Debt Prison

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

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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I never cease to be amazed by the outright lies of collecton agencies and the creditors they represent. Recently I discussed how do deal with a collection agency with a certain reader. She was trying to settle a debt for her daughter and I gave her some advice about how to conduct the debt settlement to insure that it would stay behind them for good. You can read this back and forth discussion by clicking here. 

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

Luckily she got everything in writing.  Now here we are a month later and just as I suspected the original creditor sent her a bill for the remainder of the debt.  She correctly handled  this situation by following a few important steps.

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.

Now a month later, despite having a letter and documented phone conversations, she sends me the following email:

Hi Barry, It’s me again. Guess what? Yesterday my daughter received a bill from the credit card company for the balance of the debt that supposedly was closed and settled. I have the names of the people that we spoke to at the CC co. back in May saying that the collection agency we were dealing with was authorized to offer us a settlement for them. I also have the letter stating that the account was closed and paid in full. Now what? Thanks 

My advice to her was to contact the credit card company and inform them that they have made a mistake.  Obviously they have simply made an accounting error which led to this miscalculation on their part.  I would then stay on the phone with them until this matter was settled.  She’ll probably have to end up faxing them the very letter that they agreed to honor just a month earlier.  Bear in mind this is no small credit card company, this is Chase Bank.  Luckily she got this agreement in writing.  And since she documented the phone calls (where they stated they agreed to the terms that the collection agency put forth on their behalf) she should be able to force them to honor the contract to which they agreed.

However, before this matter is behind them she may very well have to hire a lawyer to force them to honor a contract that they produced. Or this credit card company may sell this ‘outstanding debt’ to another collection agency for pennies on the dollar.  The faster she forces their hand the better….

**Update
After having to mail the copies of their settlement agreement to Chase Bank… twice – it appears this affair is over. Chase mailed her a letter stating the account had been settled. So, for now, the matter appears to be closed.

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

Related Articles

* The Fair Debt Collection Practices Act

* Reasons not to file Bankruptcy or Settle Your Debts

* Can you go to jail for not paying your debts?

* How to settle your debts on your own

* How to deal with collection agencies

* Sample Debt Validation Letter

* Information on Credit Card Balance Transfers

* How I Escaped Credit Card Debt

* What You Should Know About Credit Cards

* How to seek bargains for food and clothes