Dealing with debt collectors may be the last thing you want to do — or feel equipped to handle — but sometimes there is no way around it. If one of your outstanding debts gets transferred to a collection account, you’ve heard about it in one of three ways:
- It came up as a listing on your credit report.
- You received a telephone call from a collection agency.
- You got a letter in the mail from a debt collection agency.
You could try to use one of our debt settlement methods to deal with a collection agency, but you might want to try debt validation first. Before you do, you need to understand the dos and don’ts of debt validation. This article is a great place to start, followed by Debt Validation Myths, two comprehensive resources that should leave you well-prepared for dealing with a debt collector.
Debt Validation Basics
The best way to start dealing with a debt collector is to understand just what we mean by debt validation. Let’s say you borrowed money from your friend, Paul. Paul would now be known as the original creditor. As time goes by, you think you might still owe Paul money but you are not sure how much.
Then out of the blue, a guy named Bob comes up to you and says he is collecting the money you owe Paul. Bob is acting just like a collection agency or debt collector. Now, you have never met Bob before so why would you just hand over the money he says you owe him? You probably wouldn’t — at least not before first asking Bob some questions.
- Is he legally authorized to collect the money?
- Does Bob have proof showing the actual debt amount? What payments have already been made to the account? Where is the accounting of the debt, including all interest and fees?
- Do you still really owe Paul the money? You remember borrowing money from someone else, your friend Sam, at the same time. You also remember paying one of them back the next day. Is this debt the one you borrowed from Sam or Paul?
You should go through the same thought process when a debt collector sends you a bill for a debt.
Don’t Panic When Contacted by a Collection Agency
If you receive a phone call or a letter from a collection agency, your first reaction may be to panic. The best advice is to stay calm and analyze the situation. Think of what you would ask Paul in our example above. If you do, you’ll know exactly what to ask a collection agency in order to validate the debt.
What Does a Debt Collector Need to Provide?
A collection agency or debt collector need only provide the following for proof of the debt:
- A credit card statement (such as a charge-off statement) that matches the balance claimed by the debt collector.
- A list of charges that total the amount claimed in the initial communication.
What Does the Original Creditor Get Out of the Deal?
Creditors hire collection companies to collect debts for them because they simply don’t have the time or resources to chase down all of their severely overdue accounts. When a creditor hires a collection agency, the debt has been assigned to the collection agency. If a collection agency is successful at collecting the money on the account, they usually keep a percentage of what is collected as payment for services.
Original creditors sometimes sell debts in large portfolios to collection agencies called junk debt buyers. These companies do not spend much money at all on these debts, sometimes paying less than 1 cent on the dollar. Even if the debt is not a large debt, they often hire an attorney to send out mass form letters to debtors in the hopes of collecting. As you can imagine, even if they only get a small percentage of the debtors to pay, profits are enormous.
Is the Collection Agency the Correct Party to Pay?
Why should you care if a debt is purchased or assigned? In an assignment, the collection agency does not own the debt, and therefore you do not technically owe them any money. There is no way for a collection agency to prove that you owe them money in court because there is only an assignment of the debt and not a contract between you and the creditor.
One loophole: Some contracts have the wording “debtor agrees to be responsible for payment of this debt to creditor OR ITS ASSIGNS.” In court, this is enough to prove there is a contract between you and the debt collector as well as the creditor and if in court, they can provide you with a copy of a contract that states this, you are pretty much stuck and need to negotiate the debt. When asking for debt validation, a collection agency or junk debt buyer does not need to provide you with a contract in order to meet the requirements under the law. However, we mention the places where this would be important in court so that you are prepared should you decide to go this route in your quest to settle or get rid of your collections.
It is not necessary to include any references to the FDCPA and FCRA in a dispute and validation request letter. Simply disputing and requesting validation is enough to show that you are aware of your rights. In addition, it’s not your responsibility to inform a debt collector of the debt collector’s responsibilities. If the debt collector is unaware of his responsibilities, it’s his problem.
Debt Validation Strategy
- Mail your debt validation letter within 30 days(!) of the initial communication from the collector. What constitutes initial communication? Basically, a call or letter from a collection agency. If it has been more than 30 days, and you have reason to believe the collection to be inaccurate or unverifiable, then submit a credit dispute (which you can do at any time).
- Dispute the debt with the credit bureaus if it is a result of ID theft or if it is being reported inaccurately. There is a risk of “waking a sleeping giant” if you dispute a debt within the statute of limitations. Sometimes it is better if you let sleeping dogs lie, as they say.
- Check the statute of limitations on the debt. If the statute of limitations has expired, send them a letter informing them that they are trying to collect a zombie debt. This is a debt that is too old to have any legal liability for a consumer. Here is a sample zombie debt letter for you to use.
- Wait to hear back from the collection agency. Most likely they will not respond or they will respond saying that they received your letter.
- If they haven’t sent you satisfactory proof (listed above), and are still reporting this on your report, send a copy of the first letter you sent and a statement that they have not complied with your request. There is case law that says you can’t report if you haven’t validated the debt. (Moscona v. California Bus. Bureau, Inc. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA (24 Oct 2011)) Tell them they need to immediately remove the collection listing from your credit report or you are going to file a lawsuit.
- Typically, your work will stop here, as most collection agencies will bow down to your demands and send you a letter agreeing to remove the listing. Now all you have to do is send a copy of the letter to the CRAs. If the collection agency did not agree to remove the listing, then you need to continue to the next steps.
- File a lawsuit in small claims court against the collection agency.
- Have the papers served to the collection agency.
- You can try sending the credit bureau this validation of debt letter to see if they will budge. They may tell you that the request needs to come from the creditor. This is baloney. If they can’t give you reasonable information on how they verified the information and the collection agency has provided you none, you can conclude there was no reasonable investigation performed.
- Notify the bureaus (anyone that is still reporting this debt) that you are suing them — for continuing to report listings that have not been validated — by using this letter tweaked to your unique circumstance. The credit bureaus will call the creditors and find out that there is a question about whether the debt is legitimate. They should delete it immediately.
As with any legal efforts, it may be best to contact a competent consumer attorney. We are not attorneys. The best advice we can give is this: if you don’t understand what you are dealing with, contact an attorney or a consumer credit counseling office.