What happens when you are sued by a debt collector? How do you respond to a debt collection letter? How long can a debt be collected for?
While it may feel like the end of the world to you, being sued by a debt collector is a routine occurrence in courts across the country. Most debt collection law firms file hundreds of lawsuits a day and 99% of defendants will not answer.
There is a world of questions around debt collection laws and how best to protect yourself from being hounded by multiple collection agencies for the same debt or “zombie debts,” that may show up in court years after the debtor defaulted.
Even when debts are legitimate, the additional costs that result from a lawsuit can make it much harder for the borrower to resolve the debt.
With so many questions on the topic sent to us daily, we thought we would summarize the top 12 that come up most often…
1. How do I win a debt collection lawsuit?
The best way to start is to hire a debt collection attorney. This will give you the best opportunity to beat the debt collectors in court and they will know the exact processes to go through to give you the best chances of succeeding.
Fundamentally, when it comes to court, the collection company will need to actively prove the case, this means the collector will need to provide proof of the following:
- That you signed the application
- The entity suing you has the right to collect on the debt
- The balance claimed as being due is calculated properly
- The loan has not been rendered unenforceable due to the expiration of the statute of limitations
If the creditor is a company that’s bought the debt, that debt buyer must have proof in the form of the note or billing statements to back up their claims.
2. How do I pay off debt in collections?
A debt in collections will damage your credit score and leave you open to harassing nuisance phone calls from debt collectors. Paying it off can get debt collectors off your back and put you on the path to rebuilding your credit score and reclaiming your finances, thus becoming more stable.
Before you make a payment on a debt, first determine whether it’s past the statute of limitations so you can handle it properly.
If it’s not, there are three main options available to pay off a debt in collections:
- Create a payment plan
- Pay it off in one lump sum
- Negotiate a settlement
Creating a payment plan lets you set a payment schedule and amount that works for your budget, this may be negotiated with the debt collector to be a manageable amount within your current financial situation. It can also lead to the debt being marked “paid in full” on your credit reports, which can offset some of the damage done by delinquent debt.
If you come into money through inheritance or a tax refund, or if you can work to earn the money quickly, paying off the debt with a single payment can resolve your debt collection woes efficiently. Although, when paying off debt in full, make sure you keep this proof of payment to safeguard against incidents where the payment isn’t recorded correctly or the debt gets resold to another collector.
Negotiating a settlement for a single payment of less than you originally owed may also make the debt easier to pay off. Negotiating a settlement takes time, persuasion and caution. Explain to the creditor why you can’t make full payment. The larger the debt – and the longer it’s been in collections – the more likely the creditor is to accept a settlement.
3. How long can a debt be collected?
The length of time a debt can be collected is determined by the statute of limitations (SOL) of debt collection which varies (greatly) by state.
Typically, the statute of limitations starts when you miss your first payment with the original creditor. It does not start when the account was placed for collection. If a debt collector tried to sue you after this time period has expired, you can raise the SOL as a defense against the lawsuit.
If your debt is outside the statute of limitations in your state, the credit report dispute process is relatively simple. Simply write a letter to the credit bureau saying you are disputing the information because it is outdated.
Send your letter via certified mail with a return receipt requested so you’ll have proof of the date the letter was sent and a signature from the person who received it. If the credit bureau doesn’t respond within thirty(30) days, they’re in violation of the Fair Credit Reporting Act. The certified mail receipt will help if you decide to involve the Federal Trade Commission or file a lawsuit against the credit agency.
As long as the dates on your credit report show that the old account should have already been removed, your dispute should go smoothly.
4. What is the Fair Debt Collection Practices Act?
The Fair Debt Collection Practices Act (FDCPA) is a federal law that provides limitations on what debt collectors can do when collecting certain types of debt. The FDCPA covers how debt collection is reported in credit reports; as previously mentioned there are state laws that provide various other protections. The FDCPA prohibits debt collection companies from using abusive, unfair or deceptive practices to collect debts from you.
The FDCPA covers the collection of:
- Credit cards
- Medical debts
- Other debts mainly for personal, family, or household purposes.
The FDCPA does not cover business debts. It also does not generally cover collection by the original creditor to whom you first became indebted. Under the FDCPA, debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business.
For the full text of the Fair Debt Collection Practices Act, you can read it here.
5. How to dispute a debt collection letter?
Your FDCPA dispute rights are powerful. Within thirty (30) days of receiving the written notice of debt, send a written dispute to the debt collection agency. Once you dispute the debt, the debt collector must stop all debt collection activities until it sends you verification of the debt. If the debt collector can’t provide you with that proof, should never bother you again.
As with all dispute letters, you should keep a copy of the letter for your records. Also, it is a good idea to send the letter certified mail, return receipt requested, so you have proof that the debt collector received it.
You can dispute the debt over the telephone, but the debt collector will be allowed to continue debt collection activities and will not have to verify the debt. If you want to assert your right to verify the debt, you must send a letter.
6. How do debt collection agencies find you?
Just because a collection agency calls or writes to you, they don’t necessarily know where you live, especially if you’ve moved since you transacted business with the original creditor. All the bill collector knows is that it mailed a letter or left a phone message that wasn’t returned.
Here are the four main ways a collection agency uses to find people:
- Information on your credit application. The original creditor provides the collection agency with the information on your credit application. If you’ve moved, someone listed on the application (employer, bank, credit references, or nearest living relative) may know where you are.
- Relatives, friends, employers, and neighbors. Collection agents often call relatives, friends, employers, or neighbors, posing as a friend or relative. However, federal law limits these types of calls.
- Phone books, phone directories, printed or online, are good sources of names, addresses, and phone numbers. If a collection agency has your phone number, it may be able to find your address using a reverse directory. A reverse directory lists telephone numbers in numeric order, rather than by name.
- Post office. The agency may check the post office for a forwarding address. Also, major credit bureaus with their own collection agencies receive change-of-address information each month from the U.S. Postal Service.
7. How to negotiate a collection debt?
Before negotiating a settlement with a debt collector, learn about the debt and plan for making a realistic proposal.
To get ready to negotiate a settlement or repayment agreement with a debt collector, consider this three-step approach:
- Learn about the debt
- Plan for making a realistic repayment or settlement proposal
- Negotiate a realistic agreement with the debt collector
Memorialize your agreement! Sometimes, debt collectors and consumers don’t remember their conversations the same way. If you agree to a repayment or settlement plan, record the plan and the debt collector’s promises. Those promises may include stopping collection efforts and ending or forgiving the debt once you have completed these payments. Get it in writing before you make a payment.
8. What happens when your debt goes to collections?
If you ignore the creditor’s letters and phone calls, you are unable to work out an agreement to repay or settle the debt, or you set up a repayment schedule but fail to make the payments, your bill will most likely be turned over to a collection agency or sold to a debt buyer, and your delinquency reported to a credit bureau. This will probably take place within three to six months after you default.
By taking some time to understand how collection agencies operate, you’ll know how to respond when they contact you so that you can negotiate a payment plan or get the agency off your back.
Your original creditor will have sold your debt to a collection agency for a much smaller amount of the debt, but they make their money by recovering the debt for more than they paid for it.
Buying debts have become a huge business for collection agencies. Especially if your debt is old, you are likely to find yourself dealing with someone who has bought a bundle of debts for pennies on the dollar. Because the collector may not have any of the original credit documents and only a computer printout of the debt, the information it has may very well be incorrect. It may even have bought the debt from a previous debt collector, not the original creditor, which increases the likelihood that the collector doesn’t have accurate information about the debt.
Collection agents get paid for results—i.e. collecting money from consumers. There is no extra fee for favorable reviews or consumer satisfaction because the consumer is not the client. Some earn high salaries. Other companies pay their collectors’ meager wages, plus commissions, which means you may be called by a stressed-out, rude collector who doesn’t much care what the law allows.
9. How to check collection debt?
Collection results from a debt not being paid on time. Usually, the debt is significantly delinquent – more than 180 days late. When a debt goes into collections, the original lender of credit often assigns or sells the debt to a debt collector, such as a collection agency.
The debt collector – the person or company that collects debts owed – then tries to collect the debt from the borrower.
The easiest way to find out if you have a debt in collections is to pull a copy of your annual free credit report. Most collection agencies report to at least one of the three major credit bureaus – Experian, Equifax and TransUnion.
The collection agency might only report to one of the credit bureaus, so you want to cover all your bases by checking all three credit reports. Any account that is in collections will be marked with a “collection” status.
Once you’ve found who your debt is with, you’ll need to contact the credit agency. Your credit report might contain the name and contact information of the agency trying to collect the debt. Check the reports from all three credit reporting agencies in case there is conflicting or missing information on any of your credit reports.
10. How to respond to a summons for debt collection?
Once the initial shock and panic of being sued by a debt buyer wears off you’ve probably thought to yourself, “now what in the world do I do!?”.
Doing nothing may result in a final judgment, wage garnishment, and other financial problems. If a debt buyer has sued you, your first step is to hire an attorney to put together a timely response to the complaint.
At this stage you likely have two documents, the Complaint, and Summons:
Summons: The Summons is the document that should have been served on you by the process server when they originally dropped off the lawsuit. This document is important because it will tell you exactly how many days you have to submit your response to the court. Once you get the Summons make sure you write down on your calendar when the deadline is to respond. You don’t want to miss this deadline!
Complaint: The Complaint is what most people consider the “lawsuit”. A good way to look at the Complaint is as a list of allegations the plaintiff (the person/company suing you) has against the defendant (you). At this point nothing has been proven, it is just a list of allegations.
11. How much do collection agencies pay for bad debt?
To give you some background on how debt collectors operate; bad debt companies pay or receive literally pennies on the dollar for the debts they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age.
Some typical considerations for a debt collector’s purchase of a debt are:
- Debts that have recently been charged off: 6 to 7 cents on the dollar.
- Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
- Many years-old, out-of-statute debts: A penny or less.
12. Who enforces the fair debt collection practices act?
Consumer litigation attorneys along with the Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you.
To contact a debt collection attorney to assist you with a potential FDCPA case or other consumer claims contact Zerbersky Payne to discuss your options.
Additionally, some states such as Florida, have their own debt collection laws and regulations. These state laws are enforced by consumer protection attorneys as well as the State regulating body for that particular state.