What you need to know if you're referred to a debt collector

FRIDAY, OCT. 5: When you owe money, the person you owe it to is considered the creditor. If you do not pay this money there are various methods creditors can use to collect their money.

Late charge fees on overdue accounts

Some businesses add a “late fee” or “penalty charge” to accounts that have not been paid by the agreed time period or due date. The amount may vary and if you were made aware of a late fee penalty and agreed prior to services being rendered you are responsible for this charge.

Debt collection fees

Many local businesses will refer customers owing money to a local debt collection agency. Debt collection agencies charge a collection fee in addition to the amount of the debt. Be aware when you do business with a company if they are a member (and use) a debt collection agency.

If you have been contacted by a debt collection agency do not ignore them. Ignoring the problem will not make it go away — in most cases it makes the problem worse and the debt will most likely increase. If you agree that you owe the money, make arrangements with the agency to repay.

• Can I control which debts my payments apply to?

Yes. If a debt collector is trying to collect more than one debt from you, the collector must apply any payment you make to the debt you select. A debt collector may not apply a payment to a debt you don’t think you owe.

• Can a debt collector garnish my bank account and or wages?

If you don’t pay a debt, a creditor or its debt collector can take you to court for a judgment. If they win, the court finds judgment against you the creditor or collector can get a garnishment order against you, directing a third party, like your bank, to turn over funds from your account to pay the debt.

Wage garnishment happens when your employer withholds part of your compensation to pay your debts. Your wages usually can be garnished only as the result of a court order. Don’t ignore a lawsuit summons. If you do, you lose the opportunity to fight a wage garnishment.

• What happens if I dispute a debt?

If you dispute the amount of money a creditor says you owe, do not ignore the notice or phone calls. Advise the agency and the creditor (in writing) that the debt is being disputed and why. Make sure you have supporting documentation (evidence) if possible. The creditor may wish to stop any action until matter is resolved (only the company who is owed the money can stop any action).

If the matter can’t be resolved the creditor or collection agency may then take you to court to recover the money owed.

Honey Adams is the education officer for Consumer Affairs. For more information on personal finances visit www.ca.gov.bm.