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Should I pay the collection agency or the original creditor?

By Debt Prison on January 5, 2009

When possible pay the original creditor and bypass the collection agency. If your creditor has ‘assigned’ your defaulted debt over to a collection agency for collection… call the creditor and ask if you can just pay them directly. If they agree to accept payments then pay them and eliminate the third party. See also, How to deal with collection agencies.

Dear Debt Prison,

Here is my situation. We are overdue on a fairly large American Express bill. We owe the money but can’t pay it off right away. We are not disputing the fact that we owe the money.

We have been sent over to a collections agency, NCO Financial Systems. I do not yet know if they have purchased the bad debt or if AMEX has just assigned the case to them. If I call the AMEX number on the back of my card, I get an automated message that I need to talk with NCO Financial.

Of course, NCO Financial wants all of the money and they want to setup a payment plan of something like 30% down and some other payments. None of this has been in writing, just phone conversations.

I was able to talk with someone at AMEX. They said that they could NOT accept any payment plans since NCO was handling the account now but they will still accept any payments that we make to them. So, while they can’t officially agree to any sort of payment plan, they will accept any payments that we send them.

This is interesting! I basically said to AMEX, “Well, if I just keep sending you money, I will eventually payoff my account and I won’t owe anyone any more money, right” “Yes”. I can still login to the AMEX site and see all of my account information.

So I wonder if it’s in our own best interest to just keep stringing along NCO while continuing to make payments to AMEX for the next 6 months until the debt is paid? I am sending NCO a debt validation letter. We know we have to pay AMEX, but I don’t have to pay NCO until they can prove to me that I need to pay THEM, not AMEX. It will probably only take 6 months or less to pay off the debt.

Steve

Debt Prison response…

Good question. Yes NCO has been ‘assigned’ the debt by Amex. I would continue to make scheduled monthly payments to Amex and no longer speak with or have any correspondence with NCO. You owe the money to Amex, and if possible, I would pay them. Have you still been receiving monthly statements from Amex?

I would try and avoid dealing with a third party if at all possible. By ignoring NCO Financial you eliminate the need for a third party and any corresponding paperwork they’ll bring to the table. However, you should keep all correspondence from both NCO Financial and American Express just in case there is a problem on down the road.

NCO Financial may ‘accidently’ place negative strikes on your credit report. If so, you’ll need all paperwork to correct your credit report – if the negative strikes are inaccurate!

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Can a Creditor Collect on Discharged Debt?

By Debt Prison on January 2, 2009

Original creditors and collection agencies will often collect on discharged debt, charge offs, debt absolved by bankruptcy, and even debt that’s been settled. This is debt that can’t legally be collected on via a civil court judgment. However, collection agencies won’t let a little thing like your legal rights stand in the way of their profits. See also, What is a junk debt buyer?

Often creditors will continue to report a discharged debt as a ‘live’ debt on your credit report, making it appear that you still owe the debt and that it’s active. They do this in hopes that you’ll need new credit for a purchase (like a home), and you’ll have to come back and pay them to get your credit report cleared up. If you sue the creditor, they’ll claim they have no record of the discharge, or that the court didn’t notify them of the bankruptcy.

A couple of months ago I wrote an article about a debtor who was trying to settle a debt with Chase Bank. Chase had ‘assigned’ the debt to a collection agency and the CA agreed to settle the debt. Desiring to guarantee this debtor handled the settlement properly I gave her the following instructions:

1) She contacted the original creditor to insure that the collection agency legally represented them (the creditor).

2) She documented the names and positions of the representatives and supervisors with whom she spoke to on the phone (original creditor).

3) She requested that the collection agency fax her a statement saying that this settled amount would 100% satisfy this debt and that the loan would be reported as ‘paid in full’ to credit reporting bureaus.

4) She then called the original creditor to insure that they agreed to these terms and documented the phone call with their names, their positions, their supervisor’s name, and date of conversation.

Despite following these instructions Chase Bank still sent her a bill the next month for the settled amount. She had to fax them a copy of their settlement agreement twice before the matter was settled. What if she hadn’t kept a copy of the settlement? Chase Bank would have continued to bill this consumer for the settled debt. Later on, Chase would have sold this debt to a collection agency and likely reported it as a charge off on her credit report.

If you have an agreement with a creditor make sure you get it in writing before you pay them. Otherwise, they will act as though no agreement occurred, they will still attempt collection on the debt, they will report the debt to credit reporting agencies negatively, and then they will sell the debt for pennies on the dollar to a collection agency.

Yes creditors and collection agencies are collecting on discharged debt. They accomplish this by using loop holes in the law, or by going around the law altogether. The best way to fight abuse from collectors is to keep a paper trail of all documents related to the debt. In order to make creditors follow the law – you may have to employ the services of a law office. Sometimes there’s just no way around it.

How long can collectors try and collect on a debt?

Collection agencies are collecting on debts far past the Statute of Limitations and other debts that have been legally absolved for years. Two weeks ago I was contacted by a reader who had a collection agency trying to collect on a debt from 1989. The State in which she lives has a Statute of Limitations of 4 years. That means this CA is trying to collect on a debt which is 15 years past the legally allotted time for debt collection in her state. The debt doesn’t even appear on her credit report. See also, Debt past the SOL but collection agency still suing.

Discuss this article and meet new people at Debt Prison Forums.

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Should you respond to a collection letter?

By Debt Prison on December 29, 2008

Recently a family member sought my advice on a collection letter he had received. He’s only 20 years old and racked up some ridiculous debt from a sport bike purchase. In order to finance the bike, the dealership placed the interest from the loan and some accessories on a credit card they provided for him. After he sold the bike (the sale covered the remaining principle balance), he was still left with several thousand dollars of debt on the credit card. Since he went back to college he has no money, and has therefore defaulted on the debt.

The debt was sold to a collection agency, charges were added (the debt grew by $1,000), and the collection letter was mailed. The collection agency also calls daily, which is annoying others at the home. Like many larger collection agencies, they have a lawyer on staff that writes their letters and handles any disputes. The collection letter appeared to come from a law office. However, an internet search of the law office revealed that it’s simply a lawyer working within a collection company.

Further web research (reading online forums) revealed many former employees who provided intimate details about the way in which the company operated. Every source I found suggested that the collection agency’s lawyer would only sue if your home was located in the same state as their office. Now I realize getting information in such a fashion isn’t always going to be 100% accurate. However, it is often dead on. And since big companies won’t disclose their collection policies, listening to ex-employees is often a great source for valuable information on their collection practices.

I have also noticed that all collectors claim that debt validation letters draw unwanted attention to your account. Which brings up the question of when a debt validation letter should be applied by the debtor? I’ve come up with the following short list of when a debtor might want to apply a debt validation letter:

You need a clean credit report (and are willing to hire a lawyer to insure you get one).
You don’t legally or morally owe the debt.
You have no knowledge of the debt.
The dollar amount has been increased with bogus charges.
The debt is past the Statute of Limitations.

In the case of my family member, he doesn’t need a clean credit file, and the collection agency isn’t likely to seek legal action against him in the state of Mississippi (the SOL in MS is 3 years). So for the time being, I suggested he ignore the phone calls and letters, and be patient until it’s sold to another collection company. When the debt is sold to another collection agency we’ll take some time, research their company, and make another decision on how to handle the debt.

Discuss this article and meet new people at Debt Prison Forums.

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When Can I Start Settling My Debts?

By Debt Prison on December 1, 2008

A reader at How to settle your debts on your own wants to know when he should start trying to settle his unsecured debt. He also wants to know which one to settle first. Now bear in mind that you can’t miss a payment in October and expect to settle your debts in November or December. Credit card companies and collection agencies aren’t stupid! If you could afford a lump sum settlement that soon after having missed a payment…. then common sense will tell you that the debtor can afford to continue making the minimum payments.

My wife and I owe more or less $40,000 on our credit card debt and an unsecured loan. We plan to settle our debt on our own. We stopped paying our credit card bills two months ago and they immediately started calling and harassing us. Also, I lost my job so my wife is the only one working and we can’t afford to pay the minimum monthly payments. We’ve got a $25,000 unsecured loan and more or less $15,000 in credit card debt. I don’t know when will I start sending them letters and who’s the first one I will talk to and negotiate with. And I’m worried that if I don’t take action in the near future they will sell my account to a collection agency! Please help – thank you very much!!!!

Angelo

Hey Angelo,

First off it’s too early to even start discussing settlement with these guys. That’s because you need a cash lump sum to settle with the collectors. And if you could afford a lump sum you could afford the minimum payments. You’re gonna have to let this thing sit for at least a year most likely. Meanwhile you can just tell them that you’re broke for the time being and will make payments when you have money… but for now you’re living from check to check to eat.

Sometimes the original creditor will not settle the debt – they sell it off to a collection agency instead. If they sell or assign the debt to a collection agency then I suggest you exercise your rights under federal law and write them a Debt Validation Letter. This is just to insure that the collection agency is following correct procedures.

Now let me ask you this question…

Would you rather have to deal with this crap (collectors calling, judgments, wage garnishment) for the next three to ten years… or would you rather get a job (or two jobs) and work like crazy to pay this debt off in full. That’s about your only options…
Now if you can’t or are unable to work then the best thing to do is settle with these guys later on. But in the meantime you might want to change your phone number and deal with your collectors through the mail only. And then there’s always the possibility of getting a judgment slapped on you in civil court. Bear in mind the better record keeping you undertake the better off you will be. See also, How to deal with collection agencies.

Also, is there anything you could sell to help get you out of this jam? Can you sell your cars, your houses? Can you downsize to cheaper cars or cheaper houses? Can you move in with a relative and pay no rent? You and the wifey need to have a serious discussion and think of these types of questions.

If you do decide to settle I would use the ‘debt snowball’… starting with the smallest debt and working my way towards the largest. I’d initially try and settle for 50 cents on the dolllar with the debt of lowest balance. Bear in mind that I would try and settle based on what the balance is RIGHT NOW. Not what it will be in one or two years.

That’s because once the credit card companies and collection agencies get through tacking on their satanic onslaught of fees, penalties, and interest… these debts could easily double in balance before you’re ready to settle them. So what may be a credit card balance of $4,000 today… may be 8 or $10,000 in two years. I would inform them that I’ll settle for 50 cents on the dollar based on the original default amount… in this case I’d offer $2,000 for the initial defaulted debt of $4,000.

Good Luck and Happy Holidays!!!

Barry

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