Handling Collection Agencies because of debts you’ve failed to pay can be intimidating. The outcome will depend on you. The level of action one can harness is different for each and every individual. DebtPrison.net does not administer legal advice. The information provided here is readily available online at various websites and discussion groups across the internet. If you are in trouble with bill collectors keep educating yourself about debt and collection. And most importantly, make the disciplined lifestyle changes necessary to insure this never happens again.
See also Debt Prison related article Get Everything in Writing: Collection Agencies and Their Lies.
See also all of my articles on Collection Agencies.
In house collection vs. collection agencies
There are three different scenario’s creditors use to collect on past due debt. Some creditors have their own in house collectors. This means that when you fail to make payments someone from their ‘collection division’ tries to contact you. So if you have a past due account with Bank of America – someone from Bank of America is calling you trying to collect. This is the best scenario because a third party hasn’t gotten involved. If at all possible you want to remain inside this scenario. It’s always better to deal directly with the original creditor. In this case - Bank of America. See also, Restrictions on Wage Garnishment for Debt Collection.
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Another method creditors can use is to assign the collection to a collection agency. Let’s say it’s been three months since you’ve made a payment to Citibank. They weren’t able to get in touch with you so they assign the debt over to Beehive Collection Agency. Beehive begins the collection process (2 to 3 phone calls per day). Beehive’s goal is to get you back on track with the original creditor. If they can get you to make a payment they will receive a percentage of said payment. That’s how Beehive makes their money. During this process the legal rights of the debt are still owned by Citibank.
The last scenario is when Discover Card sells your debt to a collection agency. Discover Card hasn’t heard from you in six months and has given up on collecting this debt from you. So Discover sells this debt to Beehive for 20 cents on the dollar. If you owed Discover Card $5,000 Beehive pays discover $1000 for the legal rights to the debt. In essence, Beehive has bought your debt from Discover. Since this debt is only six months old Beehive figures they can get more than $1,000 out of you. At this point Discover Card would have reported this ‘write off’ on your credit report. Keep in mind that Beehive can also add negative marks on your credit report. And if Beehive can’t collect, they can sell it to another collection agency for 3 cents on the dollar. This new collection agency can plot additional negative strikes to your credit report. Hence, the first scenario is where you want to be if possible.
Methods described in this article are for dealing with collection agencies in the second or third scenario. The original creditor has assigned or sold your debt to an outside collection agency. This bill collector is trying to collect for the original creditor or now owns your debt – not Discover Card. You can no longer deal with Discover if they sold the legal rights to Beehive. However, you should contact Discover Card and make absolutely sure that they sold (not assigned) the debt to a collection agency. If they sold it they no longer have any legal authority over the debt. If they assigned the debt you should try and deal with the original creditor instead of the collection agency. If the original creditor is still in possession of the debt then you should read these articles Reasons not to file bankruptcy or settle your debt and How to settle your debts on your own.
If you legitimately owe a debt you should try and satisfy it. The information I provide assumes you cannot satisfy the debt and are therefore seeking the path of least resistance.
Should you simply ignore their calls?
Often, it’s better to simply ignore their calls and letters. If you owe $1,000 or less on a debt there’s a good chance they won’t bother taking you to civil court to pursue a judgment. However, some collectors have sued for amounts under $1,000. Also, you are more likely to get sued if you have continued applying for or are currently using credit to make purchases. A collection agency is able to gain access to your credit report, therefore they are aware of any new credit you’ve applied for. From their perspective, if you can afford to apply for new credit, certainly you are able to make payments on your old debts.
I would also research the collection ageny on the internet to see what information I could dig up on them. Recently a family member contacted me about a debt of $6,000, that was being collected on by a collection agency, which was utilizing a lawyer. Many collection agencies have a lawyer on staff who writes their letters and handles disputes. So I researched this lawyer and collection agency, only to find a ton of information at various websites and forums. Most of the information I found came from x-employees, who hated the company, and was blabbing about how the company operates. As it turns out, according to these employees, the collection agency would only sue a debtor who lived in Texas (where their office was located) – so in Mississippi he was assumed to be safe from legal action. As a result, I advised my family member to simply ignore the calls and letters for now. Most likely the debt will be passed on to another collection agency. In which case, the new agency will be researched, and then another decision will be made regarding how to handle their calls and letters.
Dont talk to collection agencies on the phone
Talking on the phone with bill collectors is not wise. They do this for a living and you probably dont. If you answer the phone and its a bill collector tell them to hold so you can find something to write on. Find a pen and paper and ask the collector for his name. Next, ask for the name of the collection agency, their address, their phone number, the reference number for the account, the amount of the debt, and who the original creditor was. Do not answer any questions or admit to knowing anything about this debt. Just get the described information and then hang up immediately. The reason you dont want to talk with them is because they may be recording the conversation and can use what you say against you in civil court. These discussions are best held on paper. Ask the collection agency to send a letter defining the debt to your address. Then promply hang up.
Request for the collection agency to validate the debt
As described under the Federal Trade Commissions Fair Debt Collection Practices Act (this is my easy to read version) you have the right to request validation of the debt by the collection agency. If the collection agency hasn’t mailed you a letter within 30 days you can either request they validate, or you can choose to ignore them. You can write a letter like this one. This forces the collection agency to ‘prove’ that you owe the debt. It’s possible that the collection agency doesn’t have all the paperwork necessary to prove you owe them the money. The older the debt is, the more likely the information they possess will be insufficient. Also, once the debt gets old enough (usually 4 to 6 years) it will have passed the Statute of Limitations in your state. This means that no one has the legal right to collect this debt from you. You’ll notice that in the validation letter is a limited cease and desist clause. This is the section that outlines that communication with you should be accomplished strictly through the mail; they are not to call your home anymore or your place of employment. Failure to comply puts them in violation of the Fair Debt Collection Practices Act.
For a listing of the Statute of Limitations in each state click here.
In the letter you are also warning that they may be in further violation if this debt is reported to Credit Bureaus (Equifax, Experian, and TransUnion). If they can’t legally validate the debt and they report it to the CB’s then they could be sued.
You should mail the validation letter immediately after receiving the phone call from the collector. If you don’t hear from them within 30 days write a new letter, and include a copy of the first one. The second letter should explain that this is the second time you have requested they validate the disputed debt. This is their last opportunity to prove that you owe the debt. Mail the second letter with USPS as a registered letter. When the receipt comes back, staple it to a copy of the second letter.
Keep good records
Send the validation letter as a registered letter. This way they will have to sign for the letter and USPS will return the receipt to you. Staple the receipt to a copy of the validation letter. Keep copies of all correspondence in a file under lock and key. In the event you end up in civil court, a flawless paper trail is essential to winning and avoiding a judgment. If it’s legal in your residing state, record any phone conversations you have with them. Although you shouldn’t be speaking to them - perhaps they didn’t obey the ‘limited cease and desist.’ It would be nice to have a taped recording of their willing violation of law.
If the collection agency can’t validate the debt
Often the collection agency won’t be able to validate the debt, if that’s the case then you simply don’t have to pay it. If they sued you in civil court they would most likely lose because they failed to adhere to Federal Law and correctly validate the debt. The collection agency must have sufficient evidence that you legally owe them the money. If they can’t prove this to you, they certainly couldn’t persuade a judge to rule in their favor. If the collection agency won’t validate the debt 30 days after the mailing of the second letter, you should be in the clear. Take the time to read the Fair Debt Collection Practices Act.
By making a payment on this debt you are admitting that you owe it. So don’t make any payments unless you are absolutely positive that you are still legally required to pay this debt. Making a payment also resets the clock on the Statute of Limitations - even if the Statute has passed! If the debt has passed the SoL then you don’t have to pay it, you can’t be taken to court. Some collection agencies are buying debts that people have filed bankruptcy on. They might pay only 1 penny on the dollar for this debt. Then they begin calling the debtor. Using threats and intimidation the collector tries to convince the debtor to pay up. Some people aren’t aware of their rights and give in. No one can force you to pay a debt that’s been legally wiped away by bankruptcy.
The collection agency legally validates the debt
There are two ways a collection agency can collect money on a debt you legally owe. First, you can pay them. Second, they can win a judgment against you in civil court. I’ve been in civil court four times while representing my previous employer. Let me give you some advice. Make sure you have all the evidence you need to support your case. If you can’t legally show why you are not required to pay the debt then don’t go to court. The judge will just slap a judgment against you. This judgment could lead to garnishment of wages and even liens on personal assets (land, vehicles, or home). So if you are clearly in the wrong then try and work out a solution with the collection agency. One solution is to pay the debt in full through an agreed payment plan (or simply ignore their calls and letters). The other solution is to try and settle the amount of debt you owe. Often collection agencies will settle for 50 cents on the dollar and sometimes less. For advice on settling your debt on your own click here.
What if the collection agency takes you to court?
If the collection agency doesn’t have the proper paperwork the case can be dismissed by the Judge. Most collectors won’t bother with court unless it’s a large amount of money - usually in excess of at least $1,000. You should bring the paper trail into court. Bring copies of your bills and income statements. There should be a very good reason why you have not been able to satisfy this debt. And you better be able to prove this to a civil court Judge. If your case is dire enough the Judge could declare that you no longer owe the debt. The Judge will most likely do what is logical and fair. If the collection agency can prove that you owe them, explain to them why you can’t pay. If they believe you the account may be sold to another collection agency.
The collection agency could assign your case to a ‘law firm’. These people will call you and threaten with lawsuits and court. They will ask you why the debt hasn’t been paid. If this happens it doesn’t change anything. Your circumstances at home won’t change just because a ‘law firm’ has been assigned your debt? And I’m not even convinced that some of these people are lawyers at all. You should ask them who they are, write down the name of their office and look it up. If you have the money it would be a good idea to seek legal advice from a local lawyer that you trust.
Most likely you won’t go to jail for failing to pay debt! I would take the time and explain to the law firm why I could not satisfy this debt. If your circumstances are dire enough they may just write it off – that could be the end of this battle. Just because a law firm is involved doesn’t mean that one will lose in civil court. Someone very close to me was contacted by a lawyer in regards to the remaining balance on a repo. Ford Motor Credit had to repossess a truck and charged my relative for the money they lost. My relative explained in detail why they could not repay the debt. The law office dropped the case and it was written off. If you legally owe a debt that you cannot pay - explain in detail the reasons why. Often this will be enough for the collection agency or law firm to drop the account. Go to other websites on this subject. There’s a lot of good, free information on the web. Good luck. Go forth and be debt free!
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