Here’s the latest situation that’s come across my desk, but with a year-end twist.

Q. Our basic question concerns phone calls we have received towards the end of this year from several credit card companies stating that they are going to write off our balances as bad debt at the end of this year (for their tax benefit we assume). Their “threat” to us is that although they will be writing our debt off as bad debt, they will also be selling the debt to a third party who will continue to try to collect the full debt amount (despite likely having paid only 25% or less of that full debt amount) and/or continue to hurt our credit for years to come.

We responded to them that we have the legal right to deal only with the original creditor (and not a third party) to which they responded that the third party who bought the debt would “become” the original creditor legally and thus legally be considered the original creditor.

Is there anything in these situations that would require us to respond in any way before the end of this year when they write our debt off as bad debt and/or sell the debt to a third party? If not, we will pick up this issue after the new year begins.

A. The short answer is “no”, you don’t have to do anything special before year’s end. I’ll explain why.

Maybe the year end has hastened the credit card companies to take write offs and sell off the debts to junk debt buyers (a.k.a. collection agencies). Year-end or not, though, if you can’t make your payments, these debts would have been sold off anyway. You should also know you do not have “the legal right to deal only with the original creditor”. Once the debt is sold or assigned, you will be forced to deal with whomever purchased the debt.

Once the debt is in collections, you’re in the same boat with everyone else. Despite purchasing the debt at a substantial discount (it’s more like 5 cents than 25 cents on the dollar), the collection agency will to collect on 100% of the debt; this is standard practice. However, if follow our procedures, you may be able to settle in full with collection agencies for 25% on the dollar or less.

Your assumption is correct that both the original creditor AND the collection agency may report this debt on your credit report, but again, year end or not, this would have happened anyway.

About the bizarre statement they made that the third party can continue to “extend” the debt after each 7 year period simply by paying $125 fee, I honestly don’t know what they are talking about. Per the Fair Credit Reporting Act (FCRA), the debt can only be reported from 7 years from the date of first delinquency with the original creditor.

Have you been hit with these year-end creditor phone calls? Tell us about it by leaving a comment!

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