents:

• Complaint to bank’s grievance cell
• Escalate to Banking Ombudsman
• RBI complaint portal

Against NBFC agents:

• Complaint to NBFC
• RBI’s Sachet portal
• Consumer forum

For harassment/threats:

• Local police station
• Cybercrime cell (for digital harassment)
• Consumer court

When to Consider Legal Help

Situations Requiring Lawyer

• Large debt amounts (>₹5-10 lakh)
• Legal notice or court summons received
• Complex situations (business debt, multiple parties)
• Harassment despite complaints
• Disputed debt you believe is invalid

Where to Get Help

• Legal aid services (free for qualifying income)
• Consumer courts (self-representation allowed)
• Bar association referrals
• Legal startups offering affordable consultations

The Credit Bureau Impact

How Collection Affects Credit

• “Settled” or “Written off” stays for 7 years
• Significantly impacts CIBIL score
• Affects future loan eligibility
• Lenders see it as negative

Minimizing Damage

If settling:

• Request “Paid in full” vs “Settled”
• Ask for credit bureau correction
• Get commitment in writing

After settlement:

• Get confirmation letter
• Check credit report in 45-60 days
• Dispute any inaccuracies

Special Situations

If You’ve Been Sued

Immediate actions:

1. Don’t ignore the summons
2. Note court date
3. Consult lawyer immediately
4. Prepare your response
5. Consider settlement

Never ignore legal notices. Default judgment can result in wage garnishment, bank account freeze.

If Your Account Is Frozen

Banks can freeze accounts for recovery. To handle:

1. Contact the bank/creditor
2. Negotiate release of essential funds
3. Work on settlement
4. Maintain another account for essential expenses

If Wages Are Being Garnished

After court judgment:

1. Verify the order is valid
2. Check garnishment is within legal limits
3. Negotiate with creditor
4. Consider settlement to stop garnishment

Prevention Going Forward

After Resolving Current Debt

1. Build emergency fund
2. Get insurance
3. Live within means
4. Avoid high-interest debt
5. Monitor credit regularly

If You See Trouble Coming

Contact creditors BEFORE missing payments:

• Request hardship programs
• Ask for rate reduction
• Negotiate payment plan
• Get agreement in writing

Proactive communication prevents collection.

Key Takeaways

• Know your rights — collectors have rules they must follow
• Communicate in writing — create paper trail
• Verify debt — don’t pay without proof
• Negotiate settlements — collectors will often accept less
• Get everything in writing — before paying anything
• Document harassment — and report violations
• Don’t ignore legal notices — respond appropriately
• Prevention is best — communicate with creditors before default

Next: Improving Your Credit Score — Rebuilding credit after debt problems.