Plain-English definitions of the terms debt collectors use, with USC section citations so you know exactly where your rights come from.
The FDCPA (15 U.S.C. §§ 1692–1692p) is the primary federal law regulating third-party debt collectors. It prohibits abusive, deceptive, and unfair collection practices such as calling before 8 a.m. or after 9 p.m., threatening violence, or misrepresenting the amount owed. Violations can result in statutory damages of up to $1,000 per lawsuit plus actual damages and attorney fees.
Under 15 U.S.C. § 1692g, a consumer has the right to request written verification of a debt within 30 days of the collector's initial communication. The collector must provide the name of the original creditor, the amount owed, and proof that they are authorized to collect. While validation is pending, the collector must cease all collection activity.
A cease-and-desist letter is a written demand instructing a debt collector to stop contacting you. Under 15 U.S.C. § 1692c(c), once a collector receives this letter, they may only contact you to confirm they will stop or to notify you of a specific legal action. This does not erase the debt but halts phone calls, letters, and other direct communication.
The statute of limitations is the time window during which a creditor or collector can sue you to collect a debt. SOL periods vary by state and debt type, typically ranging from 3 to 10 years. Once expired, the debt becomes time-barred and cannot be enforced through the courts, though the collector may still attempt voluntary collection.
A time-barred debt is one whose statute of limitations has expired. Collectors cannot legally sue to collect it, and some states prohibit them from even attempting to collect. Making a payment or written acknowledgment on a time-barred debt may restart the SOL clock in many states, so consumers should exercise caution before engaging.
Wage garnishment is a court-ordered deduction from your paycheck to repay a debt. Under federal law (15 U.S.C. § 1673), garnishment is generally limited to 25% of disposable earnings or the amount exceeding 30 times the federal minimum wage, whichever is less. Some states like Texas, Pennsylvania, and North Carolina prohibit wage garnishment for most consumer debts.
Exempt income is money that creditors and collectors cannot seize through garnishment or bank levies. Federal law protects Social Security benefits (42 U.S.C. § 407), SSI, Veterans' benefits, and federal student aid. Many states add protections for unemployment benefits, workers' compensation, pensions, and a portion of wages.
A judgment is a court order confirming that you owe a debt and granting the creditor enforcement tools such as wage garnishment, bank levies, and property liens. Judgments typically remain on your credit report for up to 7 years (though this varies by state) and may be renewed, extending the creditor's ability to collect for decades.
A default judgment is entered when a defendant fails to respond to a debt collection lawsuit within the required timeframe, usually 20–30 days. The court automatically rules in favor of the creditor without hearing your side. Most default judgments can be vacated (overturned) by filing a motion showing excusable neglect or a meritorious defense.
Under the Fair Credit Reporting Act (15 U.S.C. § 1681i), you can dispute inaccurate information with any of the three major credit bureaus (Equifax, Experian, TransUnion). The bureau must investigate within 30 days and remove or correct information it cannot verify. You can file disputes online, by mail, or by phone.
The Consumer Financial Protection Bureau (CFPB) accepts complaints against debt collectors, banks, and other financial companies. Filing a CFPB complaint creates an official record and requires the company to respond within 15 days. The CFPB uses complaint data to identify patterns of abuse and take enforcement action under the Dodd-Frank Act (12 U.S.C. § 5531).
A debt buyer is a company that purchases delinquent debts from original creditors or other debt buyers, typically for pennies on the dollar. Debt buyers are subject to the FDCPA and must be able to provide documentation proving they own the debt. Common debt buyers include Portfolio Recovery Associates, Midland Credit Management, and LVNV Funding.
The original creditor is the company that initially extended credit or provided the service that created the debt, such as a bank, hospital, or utility company. Unlike third-party collectors, original creditors are generally not covered by the FDCPA at the federal level, though some states (like California under the Rosenthal Act) extend similar protections.
A collection agency is a third-party company hired by a creditor to recover unpaid debts. Collection agencies are fully regulated by the FDCPA (15 U.S.C. § 1692a) and must follow strict rules about when and how they contact consumers. They typically earn a percentage (25–50%) of whatever they collect and must be licensed in most states.
The balance is the total amount a creditor or collector claims you owe, including the original principal, any accrued interest, and fees. Under 15 U.S.C. § 1692g(a)(1), the collector must state the amount of the debt in their initial communication. Consumers should always verify the balance through a debt validation request before making any payment.
The interest rate is the annual percentage charged on an outstanding debt balance. Credit card debts commonly carry rates of 20–30% APR, while medical and utility debts may not accrue interest until sent to collections. Some states cap post-judgment interest rates, and the Truth in Lending Act (15 U.S.C. § 1601) requires clear disclosure of all interest terms.
Compound interest is interest calculated on both the principal balance and previously accrued interest. This is how credit card debt grows rapidly — a $5,000 balance at 25% APR compounded monthly becomes over $6,300 in one year with no payments. Understanding compounding is critical when evaluating settlement offers versus paying over time.
Bankruptcy is a federal legal process (11 U.S.C. §§ 101–1532) that can eliminate or restructure debts when a consumer cannot pay. Chapter 7 liquidates non-exempt assets to discharge most unsecured debts, while Chapter 13 creates a 3–5 year repayment plan. An automatic stay immediately halts all collection actions, lawsuits, and garnishments upon filing.
Debt settlement is negotiating with a creditor or collector to pay less than the full amount owed, typically 30–60% of the balance, in exchange for considering the account resolved. The IRS may treat forgiven debt over $600 as taxable income (Form 1099-C). DebtShield can generate settlement offer letters with proper legal language and FDCPA citations.