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.

A highly trained bill collector knows how to get the most money out of defaulted debtors. While you are nervously thinking of what to say they are taking notes… updating your credit file. A good bill collector normally has an outgoing personality and tough outer shell. Therefore collectors learn early on not to take the job personal. They also learn how to take everything you say to build a case against you. A bill collector will listen carefully to everything you say (while at the same time recording the conversation), as well as the way you say it, to develop a plan of action which will most likely generate a payment from you. See also all of my articles on Collection Agencies.

Bill collectors are not your friend, and though they may appear concerned, they are really only concerned about their paycheck. Collectors work off of commission, often receiving 10 to 25% of your payment to the collection agency. So if they get you to cough up $100… they just made $25 buckaroos. These collectors also have a monthly quota to achieve. If they fail to meet the monthly collection quota they can be let go. A collection agency needs bill collectors that can produce dollars while maintaining a level of conduct compliant with the Fair Debt Collection Practices Act.

The only time I would consider speaking with a collection agency is when I have an offer for them. For example, I would give the dollar amount paid monthly, the total number of months to be paid, and the conditions of how I wanted this reflected on my credit report. They would then have to agree with those terms, put them in writing, sign the contract, and send me a copy. This would be a no debate discussion… here are the terms… period. If you don’t agree with those terms then contact me when you do.

Controlling the Conversation

The bill collector needs to stay in control of the conversation to steer you towards a payment. Maintaining control is their number one priority. Using a sort of psychological authority, since you owe them money, they proceed to make demands in a civil tone. A good collector is looking for verbal cues from you which will indicate what buttons he needs to push to separate you from your cash.

Collecting Asset Information

While the collector is buddying up to you… he’s updating your file with any asset information you provide. For example, if you say times are tough because you are paying on a house or vehicle note… well you just gave them an asset to add to your file. They will also inquire as to any land, homes, vehicles, savings accounts, or stocks, that perhaps you could sell to satisfy this debt. If you tell them that you have a job they will rightly figure that you can produce some monthly payment amount.

Lump Sum Demand

A collection agency will almost always demand a lump sum payment the first time you talk with them. They do this because many debtors are intimidated and cough up the lump sum. However, they do not need the lump sum and can be worked down to a rational monthly payment plan. Their goal is to get you on the phone, intimidate you with fear tactics, and proceed to collect as much moolah as possible. Did I mention that talking with bill collectors on the phone is a bad idea? A bill collector wants you on the phone – they don’t want you ignoring the calls, and instead, writing those pesky debt validation letters.

Legal Suit

Through the process of updating your file they will determine if they stand a good chance of collecting the money by pursuing a civil suit. If they know your house is paid for; this is a perfect asset for them to seek a lien against via a court judgment. If they know that you have a decent job they will seek to garnish your wages, and if possible, take money directly out of any banking account you have. A good candidate is one with at least one asset, at least a $500 balance, and the account is not in dispute.

Here are some good tips I found at wikihow.com for talking with collection agencies on the phone (if this article didn’t convince you not to):

You must keep a calm, reasonable and well mannered tone of voice. Any yelling, name calling or other verbal tactics will damage the image you’re working to project.

If they speak to you in any way that you find objectionable, give them one warning, as mentioned in your opening statement. The second time you should ask to speak to their supervisor. When you’re connected with the supervisor start again from step one.

Write down everything, including: the date and time of the call, name and position on the rep calling you, what they want, what you’re offering, etc.

Many times the names of the collectors are not their real ones. One way to figure it out is to send the signature receipt letter addressed only to that one person. If they sign back with their signature on the letter, they must be that person (otherwise it becomes a federal offense of mail fraud).

Sometimes you just can’t win because they won’t listen to reason or acknowledge that you legally are not obligated to the debt. In this case – you should establish a long paper trail indicating that they did not wish to collect on the debt in good faith. When they file your collection with the credit agencies, mail copies of your paper trail to all three, with documentation that they violated the Fair Debt Collection Act and demand removal of the claim from your credit report immediately.

Be very careful about making any payments if the debt is past the statute of limitations or about to be since that may restart the clock and you may then owe the full amount even if the collector told you that you would only have to pay a small amount and then they would leave you alone.

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

Related Articles

* What is a Junk Debt Buyer?

* Restrictions on Wage Garnishment for Debt Collection.

* 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

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.

**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.

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.

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!

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

* 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