Missing one or two payments on your debt obligation is not a train smash, but once you miss three payments in a row, you are now in default. This means you will receive a negative listing on your credit record and in many cases your debt will be handed over to a debt collection agency.

Daniel Shapiro of Alefbet Recoveries, a group of collections call centres, explains that when you initially take out a contract you are a customer. If you start missing payments the credit provider will try to collect for the first three months and rehabilitate the account via customers services.

“If they are unsuccessful after three months, you begin transitioning from a customer to a debtor,” says Shapiro. It is at this point that the formal debt collection process starts.

“It is really in the customer’s interest to settle the debt before they are in default. Not only are fees incurred, but you break the trust of the credit provider. You receive a negative listing, and it would be very difficult to apply for credit with the provider again,” says Shapiro

If you are not able to meet the repayments, be honest with your credit provider so that they can come to an arrangement.

“Life happens and people have genuine reasons for not paying. Communicate with the credit provider and come to an agreement. Even if it is R500 a month, make the deal and honour your commitment so you remain a customer and don’t become a debtor.”

When a debt collection agency comes calling

If you ignore attempts by the credit provider to collect payment, in most cases the creditor will hand you over to a debt collection company after three months. The collection agency will contact you via a phone call, SMS or email.

Shapiro advises that at this point, if the debtor can afford to pay the debt, they should do so immediately as there is a fee for each action taken by the collection agency and this just starts to add to the bill, in addition to the interest that is building up.

Shapiro says the consumer should always find out who they are actually dealing with.

The credit provider: A credit provider or bank may use the services of a debt collection agency to collect outstanding payments on their behalf, but you are still a client of the bank. The call centre is still acting on behalf of the bank and additional fees are not added at this stage. This is usually within the first three months of non-payment.

Collection agency or attorney: If the debt has been handed over to a debt collection agency, your relationship is now with the debt collection agency and fees are incurred. Ask whether it is a debt collection agency or an attorney you are dealing with. Debt collectors are regulated under the Debt Collectors Act and have regulated fees which are capped. Attorneys do not fall under the Debt Collectors Act and their fees are not capped. Not many attorneys deal with debt collection, so this could also indicate that you are now in a legal process.

Debt purchaser: If the debt is over a year old, it is possible that it has been sold to a debt collection agency. This means that the debt collection agency has bought the debtors book and is collecting for themselves. In this case you can ask for a discount for full and final payment. “In many cases a discount of 10% to 20% of the total outstanding debt including fees can be negotiated,” says Shapiro, who adds that where possible, you should settle the debt. “It is really expensive to bank with a debt collector. Rather take the money from your mortgage, if possible.”

Legal action: If your debt has been handed to an attorney for legal action, you fall outside of the debt collection rules. Try and negotiate a repayment plan before it reaches this stage. Attorneys have no limits on charges and the legal fees start to accumulate. Credit providers or debt collectors who own the debt will go the legal route if the outstanding amount is significant enough or if there is an asset underpinning the debt such as a property.

Your rights

All debt collectors are members of the Council for Debt Collectors (CFDC). Fees are regulated and there is a code of conduct.

Proof of the debt: Ask for proof of debt. The debt collector must provide documentation of where you have the account as well as the outstanding payments due. You have the right to dispute this if the information is incorrect.

Harassment: A debt collector may not harass you. The definition of harassment is based on what is reasonable, so it is not a hard-and-fast rule. Most debt collection agencies will contact a debtor once or twice a week, but if it gets to a point where they are calling every day, that could be harassment, and you can lodge a complaint with the CFDC.

Prescribed debt: Debt collectors are not allowed to collect on debt that is older than three years as it has become prescribed and can no longer be collected.

This article first appeared in City Press.