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.

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.

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.

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.

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.

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.

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.

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.