Brent’s Credit and Debt blog

It is a really helpless feeling.  When the collector calls, you feel angry, frustrated, and scared.  The calls seem to come in constantly!  All day, from 8:00 in the morning until 9:00 at night, the phone will ring.

I felt nervous every time I heard that ring tone.  Looking at the caller ID, it was an 800 number or an ‘Unknown ID’.  I knew who it was.  And I chose not to answer.

Finally, I got smart.  There is a law, Called the Fair Debt Collection Practices Act, or FDCPA, that regulates how debt collectors are allowed to contact you, including how often, where they can call, and what they can say.

If you are getting calls and want them to stop, you can do that easily.  Answer the phone.  I know, you don’t want to, but answer it.  Get the following information from the person you talk to:

• The collection company name.
• The mailing address of the collection agency.
• A supervisors name.
• The name of the person calling you.

Also, write down the time and date of the call, and anything you can recall being said.  You don’t need the peoples names, or the time and date, unless they don;t stop calling you.  In that case, if you pursue legal action for a violation of your rights, that information will be critical.

Write a letter to the collection agency.  In your letter, be nice but firm.  Have it say something like this:

To whom it may concern,

You are causing me undue stress by continuing to call me regarding a supposed debt.

Do not contact me by phone any longer at the following number:  (713) 555-2167.

If you wish to contact me, you may write me at the address you have on file.

If you continue to try to contact me by phone, I will be forced to take legal action under the FDCPA.

You have 5 business days to comply with this letter.

Sincerely,

Me

Now, a couple of key points.  It is a ‘supposed’ debt.  Never admit it is your debt.  They can use that to sue you.

If you aren’t allowed to be called at work, say so.

They can’t cause you to feel nervous, so tell them your calls are causing stress.

Send your letter certified mail, return receipt requested, and make sure it is there in at most 3 days.  That way they can set up their auto dialers to stop calling you.

Keep a copy of the letter, and your receipt from the mailing.  If they continue to call, contact your state’s attorney generals office.

I’d like to know, have you had problems with a collector continuing to call?  What do you think of collections in general?  Leave me a comment and let me know.

They are easy to hate, aren’t they?

They call you and demand money for something you couldn’t pay for in the first place.  They try to help you ‘find’ money by taking out additional loans, or by borrowing from family.  They want you to make payments.  They are even willing to waive the interest they charged you.

They are the few, the mean, the Debt Collectors!

But how could someone do this?  How could they spend their days trying to take your money?  Don’t they have a SOUL?

Well, I’ll tell you, I have worked with collectors.  I was working for a company that managed the debt that collectors go after.  I worked on the computer systems, and they hire only the best and brightest.

To the people working in the background, it is just another job.  They don’t talk to people with debt problems.  They only work on the computer system.

Collectors, though, have a pretty tough work life.  They spend all day on the phone, and 9 out of 10 calls aren’t answered.  Very few people call back.  And about half of the calls that connect have an irate person on the other end of the line who is sick of being harassed.

A really good collector will make a little over $20,000.00 per year.  They are mostly young: college students, people looking for a bit of extra income, or people who are having a tough time finding other work.

They don’t particularly like their jobs.  They hate being yelled at, and they hate trying to trick people into paying money they don;t have.  They have heard every hard case story in the book, they are lied to, and they are often ignored.

Are they mean?  Not really.  They just have a mean job.

Are the natural liars?  No, they are trained to manipulate.

Are they ethical?  Most are, but the ones that aren’t give the entire industry a bad…I mean worse name.

For the most part they are people struggling to get by just as we all are.  They really don’t deserve our hate.  They aren’t malicious, they are just trying to make a buck.  By stealing ours.

But I hate their calls anyway.

If you want to learn what NOT to say to a debt collector, download this article:

The Top 10 Questions a Debt Collector Might Ask You

The debt collector can get a lot of information about you.  However, do they have the right to see your bank records?

My latest Ask Brent video addresses this.  You can watch it here: httpv://www.youtube.com/user/MyCredEd.

Remember to ask your questions about credit and debt in the form to the right.  I will answer via blog or video as soon as I can!

When you fill out the form, your question goes straight to my email inbox.  I am an email addict, so I will see it quickly.  If I put your question into a video, or answer it in a blog, I will send you and email back to let you know the answer is ready.

Well, it happened.  You didn’t make your payments, and now your account is going to collections.  I know how you feel.  You get a sinking feeling in your gut, you know this is going to make getting credit really tough, and you start to worry about getting sued.

If you act early enough, you may be able to save this account.  Each creditor has its own policy, but many are becoming more lenient as they are trying to work with debtors (you) to keep accounts open and money coming in.

If you feel that an account is going to be closed and sent to collections, you need to do several things quickly.  First, call your creditor!  Talk to them about your situation, and explain that you are getting back on track and want to make good on your debt.  You may have to pay penalties and fees, but there is a possibility that you can get them to work with you.

Second, be prepared to make a payment immediately!  They will have a ‘minimum payment’ needed to bring the account back into good standing.  This is usually not negotiable, and they will want it now.

Third, be prepared to make a regular payment!  You will have to pay on time, and the required amount, in order to keep your card in good standing.  If you miss a payment, or don’t pay that minimum, your creditor may feel that they have no choice but to close the account.

Start working to manage your bills more effectively to make sure you don’t create more problems for yourself.  Typically, after 1 year of regular payments, your creditors get more lenient and will work with you on interest rates, card limits, and payment schedules if you run into a problem.  Don’t miss another payment, and make sure you pay at least the minimums when you make a payment.;  Paying extra always reflects very well on you as well.

If you do save the account, you should be aware it will come with penalties.  You will almost certainly pay a higher interest rate.  Your credit limit will probably be reduced.  And, it will be a LONG time before your creditor is willing to make any kind of a concession for you!

Getting sued is a terrible thing. The prospect of having to go to court, the possibility of a judgment on your credit report, and having to meet a debt collector face to face fills most people with dread. Unfortunately, once that suit is filed, there is very little you can do to get out of going to court.

Filing a suit costs a collector money, which they hope to collect in the judgment. But, that cost is a risk the lawyers take. Therefore, by the time they file suit, they are fairly sure about the following:

1. You ARE the debtor that is responsible for the debt.

2. You probably have the ability to pay after the judgment.

3. You probably have an asset they can place a lien against.

4. It is unlikely that you have a defense.

Now, if you really aren’t the debtor that is responsible for that account, simply take that documentation to court and you will win. Similarly, if the collector has violated the FDCPA, you can win the case. However, if you really owed that money, you could be in trouble from the start. You will also win if the debt is older than the statute of limitations in your state has expired for legal action on a debt.

If you are not responsible, you will need to file a response to the suit with the court that you have been summoned to. The response process is different depending on the jurisdiction, but your court probably has a web site that details the process. Be detailed in your response, and make sure the court has the information it needs to settle the case.

On the other hand, it could really be your debt. In that case, you have two options: You can go fight the suit and probably lose, or you can try for a settlement with the collector.

If you choose to settle, remember that the collector has invested money in the case, and they will want to recover those costs. So, the amount you pay will go up. Also, you are basically out of bargaining power at this point. They have a case prepared, and they have a high level of confidence that they will win.

If you run into this situation, a settlement early is often a good thing to do. Try to get the collector to waive interest, and as much of the principle as possible. Then, get a payment schedule set up and make the payments on time.

Remember, they sued you once. If you default on a payment schedule, they will absolutely sue you again.

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

When you file bankruptcy, you are, by law, going to get relief from creditors. Now that you have filed, however, the collectors just keep on coming after you. Are they allowed to do that?

The short answer is no. They can’t try to collect on that debt.

Are you ready for the longer answer? I figured you might be.

When a collection agency buys an account, it has already been defaulted on. In other words, you didn’t pay your bills on time, and so someone is calling you to get some money. This is all perfectly legal, and in fact you agreed to it when you signed your loan paperwork, or when you clicked ‘OK’ to the terms and conditions of your credit card.

There are times, however, that your defaulted account is purchased after you filed bankruptcy, and before your lender is notified that you filed.

This happened to me. My satellite TV company wrote my account off, and then sold the account to not one, but two different collection companies! That seems a little iffy by itself, but isn’t really relevant here.

Here is how the debt collector looks at things: When you tell a collector that you filed for bankruptcy, they have to look at a couple of things. First, are you lying? Lots of people do lie and say they have filed when they didn’t. Unless you have paid your money and gotten a bankruptcy case number, you have not filed bankruptcy. In other words, just talking to a lawyer about it isn’t enough. If you have filed, just give the collector the case number, and your attorneys name if you used one, and they will verify the bankruptcy and leave you alone. If they bug you again, you can take action against them. However, if they can NOT verify the bankruptcy, then by law you are fair game.

A second thing the collector will look at is when your account was opened compared to when you filed bankruptcy. A bankruptcy will include accounts you had before filing, and in fact up to the day of filing. But it will not include accounts you open after filing for bankruptcy. If you go out and get a new credit card after filing for bankruptcy, you are liable for the credit card balance.

The collector will check things out, and if in fact you had that account included in bankruptcy, they will drop the collection effort. They may ask for documentation (send them to your lawyer), but they will have to drop it.

So, you may very well see an account or 2 that are in collections when you look at your credit report. Don’t panic, these are easy to clean up. Just contact the collection agency and get them removed.

To get a copy of my FREE e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you might hear during a call from a collector, how they use the information they get from you, and how you can protect yourself by not divulging too much.

You have an account at collections. Face it, you have a problem to deal with. The stress is just about unbearable, and the fact is that you are legally responsible for the money. The fact is that your account has been sold, and you now have to deal with the repercussions of not paying for the debt on time.

When a collection agency receives your debt, they have a couple of courses of action that they can take. The first, as you know, is to start calling you and try to collect. That is the most common method of getting money from a debtor on a defaulted account. The collection agency has another option, though. They can choose to sue you for the money.

Why would they do this? Well, each collection agency is different, but the reason is that they think they can get more money out of you by suing you than by collecting the funds.

When evaluating a debtor for suit, a collection agency will check quite a bit of information about you. You see, when your account is first purchased, the collection agency spends money to find out about you (See my BLOG entry http://creditconundrum.wordpress.com/2008/03/02/cc4-how-the-debt-collector-finds-you/ for more information). Now that they have all that information, they spend some time evaluating your financial and personal wealth situation, and then make a determination on whether or not to sue.

There are many factors, but here are some of the high points:

1) Is the Statute of Limitations on your account nearing the end date? (see http://creditconundrum.wordpress.com/2008/03/11/cc11-what-is-the-statute-of-limitations-for-my-credit-card/ for information on the statute of limitations).

2) How high is the balance of your account? If it is so high that they feel you may not be able to make payments, they might look at you as a candidate for a lawsuit.

3) What are your demographics? Certain demographic groups are more likely to pay against a judgment that others.

4) Are you employed? It is easier to collect money from someone who is earning it. Go figure.

5) Do you have equity in a property or some other asset? If so, they may be able to get you to re-finance, or to sell and pay up.

Any of these factors may contribute to their decision, and there are many additional factors. Just understand that they make a decision based on their probability of success and the amount they think they can be awarded in the suit.

Now, there are problems for a collection agency when it tries to sue someone. First, the agency has to pay fees to file, and pay for an attorneys time both to prepare the case, and also to do the actual litigation. This can be quite expensive, so the return on investment has to be quite clear. They will look at the costs to file and go to trial, the amount they bought the debt for, and the collectible amount, and decide if the money is worth it.

The end game, though, is that if they win their case, you will probably end up paying what you owed, plus interest, penalties and fees. The collection agency can put a lien on your house, so that when you sell they get their money. They can order a garnishment against your pay check. And they can request assistance in getting their payments from the court.

A couple of things you should know before I close:

1) If you stop making payments on a payment plan you have established with a collection firm, it may be a trigger to get them to pursue you in court. The fact that you were paying probably means you can, so they might go after you.

2) Just because you haven’t seen a summons yet doesn’t mean you won’t if your Statute of Limitations runs out. As long as they filed before the end date of the SOL, you may still have your day in court.

Finally, I will tell you this: Most lawsuits filed against debtors are settled out of court. A smart debtor knows that they might lose the case, and will want to just get rid of the debt. So, if they sue, get a lawyer, and try to get it settled. You may end up saving a bunch of money, and you may be able to make the debt go away.

To get a copy of my FREE e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you might hear during a call from a collector, how they use the information they get from you, and how you can protect yourself by not divulging too much.

So, you’ve missed a payment or two.  You probably could have made them, but other things, like eating, got in the way.  Now your creditor is calling, writing, emailing, and generally acting like you are a bad person.  You don’t want this to go to collection, and you don’t want to lose the ability to use the card.  So, how long do you have before the creditor writes you off?

Every creditor will have its own policy.  Typically, they let you know they are unhappy at 30 days late, they get grumpy at 60 days late, and they decide you are never going to pay at 90 days late.  The credit bureaus report up to 150 days late.  Anything more than 150 days is lumped into the 150+ day bracket.

What do they use to decide when it is 90 days?  Well, you pay on your earliest payment first, so it works like this:

• You are supposed to make regular $200.00 payments to your bank for a loan. You make the payments for a while, and then run into a financial problem. You miss a payment. When the next billing cycle starts, you are 30 days behind.
• You miss another payment. Your bank calls you, and you make a payment. Since you missed a second payment, you are still 30 days behind.
• You miss another payment. You are 60 days behind. At this point, your creditor reports you, but probably for only being 30 days late.
• You make a payment, and the billing cycle starts again. Still 60 days behind. Another notation on your credit report.
• You miss another payment. The company declares the account in default status, and cancels your card. They report the loss as a charge-off, and note your credit as 90 days late, and as a charge off.

You have to understand a bit about the finances of debt collection to understand how creditors operate.  Let’s say you have a $1,000.00 credit card with a bank.  They are earning 14% interest from you.   So you end up making nice payments to them.  The earn money from this, and they are profitable.  You also cost quite a bit for them to acquire you as a customer.  So they hate to give you up.  See my entry http://creditconundrum.wordpress.com/2008/03/18/the-finances-of-debt-collection/ for more on this.

Your creditor is going to compare you to other people they have loaned money to.  Your income and payment history are key indicators of how well you may perform as a responsible debtor, and they take that into account when making decisions about you.  However, at some point they give up on you.  When that happens, they are going to do what they can to get some of their money back, and they know that by doing this they will lose you as a customer..  They are going to charge the $1,000.00 and the interest off as a bad debt, and reduce their tax burden.  They also get to try to recoup some of the money.

Now, the ‘industry standard’ (in quotes because this industry is a free-for-all) that most creditors follow is to try internal collections for 90 days, and then to go to an external vendor for collections.  This is the normal period for a charge off.  If you have been a good customer, they might wait a while longer, but if you don’t make payments, they will charge your debt off.

When that happens, they sell the debt to the highest bidder.  That bidder happens to be a collection agency.  And by the time it goes to collections, it is too late.  Your credit scores drop, you get hit with penalties, and you may have legal issues.

The best thing to do when you are behind?  Call your creditor.  They don’t want to lose you, or the money you owe, so they will be willing to work with you.  They may be grumpy, and it may take a while, but be persistent in asking for help.  It can really pay off in the end.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

You aren’t going to believe this, but it’s true.  Here is the secret behind debt collection:  creditors want their money!  OK, I am being kind of irritating there, but that is what drives debt collection.  How the process works, however, is pretty interesting.When you apply for debt, the creditor decides if you are credit worthy.  They do this based on your income, your past payment history, your line of credit to used credit ratio, and your credit scores.  It takes a computer about 1 second to make this decision.  If they, or it, decide you are worthy, then you will be issued credit.  This comes, however, with some protection for the creditor.In your credit agreement, you explicitly agree to pay the creditor back.  They are pretty determined that this will go in their favor, as this is how they make their money.  However, you may experience a period in your life where you don’t pay the debt back.When this happens, the creditor tries to get in touch with you.  They usually have an internal department call an Internal Recovery Unit (IRU) that is responsible for going after very collectible debt.  These are the phone calls that you get when you are 30 or 60 days past due.  You see, the creditors still consider this very collectible.  They usually don’t report a problem for 60 days to the credit bureaus, although individual firms have their own policies on this.  They just want to collect their money and keep you as a credit customer.With some debtors, a bank will be more lenient.  If you have an excellent payment history, and are suffering some temporary hardship like a job loss or medical problems, some banks will give you 150 days or more to start making payments again.  In these cases, they recognize your worth as a customer and want to keep you.  It is very expensive to acquire a new customer, often costing hundreds of dollars in advertising, promotions, list acquisition, and other fees just to land a single customer.  As long as the creditor is making money from you, they want to keep you around.In the case of the creditor wanting to keep you, they will have their IRU do the collections.  At some point, however, it becomes too costly to carry the debt, and they decide to sell It to a collections firm.Typically, debt is charged off after a 90 day delinquency.  This debt, between 90 and 120 days old, is called ‘fresh’ debt, and collectors love it.  They would much rather collect on this debt than on older, ‘stale’ debt.  Fresh debt can return 60% or more actual collection revenues.  This is a huge boon to the collection agency, as they buy the debt for less than that.Periodically, an IRU at a creditor will be overwhelmed, and the creditor will charge off the debt early, and pass that debt on to a collection firm.  This debt, known as IRU, is what collectors dream about.  It is very collectible, and has a high return rate on the dollar spent.So, why is a creditor so interested in keeping their debt and collecting it internally?  They lose a lot of money if they sell it off.  A typical ‘fresh’ debt portfolio, with debt ages of 90 to 120 days, sells for about 40 cents on the dollar.  So, they collector can make up to 150% profit, assuming they could collect all of the debt.  The debt collector also adds fees and interest to the collectible amount, so they are able to pad their profits nicely.Debt can also go out as ‘contingent’ debt to a collections firm.  In this case, the original creditor keeps the account, and they pay a commission to the collector for each dollar collected on the original amount.  The original creditor has the ability to recall that debt per the contract, and can reassign it to another collector, or to their internal collections, if they aren’t happy with the performance of the collection agency.If a creditor can collect on their own debt, they get more money back, and get to keep the customer.  They will also be charging a higher interest rate because of the increased risk, so they make money fairly quickly on collected debt.  It makes sense for the original creditor to try to keep collecting on their debt, but ast some point they decide you are not worthy of being their customer, and they accept a loss on your original credit in order to get some of their money back and continue their profitable business.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

It’s happening a lot now. An account you had forgotten about, from a different time in your life, suddenly shows up again as a Dunning Letter from a collection agency. You vaguely remember the address, and you are pretty sure you paid that off, but that was 15 years ago! It was your debt, but you don’t have records that far back. Why are they bugging you now?

The game has changed. There is old debt out there worth tens of billions of dollars that was believed to be un-collectable. In other words, the utility company didn’t know how to find you, so they never pursued the debt. This debt is very cheap to buy, and the fact is that a very small number of collections against it can generate large rewards for the collection agency, so they are willing to put in the time and effort to try to get a bit of cash out of you.

Some collectors are unscrupulous (comes as a surprise, doesn’t it?), and don’t care who they collect from. They might add a negative to someone’s credit report even if they can’t verify the owner of the account. In that case, they are hoping the innocent victim will pay for a deletion of the account rather than take the time to fight it. In many cases, this is the cheapest way to go.

But again, why bother? Well, the original creditor wrote the debt off years ago. Now they see a way to make some cash back. So, they cell their debt for 3 or 4 cents on the dollar. Look at the benefit to the collector.

They buy a million dollars worth of debt for, say, $40,000.00. Over a period of a month, they are able to bring in 10 percent, or a hundred thousand dollars. They make HUGE profits on a very few wins.

So, how do they prove the debt is yours? Well if the original creditor has a paper trail showing this is your debt (usually by a matching SSN), you are stuck. But often, they have no paper that proves the debt is yours. So, you can contest it, they can’t prove it, and by law they have to delete it from your credit report.

However, they often don’t delete it. They will change something, like the date reported, or the amount, but won’t delete the negative. And unless you act, they will have 7 years (in most states) that the debt will show up on your report.

What can you do? If this happens to you, the first thing to do is send a letter demanding proof. Not that they verify the debt, but that they prove it is yours. If they can’t prove it, you have a case against them.

The second thing is to call the original creditor and explain the situation. They may have simply made a mistake, and might be able to help you out.

Your next step is to dispute with a credit bureau. If you do that, the bureau has 30 days by law to respond, and if they get no proof they have to delete the data from their credit reports.

The point is, you need to do something. Check your reports, and take action against the bad. If you do that, your reports will improve, and you will save money over the long run.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.