Wednesday, August 25, 2010

Collection Accounts and Your FICO Score

If you didn't already know, the only credit score that matters is the one you get from Fair Isaac – your FICO score. This is the score lenders use when determining whether you qualify for that new car loan, mortgage, platinum credit card, etc. Having a collection account on your credit card can damage your FICO score and lower your creditworthiness. What's more, that collection account can languish on your credit report for seven years.

But how much, exactly, does a report from a collection agency cost you in credit points? That depends on who you are and how much you owe.

I know you're not in kindergarten, but its much easier for me to explain this through examples than through standing up here on my soapbox preaching. So take a look at how collection accounts impact these individuals:

Example 1:

Mary has a mortgage, a vehicle loan, a student loan and two credit cards. She carries low balances on her credit cards and always pays her bills on time. Her credit score is a hefty 780. Unfortunately, Mary's employer doesn't offer health insurance. Mary has a heart attack. After surgery and a lengthy hospital stay, she can finally come home – to over $100,000 in medical debt. 

A total of $17,000 is the bill for her hospital stay alone. She can't pay it and the debt gets sent to a collection agency which reports the debt to the credit bureaus. Because Mary's credit score is so high, the collection account costs her dearly. Her once lofty 780 credit score is now a mere 640. 

Before long, the surgeon who performed Mary's surgery turns her $83,000 surgery bill over to a collection agency as well. This bill is larger, but Mary's credit is lower. Once the collection account hits her report her credit score drops to a 580. The first collection account cost Mary 140 credit points while the second, though larger, cost her only 60. 

The lower your credit score is, the less collection accounts affect you.

Lets take a look at another example of what happens when the collection account is particularly chintzy.

Example 2:

Jake's credit isn't perfect. He made a few late payments in the past and has a tendency to charge up his credit cards from time to time. As a rule, his credit hovers somewhere around 700. 

Jake loans his little sister his library card so that she can do some research for a school project (believe it or not, some teachers still refuse to allow students to use online sources). Jake's sister borrows a book, but neglects to ever return it. Jake forgets all about the whole thing. He ends up with a $65 library fine for late fees and the cost of the book itself. The library turns the fee over to a collection agency which subsequently inserts the debt on Jake's credit report.

Jake isn't pleased with the black mark on his credit history, but his credit score remains the same. 

A-ha! And now we've stumbled on something the debt collector will never tell you. Collection accounts for debts of less than $100 don't impact your credit score!

Fair Isaac releases a new credit scoring model periodically. The point, of course, is to improve the formula as much as possible and make it as accurate as possible. People with small collection debts are statistically less likely to default on major financial obligations, like a mortgage payment, than those with larger collection debts. Thus, FICO, in its infinite wisdom, eliminated those pesky little beasts from its scoring system.

Now even the tree-huggers can give corporate America a little bit of lovin'  :)

Monday, August 16, 2010

Fake Collection Attorneys

New grads can't catch a break.
So you've gotten the lawsuit threat and you're shaking in your shoes, preparing to write a check for whatever the debt collector asks for because, this isn't just any lawsuit threat. This lawsuit threat is coming from a real, live attorney...or is it?

Fake Collection Attorneys

Its time you knew the truth behind those "Law Offices of So & So" letters that the collection companies love to churn out in batches. More often than not, the "Law Office of So & So" is actually merely another division of the collection agency itself.

And the collection attorney named on the letterhead? He exists, and he's very likely licensed to practice law (but not always). The collection agency hired him right out of school and keeps him on staff. His job is to do nothing more but lend his name and license number to the lawsuit scare letters the company sends to debtors.

Granted, most lawyers wouldn't go for this. It isn't prestigious and is quite possibly an embarrassment. However, with the economy in shambles, graduates in all fields are having difficulty finding work. This leads many young lawyers to seek positions in fields they never would have given a second thought to when they started school. Once upon a time, only the really rotten attorneys who graduated from law school by the skin of their teeth ended up working for collection agencies. That just isn't the case anymore.

What's so Fake About a Real Attorney?

The "fake" part comes in when the collection agency misrepresents the attorney as an outside entity. Technically, we should be getting into some serious FDCPA violations here, given the fact that misrepresentation of any sort is a gigantic federal no-no, but so far I have yet to hear of a consumer lawsuit addressing this particular aspect of the collection process.

When a debtor receives a debt collection lawsuit threat on the attorney's letterhead, his or her first response is, naturally, fear. Many don't take the time to Google the attorney's name. Do that, and you'll probably uncover the fact that the "attorney" is actually some poor schmuck banished to a cubicle and used only for his ability to add an element of authenticity to otherwise disposable collection letters.

The Legal Division Within the Collection Division

Some collection agencies like to take it a step further and set up an entire legal department. This department is usually headed by one attorney and staffed by workers hired off the street to type up nice, neat little threats on the attorney's letterhead. The attorney will then add his or her signature to each letter before it gets whisked off to the mail room and sent out to the unsuspecting debtor.

Real Collection Attorneys vs. Fake Collection Attorneys 

Occasionally, smaller collection agencies will have accounts they feel are worth suing over yet not have enough revenue to have an attorney on staff or a legal department. In cases like these, the collection agency will hire a local attorney in the debtor's state to notify him or her of the impending debt collection lawsuit.

These "real" collection attorneys have an actual office and often do other things rather than merely playing the role of a corporate attack dog. If you're dealing with a real collection attorney rather than a fake collection attorney, take heart: real and experienced lawyers know the law, and that makes them much easier to deal with than fresh graduates.

Prime example: Two years ago I was involved in a case where a woman was being sued by Palisades. Palisades had done her dirty by selling her debt to a junk debt buyer and then handing her account off to an attorney in her state to collect on the debt (in other words, trying to get paid twice). Meanwhile, the junk debt buyer had handed her account over to its in-house legal department. Both had filed suit on the same debt.

I have never, ever, in my entire life had as much fun writing, "We'll see you in court. Get ready" letters. Of course they folded. All of them. There is no way a judge would ever have allowed such a clusterfu*k to fly and the attorneys knew it, even if the collections departments themselves did not.

Don't see an attorney letter as a bad thing. Use the opportunity to communicate to the attorney just why his case is a lost cause. Remember, if its a real attorney rather than a fake collection attorney, he doesn't want to waste his time on a lost cause.

Send a Cease and Desist Letter to Debt Collectors

The phone rings...and rings...and rings...but you don't dare answer it. Why not? Because there's no question that there's a debt collector on the other end who simply can't wait to rip you to shreds (or attempt to, anyway) because (gasp!) you haven't paid your debt.

Cry me a river Mr. Debt Collector.

What you may not realize is that the Fair Debt Collection Practices Act gives you the right to say "STOP" to any collection agencies who feel the need to contact you incessantly and prevent you from taking a nap, enjoying a family dinner, watching an evening movie, etc. You shouldn't have to change your phone number just because of an old debt that won't die peacefully. This is where the Cease and Desist letter comes in mighty handy.

Cease and Desist Letters.

The Cease and Desist letter is merely a written demand that a collection agency immediately halt all contact with you. You don't have to pull a sample cease and desist letter off the internet to accomplish this goal. As a matter of fact, its much better for you if you don't. Truthfully, you don't know who those people are and you don't know who wrote those letters. Do you trust that all the supposed "legal" jargon is airtight? No? Me either. As a matter of fact, some of them make me cringe.

All you need to do is notify the collection agency that contacting you is inconvenient and you are enacting your rights under the FDCPA to request that all contact immediately cease. Period. You don't have to be a jerk about it and you don't have to try to sound like an attorney. Just tell them to knock it off.

The Risk Associated With Writing a Cease and Desist Letter to a Collection Agency 

When you strip away a collection agency's ability to contact you, you give it no viable method to collect the debt. Sure, it will continue to quietly update your account with the credit bureaus, but for many debt recovery companies, that just isn't enough. Cutting off all contact is a quick way to get yourself sued.

I know what you're thinking. "But Lee, you said collection agencies rarely sue!" Yes, yes, I did. However, this is one of those occasions in which they do sue – and frequently. You're leaving them with no alternative.

Once a collection agency recieves your Cease and Desist order, the FDCPA allows it to contact you further in either of the two following situations:

1. To inform you that it won't be contacting you anymore.

2. To inform you that it plans to invoke a "specific remedy" to collect the debt. 

Yes, the first scenario is nothing more than a waste of paper. The second, however, just screams lawsuit. The FDCPA doesn't come right out and say it, but it so much as endorses the fact that the collection agency can sue you if you slap it with a Cease and Desist.

Check the Statute of Limitations

We've talked about the statute of limitations before, remember? This is the amount of time a collection agency can legally file suit against you in your state. I only advise that debtors send cease and desist letters once they are 100% certain that the statute of limitations has expired and have some sort of proof to back up that fact.

Proof of the statute of limitations isn't hard to come by. All you need is a copy of your credit report. The original creditor's charge-off date should be right there, glaring at you from that negative trade line. In this case, however, that charge-off date works in your favor since this is the date that starts the statute of limitations for your state.

If you're feeling squirrley (and you should be) before you send that Cease and Desist letter, send a letter to the collection agency asking for the name and address of the original creditor for the debt. Federal law says that if you ask, they have to give it to you.

Once you've got a written statement from the collection agency acknowledging that the original creditor is, in fact, the original creditor, and you've got a charge-off date to work with, you should have no trouble proving that the statute of limitations has passed. If the collection agency wants to sue, bring it on. You've got an airtight court defense. Just remember to show up – if you don't you'll have a default judgment on your hands.

Limited Cease and Desist Letters 

One answer to this, according to some, is the limited cease and desist letter. A limited cease and desist letter tells the collection agency to stop contacting you...but only via one method. For example, if you just can't handle the phone calls anymore, you could send a limited cease and desist notice letting debt collectors know that they can't call you, but they can continue to communicate with you via mail.

While I can't deny that this works in some cases, it doesn't work in all cases. Lately, collection agencies have become gun-shy as more and more consumers stand up for themselves and file lawsuit after lawsuit against their collectors for FDCPA violations. Because the FDCPA makes no provision whatsoever for the limited cease and desist letter, you have no way of knowing if your creditor is going to take it at face value and simply stop calling, or give the letter the wide interpretation of a full Cease and Desist order – thus putting you in just as much danger of a lawsuit as if you'd forbidden any contact at all.

Wait Out the Statute of Limitations Before Sending a Cease and Desist Order

My advice to you is not to test the water with a limited Cease and Desist. Get Caller ID (as if any phones come without it anymore) turn down the ringer, and give any callers who aren't debt collectors a call back at your leisure. Although changing your phone number is a hassle, its usually successful. Unless someone you know decides to hand out the number to a debt collector, there is very little way for debt collectors to get their hands on your new number.

Student Loan Collection

Student loan collection doesn't only involve phone calls from the U.S. Department of Education's account management department notifying you of your defaulted student loan debt. Granted, the long term consequences of defaulting on a federal student loan are far more severe than if you merely stop paying your credit card bills since the government can seize your tax refunds and do other equally nasty things that most collection agencies don't have the right to do.  But guess what? The U.S. Department of Education uses private collection agencies as a instrument in student loan collection.

Surprised? Don't be.

Check out this nifty news article: NCO Group to Pay Largest FCRA Penalty to Date

So, basically, NCO started re-aging accounts, got busted by the FTC (federal government) and got charged a 1.5 million dollar fine. Yet, on the other end, the federal government was paying NCO as one of its private collectors to collect defaulted student loan debts from consumers.

If you're being contacted by a collection agency due to being included in the government's database for defaulted student loan collection, the same rules apply that would apply otherwise. Private collection agencies don't get a free pass to harass you simply because they're collecting for the government. They still have to adhere to the FDCPA, they still can't harass you, they still have to validate your debt, etc. etc.

If you choose to rehabilitate your loan, those collection agencies must stop calling you. While student loan rehabilitation results in the U.S. Department of Education updating your loan status to "current" on your credit report, you can't expect the same treatment from a private lender. It also won't get rid of the collection agency notation. You'll have to work on that separately.

Saturday, August 14, 2010

Credit Reporting Period vs.Statute of Limitations

Credit Reporting Period vs. Statute of Limitations 

If there is one thing that confuses people more than anything else about their collection accounts, its that they get the credit reporting period mixed up with the statute of limitations.

I've written several posts on statutes of limitations, but to make things simple, here's the difference between the two:

1. Statute of Limitations – The statute of limitations refers to how long a given creditor has to sue you. Every state has a different statute of limitations. This length of time does not in any way, shape or form impact your credit report (unless you get a judgment, but that's a whole 'nother can of worms).

2. Credit reporting period – This is the amount of time that a given entry can remain on your credit report. The credit reporting period for most items is mandated by the Fair Credit Reporting Act and are a matter of federal law. Regardless of where you live, the credit reporting period for a collection account is seven years.

Paying Debt Collectors Doesn't Reset the Credit Reporting Period. 

Every time you make a payment to a collection agency, you're resetting the statute of limitations and giving them extra time to sue you in the event you stop making payments. What fun. You could submit a payment to a collection agency every day, however, and it wouldn't change the amount of time the collection agency had to bring legal action against you. As a matter of fact, some people end up paying zombie debts and are paying on collection accounts long after they legally need to – especially when the collection agency couldn't even hurt their credit!

Collection Agencies Can't Reinsert Obsolete Accounts

No matter what a debt collector says to you on the telephone about reporting your debt to the credit bureaus, if that debt is older than 7 years and 180 days, its illegal to so much as touch your credit files.

The credit reporting period for a bad debt starts 180 days after you make the last payment on the account. This is the same date used to determine the statute of limitations on bad debts. The major different between the two is that, while you have the power to turn back the clock on the statute of limitations, nobody can do a damn thing about the credit reporting period. It's set in stone.

This may as well be quoting the credit reporting period...
...because you can't change it.

That's not to say that debt collectors don't try. They do. Collection agencies are notorious for changing the age of debts just so they'll hang around on a debtor's credit report a little bit longer and maybe net an extra payment for the company. Of course, by the time a collection account is obsolete and a collection agency feels the need to reage it, the statute of limitations has usually passed. Thus, the incentive for reaging is usually filing a lawsuit (or threatening to file one, since technically a collection agency can't legally make threats its unable to carry out). At that point, your debt likely sits with a junk debt buyer rather than a real collection agency and the junk debt buyer would love nothing more than a default judgment.

So that's the skinny, more or less. Don't let the debt collectors fool you. once the credit reporting period expires on your debt, its game over for the collection account within your file.

Thursday, August 12, 2010

Can You Reset the Statute of Limitations on a Debt?

If there is one thing that trips people up the most about the statute of limitations on debt collection, its whether or not the time frame can be reset and, if so, when.

Essentially, yes, actions you take can reset the statute of limitations and open you up to a lawsuit once again. Keep in mind, however, if the collection agency files a lawsuit against you and you attempt to use the statute of limitations defense in court, the company will then have to prove that you did, in fact, reset the statute (more on that in a minute).

You Can Reset the Statute of Limitations on Debt By Making Payments

A debt's statute of limitations is essentially the time-clock on a dormant debt. As long as that debt remains dormant, the clock continues to tick. Should you make a payment on the debt, this "reactivates" the account. Because the debt is no longer dormant but is now active, the statute of limitations ceases to matter. If and when you once again default on your payments, your state's statute begins anew. 

Don't reset the clock!

Now, before I go any further, I will say that supposedly in some states a debtor can unintentionally reset the statute of limitations by promising to make a payment, even if he doesn't ever actually submit one. This is iffy at best. Even in a case where the state's laws allowed such a thing, the collection agency would have to provide proof that the debtor made such a promise. Granted, collection agencies record telephone calls, but the idea that they would maintain those telephone records for long enough to use them as lawsuit fodder is also a relatively sketchy concept.

Earlier today, I stumbled upon a post that absolutely disgusted me. A self-proclaimed "credit guru" who seems to be plastered everywhere I look online these days was telling some poor girl that by merely talking to a debt collector about a ten year old debt, she had already reset the statute of limitations. This, of course, is complete and utter BS. 


Frustrating. In reality, it isn't that hard to look up the specific statutes for your states. Most states provide individuals access to the law codes online. 

Resetting the Time Frame on an Old Debt

If you have a debt that is owned by a collection agency yet is time-barred, send the collection agency a Cease and Desist letter and forget about it. Pull your free credit report three times a year (one every four months. It's still free as long as you don't pull the same bureau's report twice in a year) to make sure the collection agency hasn't gotten sneaky and pursued a default judgment on the sly and then leave well enough alone. You can't reset the statute of limitations if you don't take initiative to do so. 

Be warned, however, debt collectors will pull every trick in their arsenal to try and trick you into paying anything you possibly can so that you'll once again be open for a lawsuit. Don't fall for it. 

Unique National Collections

Unique National Collections is by far the most interesting collection agency I've ever encountered. Most people who research this company do so only to find out how to remove Unique National Collections from their credit reports. When disputing your debt with this particular agency, you can't follow the traditional route. It just won't work. Let me give you some basic info first to help you understand why.

Library Collection Agency

Unique National Collections is a library collection agency. The only debts they accept are for old library fines. Reporting library fines to collections is a relatively new policy that has only become mainstream within the past ten years or so.

Unlike credit card debts and medical bills, however, library fines are anything but lucrative. You're looking at $10 here or $40 there rather than thousands of dollars of collectable debt. This can make negotiations extremely difficult due to the simple fact that there isn't much incentive on anyone's end to go through the trouble of modifying your credit report simply to recover a few bucks.

Not returning library books could land you in collections.
But I Didn't Know About the Library Fine!

Welcome to the club. Most people that end up in UNC's database of debtors do so because they moved and didn't get notices from the library asking for the fee or either the library never bothered to send anything. However, the odds are that you never received anything from Unique either. They certainly don't make it a company policy to dial you literally every two minutes until you change your phone number or send you multiple empty lawsuit threats through the mail. I used to refer to this as "guerrilla credit attacks".

No, Unique National Collections will just report that nasty little trade line to the credit bureaus and sit back and do nothing. When you call to settle up, dispute or pay they'll nothing.

Unique National Collections Won't Accept Payment

Ok, so you've fallen under the delusion somehow that paying a collection agency is a good idea and you figure, "Hey, its only a few dollars and my credit report will show that the debt was paid" so you call up the collection agency and explain that you'd like to pay off the account. But guess what?

Unique National Collections does not accept payments

 I'm willing to bet that's a real "WTF??" moment for plenty of debtors to try and pay a collection agency only to be refused. is where things get truly sneaky. UNC will direct you to pay the fee to your library. You see, they collect on behalf of the library, but they don't actually "collect." They also seem to think that FDCPA laws don't apply to them. 

UNC Debt Validation 

I've heard reports that attempting to validate a debt from UNC can go one of two ways:

1. They validate and they validate well. 

2. They claim they don't need to validate

I believe both reports, since I've heard them repeatedly from multiple people.

Here's the skinny: In Scenario 1, Unique National Collections will send you everything they've got on the account. Yes, you'll get the standard ridiculous printout that all collection agencies like to send, but you'll also get other information as well. UNC will often go so far as to contact the library you owe the debt to, have them check their records and send you a statement from the library stating that yes, the debt is legitimate and the amount of the debt.

A statement from the original creditor is pretty much a slam dunk debt validation.

In Scenario 2, Unique will send you a letter informing you that they aren't required to validate. Period. Sound nutty? It is, but the rationale behind it is sound and remarkably ingenious. By stating they they aren't required to validate your debt, UNC is hiding behind the fact that it doesn't actually collect debt. Only "collection agencies" are required to abide by the debt validation laws in the FDCPA. Considering that the Federal Trade Commission (which is responsible for upholding these laws)'s legal definition of collection agency is "any entity which regularly collects debts for others" you can clearly see the loophole.

Its as good as saying "Oh, don't mind us, we're not a collection agency. So no, we don't validate."

Can any business legally place a collection on your credit report and yet not be a collection agency? Supposedly not. I think this is wonderful grounds for a fascinating lawsuit examining what actually defines a collection agency. The debtor would win, I think, and Unique National Collections (its even in their name!) knows that too. The kicker here is that the company also knows that nobody is going to spend hundreds or thousands of dollars on attorney fees and court costs to sue them for a debt that small!

Sure, you could recover damages, but only "actual" damages plus $1000. Since sustaining actual damages from a collection account so small is almost impossible, UNC gets to freely abide by their own laws – at least for the time being.

Don't count on a debt validation from Unique.
All I can figure is that the way the company responds to debt validation requests hinges on both: the type of letter the debtor sends and how recent the debt is. The easier it is for UNC to get in touch with your library, the better. Granted, they could just pick up the phone, but something tells me libraries purge records after awhile. This is an area I'm not familiar with, so if anyone knows anything about library records and how they work, please comment and let me know. 

Their refusal could also hinge on debt validation's 30 day rule. Since they don't send out notification to individuals that they've even been assigned the debt, there is no way in hell the 30 day time clock starts before the debtor sends his request for validation. 

Removing Unique National Collections From Your Credit Report 

Unique National Collections may claim to some that it doesn't have to validate debts, but it sure as hell validates them to the credit bureaus if you attempt to dispute that nasty little black mark off your credit report. 

As I mentioned previously, removing Unique National Collections from your credit report can be exceptionally difficult (not impossible) because of the size of the debt. You literally have no negotiation power whatsoever. Add this to the fact that UNC requires that you work out the debt with the library (which has NO knowledge or respect for credit law 99% of the time) and you've got a SNAFU of epic proportions. 

Working Library Collections Out With the Library

Your best option is working out the debt directly with the library. Don't just head up to the library and start talking to the desk clerk about your library collections, the collection agency, modifying your credit report, etc. The desk clerk doesn't know anything about anything. She's probably been put there by the state Department of Labor as part of a welfare-to-work program or just finished high school (My apologies to those few educated and knowledgeable library front desk personnel out there. You're awesome, but you're few and far between). You absolutely must call and make an appointment to speak with the head librarian. 

Yes, I know the business office deals with this sort of thing, not the librarian, but you're just going to have to trust me on this. 

Dress nice and get ready to smile and kiss some serious ass. 

Not an ass-kisser? LEARN.
Your job at this point is to make the head librarian simultaneously like you and pity you. Make it very clear that you are more than willing to pay the overdue library fee and deeply regret not knowing about its existence until now. Let the librarian know just why it didn't get paid in the first place. Just a tip, but blaming it on the library is a bad idea. For all you know, the librarian may have sent that notice out personally. Even if you never got one, that doesn't mean one wasn't sent. A move, a careless roommate or a divorce are all good excuses for why you never knew about the debt. 

Gauge What the Librarian Knows About Credit Law

Most people don't have credit law as a hobby. They either do it for a living or they don't do it at all. The odds are in your favor that the head librarian doesn't know jack squat about credit reporting other than the basics. He/she isn't required to know. Plus, most people who show up with a library fine in collections wanting the library to remove Unique National Collections from their credit reports make the mistake of taking the subject up with the desk clerk. They don't ever reach the head librarian. 

Ask the head librarian when the collection account will disappear from your credit report and analyze the response. She (I'm just going to make this librarian a woman for simplicity's sake. I hate doing the he/she thing) will likely tell you that she doesn't know and to take it up with the collection agency. This is where things get crucial. You use several methods to get this done:

Method One: 

Inform the librarian that the collection agency claims to have no control over the credit report as long as it owns the debt. Ask her to pull the debt out of collections and remove it from your credit report. If she claims that she is unable to do that, ask her if the account will reflect as "paid" once you pay off the debt. She'll say yes. Tell her that credit removal works the same way. Rather than communicating to Unique National Collections that the debt has been paid, however, the library must communicate that no debt exists and remove UNC from your credit report. Say whatever the hell you have to to get the librarian to agree to this. 

Tip: It's particularly effective to play the innocent card. Example: "Ms. So and So, our current credit system was designed to inform creditors and lenders of a given applicant's credit risk. Unfortunately, that doesn't take into account people like me, who pay their debts on time yet fall through the cracks when we're up against a debt we don't know about. This paints a very inaccurate picture of me and I need the library's help to get this straightened out." 

Method Two

Sometimes, you'll be up against library personnel who are old hands at this game. In this case, they know that removing accurate credit information is *technically* a FCRA violation (even though the FTC does not enforce this at all. Ever.) and just basically don't care about you and your credit one way or the other. In this case, here is your game plan:

NOTE: This hinges on you moving fast. Lightening speed caliber fast. With any luck, the account will take 30 days or longer to update as "paid" on your credit report. The goal is to have the account gone by the time an update would have occurred. 

Step One:

Go to the desk clerk and ask if you have any library fines on record. Pay the library fines. If you're really lucky, the library may not have a record of your unpaid debt. Regardless of whether you pay the fine or the library knows nothing about it, ask for a written statement from the library demonstrating that you do not owe a library fee and do not have an account in collections. 

Step Two:

Immediately go and get copies made of the letter. As in, don't stop and get lunch on the way home, go straight to Kinko's. Hell, if you think you can get away with it, sneak away to the copier in the library and make yourself about five copies of the letter. 

Step Three:

Fire off a debt validation letter to Unique National Collections. Include a copy of the library's letter stating that you don't owe any fees and don't have an account in collections. Its a good idea to have the debt validation letter already written and waiting. That way all you need to do is put a copy of the library's letter in the envelope and send it. 

Step Four:

Dispute the collection account on your credit report from Unique National Collections with the credit bureaus. Do this via mail and not online or by phone. Send a copy of the library's letter stating that you aren't in collections and don't owe any fees. As with the debt validation request, have the letter already written and waiting to expedite the process. 

Step Five:

Wait for the credit bureaus to investigate. What will happen is the credit bureaus will contact Unique National Collections by phone or fax and ask it to verify the accuracy of the account. Unique can't validate with the credit bureaus until it validates with you, that's against the FDCPA. 

But wait! It can't validate the accuracy of the account because the account is no longer accurate! As long as the "paid" update hasn't come through yet, the trade line is wrong. With a little bit of luck, Unique National Collections will decide to actually validate and contact the library. When it does, it will be told that the account has either been paid off or doesn't exist. 

Collection agencies are familiar with the one-two punch. When Unique gets a debt validation request from you and a debt verification request from the credit bureaus at the same time, it will know you mean business. If it can't verify, it won't. Unique isn't a major baddie like NCO and they usually play by the rules. 

You paid, but does the collection agency know that?

Unique National Collections Removes Paid Accounts Early

Before you break your back and cause yourself extreme stress over this, you should be aware of the fact that, unlike most collection agencies which allow debts to linger on your credit report for seven years (or longer if, like NCO, they like to reage debts), Unique National Collections removes debts from your credit report automatically one year after you pay off the debt. 

Policies change, so I highly recommend that if you plan on just paying off your library fee and waiting it out that you call someone at the collection agency and get something in writing to this effect. Normally I would never, ever advocate calling a collection agency, but UNC doesn't give a rat's ass what your phone number is and they aren't going to start calling and harassing you. 

Is All This Really Necessary?

Not if the amount you owe is under $100. As of January 2009, FICO no longer takes collection accounts under $100 into consideration when calculating credit scores. If your debt with Unique is less than $100 (and it very likely is) then there is little purpose in going to great lengths to remove it.

Yes, if you apply for a mortgage or other loan your lender may ask you what it is. If he tells you to pay it before you can get a loan, laugh at him and tell him that you aren't paying that piddly little debt out of pure principal – then find a new lender. I know from experience that, provided the rest of your credit is stellar, your lender will either not bring it up or not push your refusal to pay. 

Wednesday, August 11, 2010

The Debt Collection Lawsuit Threat

A debt collection lawsuit threat is a figurative gun, and just like any weapon it can frighten people into doing things they wouldn't normally do. Like paying a collection agency a large sum of money.

No one wants to get that dreaded summons in the mail from a debt collector, giving them a matter of days to either pay up or duke it out in court. Better to be prepared ahead of time, however, than to be left caught in the headlights not knowing which way to turn.

Know the Difference Between a Threat and the Real McCoy

Sure, the FDCPA specifically states that a collection agency cannot use threats against consumers if it doesn't actually intend to follow through with the threat. Unfortunately, if a collection agency can sue (and that doesn't mean it will) it can legally send you piles of letters threatening an immediate lawsuit if you don't pay off the debt or agree to a settlement. This is standard collection procedure for everyone. Got that? You aren't special and you probably aren't in any more danger than anyone else is who happens to owe money to a collection agency.

A lawsuit threat is legal armed robbery.

When Collection Agencies Threaten to Sue

Collection agencies rarely use the threat of a lawsuit right off the bat. They'll feel you out first by sending you a few letters and calling you around the clock. Some collection agents will be polite and some will be downright abusive, since different personality types respond more favorably to different forms of persuasion. 

Eventually, if you hold out for long enough, the collection agency will pull out the big gun: the debt collection lawsuit threat. In most cases, the company has no intention of actually suing you. Your account, however, has become a liability and is probably dangerously close to being labeled "uncollectable." Everybody who holds out for long enough will get a debt collection lawsuit threat unless their debt is being held by one of the few collection agencies in America that actually play by the rules. 

How to Identify an Empty Lawsuit Threat

Empty lawsuit threats usually appear in one of two ways:

1. A letter from the collection agency stating that if it does not receive payment by a certain date it will pursue legal action against you.

2. A letter from a supposed collection attorney stating that he/she has been hired to pursue legal action against you on the collection agency's behalf. 

Usually letter number one comes first and, if you don't respond, they'll send you letter number two. 

Is that lawsuit threat really from an attorney? 
Empty lawsuit threats just keep coming. If a collection agency actually intends to sue, it will send you a court summons – not stacks and stacks of threats. 

This isn't to say that no debt collectors ever sue. They do, and given the current state of the economy, those lawsuits are becoming more and more frequent, but the vast majority of lawsuit letters from collection agencies are only empty threats. 

Who's In Danger of a Collection Agency Lawsuit?

Some individuals are at a much higher risk of a debt collection lawsuit than others. Granted, just owing a debt to a collection agency places you in some degree of danger. I'm not going to lie to you and tell you it doesn't. Meeting any of the following conditions places you at higher risk of a debt collection lawsuit:

1. You owe the collection agency more than $1000. The more you owe, the higher the risk.

2. The statute of limitations on your debt is about to run out. 

3. Your debt was charged off within the past two years

4. You sent the collection agency a Cease and Desist letter. It can't contact you to continue its attempts to collect and often has no choice but to sue. 

I know that #2 and #3 appear to contradict each other, but they don't. Your risk is highest soon after the original creditor charges off the debt and right before the SOL on the debt expires. Your risk is lowest during the interim period in between. 

Remember, receiving a court summons notifying you of a debt collection lawsuit isn't the end of the game – you just haven't hit your home run yet.

Sunday, August 8, 2010

How Collection Agency Debt Can Turn Into a Default Judgment

How Collection Agency Debt Can Turn Into a Default Judgment

Collection agency debt, if ignored for long enough, can become a default judgment that haunts your credit report for far longer than a mere collection account. While this doesn't mean you should necessarily make arrangements to pay the collection agency (since that can rest the debt collection statute of limitations and be dangerous) you should be aware of how default judgments occur so that you can successfully avoid one.

What Is a Default Judgment?

A default judgment occurs when a debt collector files a lawsuit against you for refusing to pay the debt it claims that you owe. When it files a lawsuit, it is legally required to serve you with a court summons notifying you of the impending lawsuit so that you can appear and defend yourself. If you don't appear at the hearing, the judge will enter a judgment in favor of the collection agency by default. This is known as a "default judgment."

If you don't defend yourself, the judge will rule against you.

Collection agencies like default judgments because they prevent the company from having to actually hire representation and appear in court itself. That's right, nine times out of ten all the company does is submit paperwork to the court and sit back and wait for the default judgment to come rolling in. 

Unless your state's laws require that you be personally served with a court summons should anyone attempt to sue you, you can rest assured that the collection agency will do everything it possibly can to ensure that you never realize that a lawsuit is underway. This usually includes such tactics as:
  • Sending the court summons to an address you've never lived at.
  • Sending the court summon to your old address
  • Not sending a court summons at all

How a Default Judgment Hurts You

A default judgment shows up on your credit report. Although the FCRA states that a judgment remains on a consumer's credit record for seven years, this only applies in cases where the state's laws only allow creditors to enforce the judgment for seven years or less. If your state's laws allows a judgment creditor to enforce a judgment for, say, 10 years before that judgment expires, it will remain on your credit report for the full 10 year period. Renewals have no impact on the reporting period. 

Not only will a default judgment probably cost you well over 100 credit points, depending on what your credit score was to begin with, it gives the collection agency the following rights in most states:
  • Wage garnishment
  • Property liens
  • Bank account garnishment
Fighting a collection agency debt early on is crucial to avoiding a default judgment down the road. 

Friday, August 6, 2010

Why Credit Bureau Collection Disputes Rarely Work

Credit bureau collection disputes may seem like a good idea, but more often than not, they simply don't work. The first thing just about everyone says regarding collection accounts mucking up an otherwise decent credit history is "Dispute them with the credit bureaus! If the collection agency can't prove it the credit bureaus have to remove it!"

Uh-huh. And I'm Elvis, back from the dead. 

Don't get me wrong, that's supposed to be exactly the way the system works. The only flaw here is that the system doesn't work anymore

Disputing Credit Report Information

The Fair Credit Reporting Act explicitly states that you not only have the right to contest the validity of any information on your credit report, once you file a dispute the credit bureau you file the complaint with is bound by law to investigate whether or not the error is, in fact, an error. This is performed in much the same manner regardless of whether the dispute is over a tax lien or a collection account. Collection accounts take special precedence here and I'll explain why in just a minute. For now, lets examine how credit disputes work.

Investigation Method A: The Telephone Call

Collection Representative: Hello, this is John at ABC Collections, may I please have your account number?

Credit Bureau: Hi John, this is Mary from Experian/Equifax/TransUnion. I need to speak with a supervisor concerning a consumer credit dispute.

Collection Supervisor: Hi Mary, what can I do for you today?

Credit Bureau: I have a customer dispute here of a credit account from your company. I'm calling to verify that the credit information you reported is, in fact, correct. 

Collection Supervisor: Ok, sure, what's the name? I'll look it up. 

Credit Bureau: Joe Blow Schmo

Collection Supervisor: Oh yes, Joe Blow. Yes, yes, that debt is valid and I can assure you we are reporting it correctly. 

Credit Bureau Thank you.

Now, do you really believe that the collection supervisor took the time to look up Mr. Schmo's account to verify his information? Probably not. Even so, there is absolutely no guarantee whatsoever that the Mr. Schmo being doggedly pursued by the collection agency is the correct Mr. Schmo. Hence, the credit dispute.

Some credit bureau representatives are thorough (stifle your laughter) enough to ask for a date of birth or some other piece of identifying information to verify that the collection agency is telling the truth. The problem here is that the credit bureau is merely verifying the fact that the collection agency owns the account and is reporting the account – not investigating whether or not the individual in question actually owes the debt being reported. 

A simple phone call constitutes a credit bureau "investigation."

Ok, now that we've seen how investigation method A works, lets take a look at Investigation Method B.

Investigation Method B


Collection Representative: Sir, there's a fax coming in from the credit bureau

Collection Supervisor: Hmmm...Hand me a pen. I need to sign this to verify that the information the credit bureau wants us to check is correct.

Collection Representative: But sir, you haven't checked the information!

Collection Supervisor: Of course not. It's just deadbeat debtors trying to clear up their credit reports. I'm not letting them get rid of us that easy. (signs the paper) Ok, now fax that back to the credit bureau. 

Collection Representative: Yes, sir. 

In this scenario, the credit bureau literally handed the collection agency the information it would have needed to validate the debt if it actually intended to do so, which, of course it didn't need to. Why? The credit bureau essentially self-validated the derogatory credit information. 

Now, imagine how treacherous this gets if the validation form contained information about the debtor that the collection agency didn't have, such as his Social Security number?  

Why Credit Bureau Collection Disputes Don't Work

An actual "investigation" on the part of the credit bureau would require both time and manpower. Because the credit bureaus are private, for-profit companies, they aren't the slightest bit interested in devoting resources to doing anything other than the bare minimum, as this cuts into their profit margins. 

It's all about the money for the credit bureaus.
Lucky for the credit bureaus, the FCRA doesn't stipulate just what constitutes an "investigation" following a credit dispute. Are you starting to sense a theme here? No clear definition of "debt validation" in the FDCPA, no clear definition of "investigation" in the FCRA....Hmmm...Do you smell...lobbyists? I do. 

Can you get a collection account off your credit report? YES. Are you going to be successful doing it by the book? Probably not. The worst part of all this is that it comes back to bite those innocent people who genuinely do end up with collection accounts on their credit reports that aren't theirs. They are the true victims in this scenario. 

When Credit Bureau Collection Disputes Work

Every now and then, you'll dispute a collection account on your credit report with the credit bureaus and...lo and will actually vanish because the collection agency failed to validate. In this case, one of the following events occured:

1. The credit bureau representative called the collection agency and couldn't dig her way through the maze of demands for an account number and Social Security number before ever speaking to a live human. Since no direct line was available, she merely deleted the entry to end the hassle. 

2. The faxed "investigation" request made it through on the credit bureau's end, but someone didn't make it through on the collection agency's end. The result is that the agency never responded and the account gets deleted.

3. That collection representative who saw innocent consumers getting the shaft managed to trash a few investigation validation faxes on the sly before quitting. 

And the real kick in the pants? If you dispute the same account more than once for the same reason, the FCRA allows the credit bureau to deem your dispute "frivolous" and verify the collection account automatically rather than conduct a follow-up investigation. Now do you understand a little more clearly why your credit bureau collection dispute didn't work? 

Tuesday, August 3, 2010

Checking Account Garnishment

Checking Account Garnishment

If you've ever been subjected to a checking account garnishment in the past, you know firsthand that the garnishment could end up costing your more in bank fees that the debt that caused the garnishment in the first place.

The basics of garnishment are this: You don't pay a debt, so the debt collector goes after your checking account, freezes it, and seizes the debt from your accounts involuntarily. If there isn't enough money in your bank account to pay off what you owe, the creditor seizes what you have. You're angry, struggling, but you figure you're in the clear....and when you deposit more money, the collection agency seizes that too.

And Lord help you if you happen to have outstanding checks and debits that haven't cleared when the bank account freeze goes through. When those checks and debits hit the bank, the bank can't pay them due to the account freeze. Of course, the  money is still in your account at this point, but that won't stop your bank from hitting you with a non-sufficient funds fee each and every time a check or debit goes through while your account is frozen.

How thoughtful.

That checking account garnishment will cause your checks to bounce.

Checking Account Garnishment Requires a Court Judgment

Like all forms of involuntary collection, checking account garnishments must be preceded by a lawsuit and judgment. I've said it over and over and I'll say it again: If you get a summons from a collection agency, you absolutely MUST respond to prevent this from happening. 

Does responding necessarily mean you'll win the suit? No. Does it give you one hell of a better shot of protecting your money? YES. You see, a collection agency wants an easy kill in the form of a default judgment. By responding to the summons, you are demonstrating that you won't go down without a fight and many collection companies will simply back off. 

After the Court Judgment in the Collection Agency's Favor

After the company gets a judgment against you, it will begin the process of hunting down your bank account. If you've ever made a payment to a collection agency via check or bank draft rather than a money order, they've logged your account information just in case they ever need to garnish your checking account. 

So the collection agency's attorney marches down to the courthouse about a week after the final judgment is entered to pick up a certified copy of the judgment. He'll then use that certified copy of the judgment to request a writ of garnishment. If the collection agency knows where you bank, it will merely have the collection attorney forward the writ of garnishment to your bank which will promptly freeze your accounts. If it doesn't know where you bank, it will start contacting banks in your area and looking for your money. 

Now, privacy is a big deal for banks, but if an attorney calls and demonstrates to the bank that he has just cause for the bank to disclose personal information about you, it will. Don't think your bank will protect your information if you've managed to hide from the collection agency. It won't.

Banks cooperate with collection agencies

Joint Accounts and Checking Account Garnishment 

Sharing an account with another person, unless that person happens to be your spouse or long-term partner, is always a terrible idea. Unfortunately, people do it all the time. Boyfriend/girlfriend accounts, Parent/child accounts, roommate accounts, you name it. In most states, collection agencies have the right to seize half of all of the assets contained within a joint checking account.

So, lets look at the following scenario:


Mary's boyfriend Mike has bad credit and, as a result, can't seem to get a checking account of his own. Mary feels sorry for Mike as he has told her his bad credit really isn't his fault. She adds him to her bank account to help him keep his money safe. Mary currently has $5000 in her checking account. Mike promises not to keep much money in the account, just his monthly rent, which totals $800. On the 15th of each month, Mike deposits $800 into the account and pays his rent via check on the 1st. 

One of Mike's creditors, a collection agency, files a lawsuit against him. Mike ignores the lawsuit. The creditor tracks down the checking account that Mike shares with Mary and freezes it on April 7. Mike has already paid his monthly rent and has yet to deposit the next month's rent. Thus, none of his money is present in the account. 

Mary's bank account remains on hold for 21 days. Mary continues to make purchases on her debit card for an entire week before being notified that her account is frozen. During this time, 15 debits hit the bank and Mary is charged 22 NSF fees at $30 each.

After 21 days, the bank releases the account after granting the collection agency half of its contents. At this point, the bank account contains only $1840 of the original $5000. $2500 went to the collection agency while  the bank withdrew $660 in fees. 

Mike, whose money was not present in the account, lost nothing. 

Unfair? Absolutely. Common? Oh yes. At this point, Mary's only recourse is to sue Mike for the $2500 he owes her...she likely doesn't have grounds to sue him for the bank fees, but she can try. Unfortunately for Mary, a lawsuit against Mike is only fruitful if she's there to pay his debt. In addition, most individuals who suffer through this scenario won't sue because they love the person (are you getting nauseated yet?). 

Of course, when they actually do decide to sue, after the relationship has ended, often the statute of limitations on a lawsuit has expired...leaving them to learn a very hard and unpleasant lesson about relationships and money.

Even worse, some states allow checking account garnishment of an entire joint account, rather than just half. Scary, eh?

Can a Collection Agency Take My House?

Can a Collection Agency Take My House? 

Unfortunately, in some cases, yes.

Keep in mind that this rarely, if ever, takes place and whether or not it will actually occur depends upon how much you owe the collection agency and how much equity you hold in your home. Typically, the greater the amount you owe, the harder a collection agency is willing to work to recover it. Thus, don't expect a collection agency to go after your house for an unpaid library fee. It's not going to happen.

How A Creditor Can Take Your House

If a debt recovery agency sues you, you have several options:

1. Respond, show up in court and fight.
2. Try to work out a payment arrangement outside of court
3. Ignore it. 

Ignoring a summons from a debt collector is a huge mistake. This results in the company getting a default judgment. Default judgments will not only appear on your credit report, they give the collection agency a plethora of additional collection rights it did not previously enjoy – including placing a lien against your personal property.

Your house can be seized and sold to recover an old debt.

Let's examine how a lien works. 

Judgment Liens From Debt Collectors 

The lien you are probably most familiar with is the lien your mortgage company has against your home. The lien is simply a registered legal right to take possession of your property should you stop paying the debt you owe to the mortgage company. As long as you pay your home loan on time, you can live in the house without worry that your mortgage company will snatch it out from under you through a foreclosure. 

Other liens, however, aren't quite so benevolent. A judgment lien is any lien a third party seeks against your property for a debt. While the lien holder doesn't  hold the same rights as your mortgage lender, that doesn't mean it can't also force you into foreclosure. 

Lien Priority Order, Judgment Liens and Home Foreclosure 

Once a collection agency records a lien against your home after a judgment (and they cannot do this in every state) they become a real estate lien holder with the right to foreclose. Just because they have the legal right to foreclose on your home, however, doesn't mean they will. Foreclosure is pricey and collection agencies are cheap. Always remember that. 

Should a judgment creditor choose to foreclose on your home, they must adhere to the lien priority of the judgment lien they hold against your property. For example, if you carry a mortgage, your mortgage lender takes first priority. Regardless of who forecloses, the mortgage company must be paid before any other debts. Should another lien holder file its claim first, it holds priority. 

Now, just having a judgment lien approved by the court isn't enough. The collection agency must actually record that lien with the land records office in your county to establish its lien priority. If it fails to do this, or does this too late, other lien holders may establish superior liens (i.e. liens with greater priority) even if they obtained their judgments after the original judgment was levied. Take a look at this example:

Example 1

Joe owes ABC Collections $25,000. He also owns his own home. Joe's home is worth $150,000, and he only owes his mortgage company another $100,000 before paying off the home. Thus, Joe currently has $50,000 in equity – twice what he owes ABC Collections.

ABC Collections sues Joe and Joe ignores the lawsuits. It then obtains a judgment lien for the $25,000 Joe owes. It records the lien, establishing priority. The only other lien on Joe's home is his mortgage lien. ABC Collections initiates foreclosure and seizes Joe's home. It then sells the property and gives the mortgage lender the $100,000 Joe owes, keeping the remainder of the profits. 

That doesn't sound pleasant, does it? In this scenario, the debtor owes a debt large enough to push the collection agency to take action against him. Because he never even tried to fight the debt, he lost his home because of it. What if ABC Collections couldn't prove that Joe owed the debt? What if Joe lost his house for absolutely nothing??? It happens all the time. 

Don't let a collection agency take your house.

Lets look at two more common scenarios. In these examples, Joe still owes ABC Collections the same amount, but his financial situation is a little bit different. 

Example 2

Two years ago Joe bought his house for $150,000, which was fair market value at the time. Unfortunately, real estate values in his area have plummeted and Joe's house is only worth $99,000 now. ABC Collections obtains a judgment against Joe for $25,000 but, after reviewing the property value, it never bothers to record a lien against the property. Since the mortgage company is the primary lien holder and won't recover what its owed through a foreclosure, ABC Collections has little hope of ever doing so. 

You see how this works? So much of whether or not the collection agency will use a real estate lien as a collection tool rides directly upon the value of the home and how much you owe your mortgage company. Other lien holders, however, may also play a role. Let's look at another example. 

Example 3

Joe's house is worth $150,000. He owes $100,000 – giving him $50,000 in seizable equity. Joe, however, owes the IRS $40,000 in back taxes for a business venture that failed five years ago. His home also carries a mechanic's lien in the amount of $7,000. These liens were recorded before ABC Collections obtained its judgment. Thus, ABC Collections has the right to foreclose on Joe's house, but it only stands to recover a mere $3000. Given the cost of foreclosing is greater than $3000, the collection agency would actually lose money if it tried to foreclose on Joe's home. 

Are you starting to see how the judgment lien process works now?  Sure, a collection agency can take your house? But does it want to? A collection agency will only take your house if it financially benefits the company to do so, and in most situations, it doesn't.