If you are like most consumers, you panic when you get notifications from collection agencies. You don’t know what to do or where to go for help. Many consumers feel overwhelmed by their debts and feel bankruptcy is their only option, only to realize they don’t have the money to hire a bankruptcy lawyer.
If this is where you're at, you’ve come to the right place. The staff here at moneycoach911.com are here to help you every step of the way.
What You Should Know
The risk in owing unpaid debts is more in your favor than you realize. There are many laws in place that clarify your rights and work to keep collection agencies in line. However, many collection agencies violate the law in their collection practices. (See examples of such violations.)
It's true that a creditor could sue you in court and win a judgment, allowing the creditor to garnish your wages or hire a sheriff to come get your property. However, the chances of this are very small. It is usually too time consuming and expensive for them to take this kind of action against you. And if they do take you to court, often they have no case, as you're about to find out.
First, you need to understand that there are many new players out there, known as Junk Debt Buyers. These companies buy and sell debts, place them into million dollar packages, and sell them on Wall Street, much like mortgage backed securities. We'll show you how to deal with them.
Don’t Be Fooled
Many collection agencies violate the law in their collection attempts. Don’t believe those awful tales spun by collection agencies of impending doom--especially about garnishment and seizure of property. Collection agents fail to mention that, in order for these actions to take place, the creditor must first go to court.
Collection agents are well known for misrepresenting themselves. For example, one of our clients was called by a collection agency, posing as their mortgage company. The collector claimed that their mortgage payments were about to increase because they failed to make a payment on other debts listed on their credit report. This is outright fraud.
Step One in Dealing with Collectors
The best way to deal with collection agencies is to utilize the debt validation method. Be aware that the collection agency contacting you about a debt may not be legally entitled to collect that debt. You must ask the collection agency to provide proof that they own the debt, or provide that they have a written contract with the Original Creditor.
There are only two ways that anyone other than the original lender can legally collect the debt from you:
The debt may have been assigned to the collections agency. Some contracts--meaning the contract you signed with the original lender--have the wording "debtor agrees to be responsible for payment of this debt to creditor or its assigns." If they can provide you with a copy of a contract that states this, with your signature, then you are obligated to make payments to the collection agency. The contract you signed was between you and the debt collector as well as the creditor. You can still try to negotiate terms, however. Feel free to contact us if you have more questions or need advice.
If you did not agree to allow the origional lender to assign your debt, then remind the collections agency that only the origional lender can collect on the debt. Again, feel free to contact us if we can help you with anything.
The debt may have been purchased. If this has happened, then this still does not make them an original creditor. The collection agency is still a debt collector and must adhere to the Fair Debt Collections Practices Act (FDCPA). If they claim that they now own the debt, make sure you ask them to provide proof. The rule of law is simple: if they can’t provide proof of ownership of the debt, then you are not obligated to pay.
If proof of debt purchase is provided, you can begin to negotiate with the collection agency--a procedure in which you have a lot more power than you realize. But through all your negotiations, make sure the debt collector follows the FDCPA guidelines, which apply to almost all personal debts.
As previously mentioned, many collectors violate the law in their collection attempts. If a debt collector says something along the lines of, "Since the debt was purchased, the collection agency is now considered an original creditor and not is subject to FDCPA." That is simply not true. Debt Collection Agencies can never become an original creditor, and therefore are not exempt from the FDCPA guidelines like the original creditor is. Make sure they are aware that you know the law!
Before You Begin to Negotiate
Check the Statute of Limitations. Collection Agencies only have a certain amount of time to sue you for payments. The first thing you should do is determine if the statute of limitations for collecting a debt in your state has passed. If the debt is older than the statute of limitations allows, tell the bill collectors they are wasting their time by harassing you for an uncollectable debt, as the original creditor or the assigned collection agency cannot take you to court to get a judgment. To see the time limitations on the different kinds of debt, click here.
After seven years (in most cases), a negative mark and the related collections will disappear from your credit report. If the debt has gone unpaid for 7 years, then it can no longer legally remain on your credit report. If you have negative items on your credit report after 7 years you may send a letter to each of the credit reporting agencies and request the negative items to be removed. The links to the 3 major credit reporting agencies are found under our credit reports and scores section. You may find it easier to hire a company to work on your behalf to submit the requests to the credit reporting companies. Contact us and we'll help you!
Please note, however, that the amount of time a late payment can appear on your credit report has nothing to do with the statute of limitations for collecting on a debt. The statute of limitations may give them less than seven years, or it may give them more. So even though a debt may no longer legally appear on your credit report, you could still be sued for the debt if the statute of limitations for your debt in your state has not yet passed. To see how long a negative item remains on your report, click here.
Negotiating
Next, you want to ask the collection agency exactly how they arrived at the balance they claim you owe. They must provide account statements from the Original Creditor. You should request a complete payment history, including what interest and fees have been tacked on and how this was determined. (See PDF5) There is an important court ruling regarding this matter. Fields v. Wilber Law Firm, Donald L. Wilber and Kenneth Wilber, USCA-02-C-0072, 7th Circuit Court, Sept 2004. (See http://bulk.resource.org/courts.gov/c/F3/383/383.F3d.562.03-4108.html)
Below are some statistics from recent debt purchases that you should be aware of before you begin to negotiate. This will give you an idea what they paid for the debt, and it will help you decide what offer to make. And as you can see, a sold debt is now owned by someone who is simply trying to make money. Your original lender can no longer collect on the debt.
Statistics Regarding Debt Purchases
Debt Buyer
Debt Amount
Purchase Price
Average Price Paid
Asset Acceptance
$4.2 Billion
$102.3 Million
2.4 cents/dollar
Encore Capital Group
$5.9 Billion
$195.6 Million
3.3 cents/dollar
Portfolio Recovery Assoc.
$5.3 Billion
$149.6 Million
2.8 cents/dollar
Source: 2005 SEC Filings
Begin your negotiations by explaining that you are aware that the agency paid only $_______ for your debt. Make them an offer that is approximately four times what they paid. Usually, ten cents to fifteen cents on the dollar is a good offer.
Example: Suppose you owed $10,000 on a credit card, and the debt was sold to a collection agency. You have a really good idea that the agency paid 240.00 to 500.00 at most for that debt. Begin by offering them 1500.00 in installment payments. If they refuse, remind them this is a very generous offer considering they will be making double, triple, or more, off their their investment. If they refuse, then simply tell them the next time you speak with them, your offer will be less and end the call. They may try and play hard ball for a while but the reality is you have something they want....money.
Best Protocol to Follow
Limit conversations on the phone.
Do most of your communication in writing, and make sure you send everything certified mail.
Make sure any verbal offers are put in writing and faxed, e mailed, or mailed to you.
Keep copies of all correspondence you send to them and they send to you.
Never, Never, Never send them a personal check or cash.
Never appear to be eager to settle. (Time is on your side.)
When making a payment, use a certified bank check from your bank and keep carbon copies for your records.
When Are You Free and Clear?
If the statute of limitations for collection is up on this debt, and
The credit report limitations have passed, then
PDF1 Collection Agency Violations
PDF2 Statute of Limitations for Debt Collection
PDF3 Statute of Limitations for Negative Items on your Credit Report
PDF4 Terminology and Definitions
PDF5 Sample Letter Requesting Account Details
If you have questions or need help, please fill out the form below and one of our staff will be in contact with you.