With rising costs of living it is no surprise that an estimated 68 million Americans have one or more accounts that have been sold to a collection agency. If you are here, chances are you have been contacted by a collection agency regarding debt, and you are probably wondering what your rights are and if you are even legally obligated to pay it.
In this article I will explain the following:
- Help you determine whether or not you have a legal obligation to pay your debt in collection.
- Show you how to verify your debt(s) that are with a collection agency and what to do to keep yourself protected.
You Have Been Contacted By a Collection Agency Saying You Owe Them Money. Now What?
First things first, do not acknowledge the debt. Any debt that a debt buyer or collection agency purchases from a financial institution must be verifiable. If they cannot verify that you owe them money, they cannot collect. Verification of debt is simple and easy, you can do it yourself.
You Can Validate the Debt
The Federal Trade Commission warns and recommends that you validate all debt, this protects you from being the victim of fraud and can save you thousands, especially if a debt collector tacks on illegal fees and interest. If a debt collector calls you, take down the agent’s name, phone number, account balance, date, and time they contacted you.
When pursuing a debt validation with a debt collector I highly recommend that you do it in writing, this prevents the collector from denying that they ever received your request for validation. A solid rule of thumb when dealing with debt collectors is to always have a paper trail. The Consumer Finacial Protection Bureau has sample letters that you can download and customize to your situation.
It is crucial that you document and track any and all communication from a debt collector (times/dates they called, name of the agent who contacted you, number of times a day they call, if they threaten you, general notes on any conversations). In the unlikely event that a debt collector sues you, you may get financial compensation and have your debt canceled if you can prove that the collector violated the Fair Debt Collection Practices Act (FDCPA).
The debt collector sent you a validation letter – and the debt is yours. What do I do now?
First off, you still have rights. Just because the debt collector sent you a validation letter still does not mean that you owe the debt.
- Check over all of the information in the letter to ensure that it is accurate.
- You want to check all of the information and make sure that it matches your records.
- Call your original creditor, and ask them for all the information they have on your account, including a copy of your contract with them. Balance information is very important to verify. It is illegal for debt collectors to charge exorbitant fees and or interest. However, it is important to note that they are allowed to charge you interest in ordinance with your contract with your original creditor.
After you have done your research and gotten all the required information, check with your state of residence attorney general’s office about the statute of limitations regarding debt collection. Ask the collection agency when their records show your last payment was. Most of the time they will not answer this question, however, you may get lucky and they may answer. If the collection agency does not answer your question, check the original trade line on your credit report to verify the last payment information. The clock on time-barred debts starts when you become 30 days delinquent.
Here is an example:
Tory has an old Upgrade loan that he took out in January of 2017. Tory lives in California and his last payment was made on July 1st, 2017 due to life circumstances he was unable to make another payment and the account was referred to collections.
The collection agency sued Tory in January of 2022. Tory went to court and told the judge that the debt in question is time-barred and his last payment was made on July 1st, 2017. The statute of limitations started on August 1st, 2017 (30 days after the last payment). In California, the statute of limitations is 4 years. Therefore, the statute of limitations ended on August 1st, 2021, and can no longer be collected.
Keep in mind, that even if the debt is considered time-barred, it can still remain on your credit report for 7 years from the date of the first negative remark.
Okay – The debt is yours and you are responsible for it. What should your next move be?
Well, that really depends on your goals and your whole financial situation.
Do you have lots of other debts that you are at risk of falling behind on, or are currently behind on? Are you thinking of making a major purchase such as a car or a home in the next two years?
If you answered yes to any of these questions you have options! If you have a large amount of debt you may consider a Chapter 7 or Chapter 13 bankruptcy. These are fantastic options because they give you substantial legal protection from lawsuits from creditors.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, if you meet the means test income requirements your unsecured debts can be discharged in as little as 120 days. Going the route of a Chapter 7 bankruptcy is the cheapest way to get out of debt. You can start rebuilding your credit the day after the discharge of your debt.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy works a little differently, in Chapter 13 your debts are restructured and you make monthly payments to the court and they pay off certain debts over the course of 2-5 years. At the end of the plan, any remaining eligible debts are then discharged and you may start rebuilding your credit at that point.
Is bankruptcy not a good fit for you, or do you have $6000.00 or less in unsecured debts? Debt Settlement would be a great option then! Debt settlement works by working out an agreement with your creditors to pay less than what you owe, and you make debt settlement monthly payments until you pay off the agreed amount. I highly recommend working with a reputable debt settlement company to help you manage your debts and negotiate with your creditors on your behalf.
- Do not acknowledge the debt or make a payment right away.
- Send a debt verification letter to a collection agency or debt buyer.
- Keep a record of all communications with the collection agency, including calls that you do not answer and voice messages, text messages, emails, and letters.
- Debt collectors cannot threaten you with violence, jail time, or release of your personal information.
- Debt collectors cannot call you excessively, call your work (after you tell them to stop), call friends or family, and express that you owe them money.
- Check with your state attorney general’s office on the statute of limitations regarding debt collection before acknowledging or making any payments on your debt.