Thursday, April 28, 2011

Beware a Discover Card Lawsuit

Even a small amount of experience dealing with collection agencies teaches most people that defending a lawsuit from a collection agency isn't exactly rocket science and usually goes something like this:

1. You recieve a summons from the collector. 

2. You respond to the summons and show up in court. You demand proof that you owe the debt.

3. The collection agency requests time to come up with proof.

4. The collection agency cannot find proof. The judge dismisses the lawsuit. Game over.

Unfortunately, not every debtor has such a pleasant experience in court. Depending on the original creditor, you may have a much tougher time using the law to your advantage in a debt collection lawsuit – especially if that creditor happens to be Discover.

Why Collection Agencies Lose Lawsuits

As I mentioned yesterday, collection agencies that file a lawsuit against you do so in the hope that you won't respond and the company will subsequently win a default judgment against you. Collection agencies rarely have complete documentation proving that you owe the debt they claim you owe. This is because creditors sell debts in batches. Compiling and including extensive data on each delinquent account requires more time and effort than the original creditor wants to provide. After all, its already taken its tax break on the debt.

This lack of supporting documentation usually doesn't hurt the collection agency very much. It either successfully scares the debtor into paying through threats, annoys the debtor into paying through persistent phone calls or sues the debtor. The debt collector doesn't have to bother with proof if the debtor doesn't show up in court and ask for it. The court assumes the collection agency's assessment of the situation is the correct one and BAM! default judgment.

Discover Card Collection Process

The Discover card company does not sell its unpaid accounts to collection agencies. Rather, the company maintains ownership of the account and hires collection agencies to collect the debts on commission. Discover also doesn't drop packaged debts on collectors like a box of unwanted kittens. Because Discover has a continued interest in the collection of the account, it provides its collectors with full and complete documentation for each account.

The thorough documentation procedure that Discover uses makes it almost impossible for consumers to successfully defend themselves in court. If your debt was on old Discover card, you can pretty much bank on the fact that the collection agency will show up to court with your original signed contract in tow.

Debt Validation and Old Discover Debts

Most collection agencies, when faced with a debt validation request from a consumer, will send the consumer an account statement and call it legitimate validation – if they respond at all. If your debt was from Discover, however, the collection agency likely has everything it needs to provide you with complete validation.

Although the Fair Debt Collection Practices Act does not specify what constitutes validation, sending you copies of the extensive paperwork the company has that supports your liability for the debt benefits the collector considerably. If you know the collection agency has the documentation necessary to prove its case in court, you're more likely to make payment arrangements rather than taking your chances with the judge – saving the company both time and money.

Stop Discover's Collection Agencies With FDCPA Violations

I typically don't take on Discover. That isn't because they can't be beaten – they can – its because my job involves scaring off the collection agency before the case goes to court. If you're getting a summons from a collection agency that works for Discover, its a pretty fair bet that you're going to court.

I made one exception back in 2001 when the person facing Discover was my grandmother. My grandfather had recently passed away. When he died,  he still owed a balance on his Discover card. The Discover account was his and his alone. For some reason Discover thought it would be a good idea to try and falsely convince my grandmother that she was liable for that debt.

Getting rid of them at that point was realtively simple since they misrepresented the debt and, in doing so, clearly violated the FDCPA. Suing my grandmother would only have resulted in a counter-suit, so they swallowed the debt and disappeared.

And here is my point: if a collection agency that works for Discover is after you, your best bet is to nail the company on an FDCPA violation. If the collection agency has something to lose, they very well might leave you alone – especially if you owe less than $1000.

Related Posts:

How to Respond to a Bill Collector's Lawsuit

Make Yourself Judgment Proof

The Debt Collection Lawsuit Threat

Funds Exempt From Bank Account Garnishment

Wednesday, April 27, 2011

How to Respond to a Bill Collector's Lawsuit

Summons and Complaint: Notice of the Lawsuit 

When a bill collector files a lawsuit against you, the company is legally required to send you a summons and complaint package. The summons serves as official notice of the pending case while the complaint lists the collection agency's allegations against you. Basically, the complaint says "We're suing because you didn't pay your debt. Here's what you owe."

If you don't file an Answer with with court within the time frame specified in the paperwork, you're classified as a no-show. Fail to respond or show up in court and guess what? The bill collector wins the lawsuit by default. It can then pursue your assets through wage garnishment, bank levies, real estate liens and even, in some states, sending a sheriff to seize your personal property, such as jewelry and electronics.

Guess who?

Fill Out the Complaint Attached to the Summons

Before I delve too deeply into this, I have to state that every district in every state does things their own way. The basic process is the same across the board, but don't expect your summons and complaint forms to look like summons and complaint all over the country. It isn't going to happen. 

The typical complaint lists each charge the bill collector made against you with the court. Next to these charges will be one of two things or both:

1. Multiple choice options for selecting whether you agree or disagree with the debt collector's claim.

2. Blank spaces allowing you to explain whether you agree or disagree and why.

If you agree with all of the collection agency's claims, returning your Answer to the court is pretty pointless. You're getting a court judgment levied against you either way at that point. If you don't agree or if you simply want to avoid the negative consequences of a court judgment from a bill collector, you must select "disagree" when given the option. 

It is possible to answer "agree" to a certain claim from the collector yet disagree with another. Always be careful when agreeing to a collection agency's claims in the summons paperwork. Generally, if you disagree with any aspect of the debt collector's allegations its best to simply mark that you disagree with the claim. You can always explain your position at the lawsuit hearing. 

State Your Defense When Answering a Collection Summons

While merely taking the time to fill out and file an Answer with the court lowers your risk of the lawsuit going any further (more on that in a minute), it doesn't provide you with airtight protection from a collection judgment. You must have a defense to lean on in court – provided the bill collector's case ever gets that far. 

Over time, the SOL expires
Some defenses are better than others. Take the statute of limitations defense for example. In this defense, the debtor claims that whether or not he owes the debt is irrelevant because the state's statute of limitations for a debt collection lawsuit has already passed. Thus, any lawsuit the collection agency files based on that particular debt is illegal. 

Regardless of the defense you opt for, remember to include your defense with your summons. If you do not have room to write in additional information about your defense, type out a letter noting the defense you plan to use on a separate sheet of paper and attach it to the debt collector's summons and complaint. 

Answering a Summons Decreases Lawsuit Risk

When you answer a summons, it decreases the chances that you'll end up riddled with anxiety, trying to defend yourself in court against a bill collector's much more experienced attorney. The collection agency's goal, however, isn't to fight you and win – it doesn't want to fight with you at all. The company files its suit hoping that you will ignore the summons and complaint and the court will award a default judgment in the debt collector's favor. 

Because most debt collectors' accounts don't complain complete information, its exceedingly hard for a collection agency to prove in court that you legitimately owe a debt. This inability to prove your responsibility for payment often makes it difficult for the bill collector to prove its case in court. This is especially true if you've taken the time to educate yourself about what to expect in court and how to walk away a winner with your finances still intact. The New York NEDAP has information regarding what rights collection agencies and consumers have during a lawsuit and how to defend yourself. I highly recommend checking it out if you receive a summons and complaint from a debt collector. 

While some collection agencies will proceed with the lawsuit even after you file an Answer, few will do so if you state a solid defense you plan to use at the hearing. When you respond to a bill collector's lawsuit, the company knows that winning the case just became a good deal harder and will often withdraw the lawsuit in an effort to save time and money.  

Related Posts:

Thursday, April 21, 2011

Lee Vs. the Debt Collector

In Chattanooga, Tennessee in 1931, pitcher Jackie Mitchell struck out the great Babe Ruth in an exhibition game. Of course, Babe Ruth struck out plenty of times over his career. What makes this particular incident so notable is the fact that Jackie Mitchell was a 17 year old girl.

Every now and then things happen that confuse us. We shake our heads, certain we're being fooled. Certain that what we're hearing or seeing must be a joke. Something happened to me a few weeks ago that's been nagging at me. I'm still so blown away by it that I have to share it. So there will be no tips or facts or legal updates or anything of that nature today, and I could care less about SEO in this post. Today I'm just going to recount my bizarre experience with a nice collection agency.

Other People's Mail 

I get other people's mail every day
My house, for some reason, attracts a lot of weird mail for people who don't live here. This house is only five years old and had one previous owner – none of the mail is for him. Go figure. On a regular basis I receive someone else's magazine subscription (which would rock if it wasn't some hunting mag) and a whole slew of collection letters. I love the collection letters. Yes, its illegal to open them. Yes, I do it anyway.

On several previous occasions I've considered "taking care of the problem" for these strangers as a gesture of kindness, but as my girlfriend so lovingly pointed out, the recipients of my good deed might just find something to sue me for. Then I might have to kill 'em. Last I checked, murder is a bigger offense than opening someone else's mail. So I'll stick to opening other people's mail.

On the day in question, I'd received a collection letter to a man I'll call Joe Dirt. I'd use his real name (because I have no shame) but I can neither pronounce nor spell it and that would muck up my story. So Joe Dirt it is.

This was the third day in a row that I'd gotten a collection letter for this guy. The violations in this letter were delicious. Normally I'd shake my head and put it through the shredder, but I'd had a particularly bad day and needed to take out my aggression on something. What better target that a debt collector? Little did I know that the woman I was about to speak with would suck the wind right out of my sails and leave me speechless against a debt collector for the first time in my career.

The Conversation

So I called, went through the litany of "Please enter your account number" blah blah and finally got a collector on the line. The conversation went something like this:

Collector: _____ Collections, can I please have your account number?

Me: I don't have an account number. I'm calling because of a letter I received. 

Collector: Oh, well please give me the account number listed on the letter, sir. 

Me: 5555555

Collector: Ok......I see. Mr. Joe Dirt? Correct?

Me: No. Not correct. My name is Lee Edwards. No one by the name of Joe Dirt lives here. I keep getting mail for him, but I've lived here almost since the house has been built. There was one previous owner and his name wasn't Joe Dirt. I have no idea how you got this address, but its the wrong one. 

This is the point where she's supposed to start accusing me, refuse to stop sending mail, call me a deadbeat trying to get out of my bills, threaten to report me to the feds for opening mail that's not mine, etc. 

Collector: Oh no! Oh, Mr. Edwards I'm so sorry! I wish I could tell you how we ended up with your address but I honestly don't know. It just showed up in the computer. I'll take care of that right now.

Me: will?

Collector: Yes. You don't have to worry about hearing from us again. And thank you for calling and letting us know about Mr. Dirt. No wonder he hasn't paid! The poor guy hasn't been getting our letters! 


Collector: Don't worry Mr. Edwards, it's all taken care of. Thank you for letting us know, and you have a great day! too...

Yes, that actually happened. I hung up the phone feeling like....well, like I'd gotten beaten. I was all geared up for a raging battle and I had to go and encounter the nice debt collector. I feel like I'm trying to tell the world I got abducted by aliens. In my industry, this sort of thing is almost unbelievable.

I know their computer systems record your telephone number when you call in, and a part of me was hoping that I'd start receiving phone calls for Joe Dirt but alas, no such calls ever occurred. Oh, and the collection letters immediately stopped.

What is this world coming to when the best customer service I've gotten from anywhere in months was from a collection agency?

Wednesday, April 20, 2011

Death of the Pay for Delete Agreement

Once upon a time, back when the "pay for delete" was still widely available, credit repair was a much easier game to play. Now...not so much.

Don't count on getting your collection account deleted.

Death of the Pay for Delete

Let me explain. For those of you who don't already know, a pay for delete occurs when you pay off a collection and in exchange the collection agency deletes the negative entry from your credit report. The collection agency gets its money and you get better credit. Everybody wins, right? Not exactly.

You see, the credit bureaus have this little hang-up about accuracy. Imagine that. The bigger picture is at stake. The credit bureaus may maintain your credit information, but they make their money selling FICO scores to lenders. FICO scores are supposed to help lenders make financial decisions by accurately predicting your risk of default. A past collection account on your credit report is a great big red flag that practically screams, "Don't trust me! I stopped paying in the past and I'll do it again!" If the collection agencies granted everyone a pay-for-delete, that would skew the FICO's reliability – costing the credit bureaus money in the long run.

(Just for reference, the credit bureaus would really prefer that FICO tank just so they could push their ridiculous VantageScore on lenders, but since VantageScore is also based on your credit information, the same logic applies)

So what do the credit bureaus do? Simple. They lay the smackdown. If the credit bureaus find out that a collection agency has been handing out pay-for-delete agreements to debtors the credit bureau revokes the collector's ability to report debts. That may not sound terrible to you, but its a death sentence to a collection company.

Still Trying to Get Collection Accounts Deleted?

So the scenario goes something like contact the collection agency, make an offer in writing to pay the debt in full in exchange for deletion and sit back and wait with baited breath for the collection agency's response only to receive something along these lines:

Guess who won't play ball?

"We are not authorized to..."

"We cannot alter.."

"Our company does not modify..."

No matter what your form letter says, it can be summed up like this: The credit bureaus don't let us do that. Unfortunately, it usually comes out sounding like "We refuse to help you." This angers you and doesn't help the collection agency either. So you don't pay, the collection agency doesn't make any money, and nobody's happy but the three fat men on the hill (the credit bureaus, who could care less about you and your credit repair efforts).

Prior to the smackdown, pay for deletes were all the rage. Every credit repair forum you visited couldn't say enough about pay for deletes. Everyone had a different method or theory for "duping" the debt collector into accepting the pay for delete agreement. In reality, collection agencies were on board with this. After all, they don't really care if your credit report is accurate either – they just want their money.

Remember, collection agencies still play the game, but for them its a numbers game. Lets look at these two scenarios:

Jane owes $172 to Big Bad Debt Collector for an old cell phone bill she never paid. That $172 debt is really hurting her credit and she'd like to have it removed. Jane's smart enough to know that simply paying it doesn't help her credit one iota, so she writes Big Bad a pay for delete letter in the hopes that it will be willing to erase the negative entry in exchange for payment. 

Money debt collectors

Josh owes Big Bad Debt Collector a little over $5000 for an unpaid deficiency on an old repossession. Through the help of his attorney cousin and some heavy research, Josh has managed to get rid of the repossession notation – now he just has to deal with that monstrous collection account. Fortunately for Josh, the statute of limitations on the debt has expired so there is no chance that Big Bad could sue him. After six months of saving, Josh has $3700 to put toward the debt, but he won't bother if Big Bad won't delete the collection from his credit. 

So who has the greatest chance of winning the pay for delete game? Josh of course. Collection agencies still hand out pay for deletes, but they choose the recipients with care. The bigger the debt, the greater your odds of getting it deleted. Jane has options for having her $172 debt removed, but a pay for delete isn't one of them.

Now you have to ask yourself, are you a Josh or a Jane? I'm very interested in hearing others' experiences with this. Please, add a comment, let me know how your pay for delete attempt went, be it a good experience or a bad one.

Related Posts:

Collection Accounts and Your FICO Score

Why Credit Bureau Collection Disputes Rarely Work 

Collections on Your Credit Report 

Tuesday, April 19, 2011

Dealing With Midland Credit Management

If you've ever dealt with Midland Credit Management then you already know that this subsidiary of Encore Capital is one of the nasties. A common misconception among consumers is that all third-party bill collectors are lawbreaking, abusive scum – which simply isn't true. That's like saying that all car salesman are out to cheat you. Many are, but some are honest, hardworking individuals simply trying to get by just like everyone else. When applying this logic to collection agencies, Midland Credit is the slick sales guy with a gold Rolex and no conscience who'll dupe you into paying $1000 a month for a used car you didn't even really want.

Midland = This guy. Run, run run!

How Midland Credit Management Does Business

Midland Credit – or MCM, as its often called – plays in two camps. They purchase debt directly from creditors (Citibank is in bed with this one, just for reference) and they also purchase debt from other collection agencies. Although MCM occasionally buys newly defaulted accounts, their business practices more closely resemble that of a junk debt buyer than an contract collection agency.

If Midland buys your debt they'll call...and they'll call...and they'll call. I know what you're thinking, "But all collection agencies do that, right?" Not like this they don't. If you hang up on a debt collector from MCM, your phone will immediately ring again – and it may continue to ring without so much as a five minute break for hours. Midland places a very high importance on "wearing down" the debtor.

Illegal Credit Reporting Violations

Midland reports to all three credit bureaus. If that weren't bad enough, MCM is particularly creative regarding how and what they report. Part of the "wearing down the debtor" campaign requires this collection agency to damage your credit as much as possible. Thus, don't be surprised to find Midland Credit reporting as an installment account rather than a collection – or to find the company on your credit report twice.

If MCM owns a debt of yours, keep a close eye on your credit report. This is one of the few cases in which I highly recommend purchasing some sort of credit monitoring program that allows you to check your credit freely whenever you wish and updates you by email whenever a creditor changes any aspect of your report.

Debt Validations and MCM

MCM doesn't like to validate debts. As a matter of fact, lack of validation is one of the most common complaints levied against the company. The Fair Debt Collection Practices Act states that third-party collection agencies must provide consumers with proof of debt upon request, providing the consumer makes the request within 30 days of discovering the existence of the account.

Collection agencies must send you a written notice within five days of first contacting you about the unpaid debt explaining your right to request validation. Unfortunately, if the collection agency sends all communication to the wrong address, you may never see the collector's initial notice. That does not, however, strip you of your right to a dispute.

Because of this, the 30 days rule is hard to enforce. It's difficult for a collection agency to prove that the consumer had knowledge of the debt prior to sending his request for validation. Midland Credit takes it a step further by just not responding at all. Until a collection agency sends a validation, collection activity of any kind is strictly prohibited under federal law. Does this bother Midland? Not a whit. You can spend hundreds of dollars on postage for validation letters to no avail.

Out of Statue Lawsuit from Midland Credit 

The statute of limitations is supposed to protect you from lawsuits on particularly old debts and, to some extent, it does. If an unethical collection agency sues you anyway, however, you must use the expired statute of limitations as an affirmative defense – lest the collection agency get a judgment against you and use it to garnish your wages and bank accounts.

Contest your judgment from Midland Credit

Midland credit is one such junk debt buyer. Most consumers do not realize that the statute of limitations even exists – giving Midland the ability to obtain default judgments from consumers too scared to show up in court.  While you can contest a debt collection judgment and have it overturned, most states give you a limited amount of time in which to do so this before the judgment is set in stone and Midland Credit is happily dancing to the bank each week with a part of your paycheck in tow.

Report Midland Credit Management to the FTC

If Midland Credit Management has violated your rights, I urge you to report the company's indiscretions to the Federal Trade Commission. Although the FTC does not investigate individual reports, please don't believe that your report does no good. If the FTC receives enough complaints from consumers about a certain collection agency, it will investigate. The FTC has the ability to fine MCM and force it to adhere to the collection laws it should have been following all along. Here is the link to the FTC complaint form. Submitting a complaint only takes a few minutes and by doing so, you are helping other debtors who've fallen victim to harassment from Midland Credit Management.

*Note: All of this is based on my personal experiences with Midland and experiences my clients have related to me over the years. I have no idea if Midland has changed their policies in an effort to better adhere to federal consumer protection laws or if they're still up to their old bad behavior. Have a story to tell about Midland? Let me know in the comments section.

Related Posts:

Collections on Your Credit Report

Debt Validation After 30 Days

How Collection Agency Debt Can Turn Into a Default Judgment

Friday, April 15, 2011

Make Yourself Judgment Proof

Judgment proof debtors have a clear advantage over those who aren't – if and when a collection agency sues, judgment proof individuals do not need to worry about losing assets to an unscrupulous debt collector. Rather than helping the collection agency make money, a lawsuit against a judgment proof consumer often serves only to increase the collection agency's losses.

Photo by Purpleslog
Who Is Judgment Proof?

A judgment proof individual is anyone's who assets are fully exempt from collection. First, lets discuss the additional collection rights debt collectors earn after suing you and getting a judgment:
  • Can garnish your wages
  • Can garnish your bank accounts
  • Can place a lien against your real estate
  • Can place a lien against your personal property, such as an automobile
Keep in mind that collection agencies working for the federal government have these rights without the benefit of a judgment. Commercial collection agencies whose responsibility it is to collect old hosptial debts, library fines, credit card debts, etc, must have a judgment against you before utilizing any form of involuntary debt collection.   

Most people that hold judgment proof status in one area aren't safe in another. For example, if you are unemployed, a collection agency cannot garnish your wages because you don't have any. If you have a car, however, the company can place a lien against it and subsequently seize the vehicle. 

Judgment Exemptions That Protect You

You don't have to lack any assets at all to be considered judgment proof for legal purposes. Some forms of income are protected under federal law. Thus, if you survive primarily on one or a combination of the following income sources, collection agencies cannot force you to turn over the funds either via garnishment or a bank levy. 
  • Social Security
  • Child support
  • Unemployment
  • Veterans' benefits
  • Unemployment payments
  • Military annuities
  • Financial aid for college
  • Workers' compensation
  • FEMA benefits
  • Retirement pensions
  • Alimony
Remember, when it comes to bank account garnishment, you must claim your exemptions for them to be effective. Otherwise, the collection agency will try to seize them and the bank will willingly turn them over. 

Make Yourself Judgment Proof

While defending yourself in court against a collection agency lawsuit is always the smartest course of action, there are things you can do to reduce the odds of the collection agency being able to enforce a judgment against you and, in some cases, helps prevent a judgment altogether. 

Your wages are the most difficult piece of the puzzle. If you live on standard employment and don't work "under the table" or live primarily on government or retirement benefits, your wages are usually subject to garnishment. There isn't too much you can do about this unless you want to change employers frequently until the judgment expires. It typically takes debt collectors six months or so to locate you and file a new garnishment order. Some don't even bother. Thus, whether or not you are fully exempt from wage garnishment is more a matter of sheer luck than careful planning.  Unless, of course, you're willing to relocate. 

Four U.S. states do not allow wage garnishment by commercial creditors – including collection agencies. Those states are South Carolina, North Carolina, Pennsylvania and Texas. 

If you live in the northern U.S., purchasing property in Canada, filing for permanent residency (roughly $1500 last I checked) and getting a job across the border can prevent a collection agency from garnishing your wages. 

Protecting Bank Accounts From Judgments

Your bank accounts are safe if they contain exempt funds and you take care to claim those funds as exempt with your bank as soon as the collection agency tries to place a post-judgment freeze on your checking or savings accounts. Otherwise, a bit of creativity may be in order. 

Many banks overseas offer foreign bank accounts in U.S. dollars. Lloyds of London is just one example. You can use the bank for all of your checking and savings needs with the security of knowing that a collection agency can't touch your money. 

Let me be straight here: If you owe the IRS, putting your money into an offshore checking account doesn't help you. The IRS has options other collectors don't and doesn't even have to sue you before taking away everything you own. Collection agencies, however, would have to "domesticate" their judgments to collect from an offshore account. Few collection agencies would bother going through this trouble – and that's if they even find out about your offshore account. They have enough trouble tracking down bank accounts in the U.S. 

Keep in mind, I'm not telling you how to hide your bank accounts from collection agencies since that could potentially get me in trouble. I'm merely stating a method by which some people do just that. 

Collection Agency Liens Against Real Estate

If you own your home home, you'r at risk of liens after a judgment. Hiding assets after a judgment is illegal in most states, but taking care to place your assets in safer hands prior to the lawsuit isn't. If your house or car is paid for, a collection agency is  more likely to foreclose on its lien. If you carry a mortgage or auto loan, the collection agency would have to pay off the superior lien before it could seize the asset. Thus, its generally safer to keep a mortgage against your property. 

Renters benefit greatly here. Debt collectors cannot place liens against rental property if the judgment they hold is against the renter rather than the property owner. Yet another aspect of the lien process to consider is that the lien appears in the county you live in. The collection agency may very well overlook property you own in other counties or states. 

Defaulted Federal Student Loan Collection Fees

While all types of collection agencies have the ability to turn your everyday life into a waking nightmare, private collection agencies hired by the government to collect defaulted federal student loans are particularly nasty. With the possible exception of the IRS, no one entity has the power to turn a consumer's financial life on its head quite like federal student loan collectors.

Defaulted Federal Student Loan Collections 

The U.S. Department of Education is a powerful debt collection entity – and it extends that power to the collection agencies it hires to recover unpaid federal student loans. The government doesn't have to sue you to garnish your wages, seize your bank accounts and place a lien on your home and/or automobile. Even so, the U.S. Department of Education typically sues before taking any of these actions.

While all creditors can use force to collect, provided they file the collection lawsuit within your state's statute of limitations, most creditors face limitations when doing so. Commercial creditors, such as credit card companies and banks, can neither garnish nor levy federal benefits you receive. The same is not true of government debts. Default on a federal student loan and a private collection agency wielding the power of the U.S. Department of Education can and will garnish and seize just about any income you possess. There is no "judgment-proof" when it comes to defaulted federal loans.

Student Loan Collection Fees

Most collection agencies try to get away with tacking fees onto collection accounts in order to pad profits. Collection agencies know that they are likely to have to settle the debt simply to receive payment. Because the government faces so few collection restrictions, settling a defaulted federal student loan is rarely possible. Unfortunately, this doesn't stop government collection agencies from adding fees to your debt – and student loan collection fees will shock you.

Student loan collection fees are hard to swallow
If you have a DIRECT or Stafford loan, you could face fees of up to 25% of your total balance. Thus, if you owe a $20,000 delinquent student loan, as soon as the debt gets shipped out to a government collection agency your liability balloons to $25,000.

If you're the parent of a student and took out a Perkins loan to help your child pay for his or her education, you're in an even worse situation if you default. Collection fees for Perkins loans equal 30% of the total balance. If you sign up for loan rehabilitation but default on the debt a second time, your collection fees climb to 40% of the total balance – almost half the loan amount!

Collection Law for Delinquent DIRECT, Stafford and Perkins Loans 

Although collection agencies working for the federal government enjoy a wider range of debt recovery options, that does not mean they have the right to break the law. Like any debt collector, student loan collection agencies must follow the FDCPA or you have the right to file a lawsuit against the company. You can also file a formal complaint with the U.S. Department of Education if any government collection agency uses illegal tactics when trying to procure payment from you.

Defaulted Federal Loans and the Statute of Limitations

If you've ever had a debt held by a collection agency in the past, then you know the wisest course of action is often to simply dig in your heels, cross your fingers and wait out the statute of limitations on the debt. Once the statute of limitations passes, you are safe from a debt collection lawsuit.

Don't expect a bankruptcy discharge.
Defaulted federal student loans, however, do not have a statute of limitations. Did I not say that loudly enough? It just doesn't exist. There is no "waiting it out." You either pay, are forced to pay or move to Canada (No matter what anyone tells you, your credit history doesn't follow you if you choose the last option, just for reference). You can have student loans discharged in bankruptcy, but the criteria for doing so are so strict that bankruptcy discharges for federal student loans almost never occur.

Because of this, its crucial that you do everything within your power to avoid defaulting on your loan. Ask for deferment or forbearance, give up cable, sell your car...whatever you need to do, do it.  If you don't, it will simply take you that much longer to pay off the debt – and probably cost you a fair measure of grief in the process. Student loan collection agencies are more ruthless than most when it comes to collection fees because they are well aware of the power they hold – don't let yourself become a victim.

The National Consumer Law Center's Student Loan Borrower Assistance Program contains additional information about defaulted federal and private student loans, loan rehabilitation, the collections process and how to get help.

Related Posts

Student Loan Collection

Wednesday, April 13, 2011

Can You Record Phone Calls From Debt Collectors?

While verbal harassment and abuse by debt collectors over the phone is strictly against the Fair Debt Collection Practices Act, illegal telephone conduct is one of the most common complaints debtors express. Part of what makes abusive phone calls from debt collectors so common is the fact that they can be extremely challenging to prove in court. While you have the right to sue debt collectors for verbal harassment, doing so almost always results in a he said/she said scenario. You claim the collector was abusive and the collection agency claims otherwise. One way around this is recording each telephone call you receive from debt collectors.  

You can record collection calls

Laws Regarding Recording Phone Conversations

Each state has laws in place concerning recording telephone conversations. States are either "one-party" or "two-party" states. In a one-party state, only one person has to agree to the conversation being recorded for it to legally take place. In a two-party state, both parties must aware of, and consent to, the conversation being recorded. 

Recording Debt Collectors

Once upon a time individuals living in one-party states could record telephone calls as they wished without disclosing the fact that they were doing so. With a rise in consumers secretly recording bill collectors in the hopes of gaining ammunition to use against the collection agency in court, collection agencies started fighting back with lawsuits of their own.

If the collection agency is located in two-party state, debt collectors enjoy the protection of their own state's laws. Thus, you could record a collection call without notifying the debt collector you were doing so and file a lawsuit against the collection agency for harassment only to have the company respond with a lawsuit of its own for recording a bill collector on the telephone without his or her knowledge. 

Recording without permission could land you in court.

Notify Bill Collectors That You Are Recording the Call

In order to avoid the potential legal ramifications of recording a collection call without the debt collector's permission, inform the debt collector as soon as you answer the phone that the call is being recorded and that if the debt collector does not consent to being recorded, he or she is free to end the call. 
Notifying the collector that you are recording and giving him or her the option to hang up the phone forces the collector to either terminate the call or consent to the recording. 

Expect the debt collector to become irritated, refuse to end the call and demand that you immediately stop recording the conversation. Do not turn off the tape. Simply repeat to the collector that the call is being recorded and he is free to hang up if he doesn't consent. 

At this point, the collector will probably threaten to sue you for recording the call and try to steer the conversation toward you unpaid debt. Don't allow this to happen. Make it very clear to the debt collector that you need him to either verbally consent to being recorded or end the call. Be civil yet firm. A debt collector has no incentive to outright reject being recorded unless he plans to use abusive collection tactics prohibited by the FDCPA. Do not allow yourself to become a victim. 

Recording Phone Conversations Forces Collectors to Follow the Law

Few debt collectors would knowingly violate the FDCPA if they knew that debtors' were recording their conversations. Thus, by notifying a bill collector that you are recording you force him to treat you civilly and with respect over the telephone lest he risk losing his job when you file a lawsuit against the company for FDCPA violations he committed during your conversation.

Because recording calls forces collectors to treat debtors with respect, claiming you're recording a call when you aren't can be beneficial. Especially if you do not intend to go through the trouble of suing a collection agency. 

Tuesday, April 12, 2011

Bill Collectors Demanding the Wrong Amount

Imagine the following scenario:

You owe $500 to your credit card company. Unfortunately, an unexpected job loss leaves you stretching pennies just to pay your mortgage and car payment. Your credit card payments fall to the wayside while you fervently struggle to stay afloat financially.

After six months, you've found a more stable job and can begin paying off debts that accrued during your brief period of unemployment. You discover that your credit card company charged off your account and, to your shock, bill collectors are now demanding that you pay $750 toward the defaulted credit card debt. 


Additional Charges From a Collection Agency 

Every month that you carry a balance on your credit card, the credit card company charges you interest and adds the interest charges to your total debt load. Credit card providers close debtors' accounts when they charge off the debt and send it to collections – but interest continues to add up.

The Fair Debt Collection Practices Act makes it illegal for a collection agency to charge interest on most types of debt. If the debt you owe is a credit card debt, however, the rules change somewhat. Because all credit card companies charge interest, the agreement you signed contained written notification that interest charges would make up a portion of each bill. When the original creditor's contract contains a provision for interest charges, any collection agency that subsequently buys the debt also has the right to collect interest. 

Defaulted Credit Card Debt Increases Exponentially

Most people who make small purchases on their credit cards and pay off the balance in full each month don't struggle with their interest charges. Once you start missing payments, however, the trouble really begins. Each payment you miss leaves you facing a late fee from your credit card company. Credit card company late fees cannot exceed $25, but miss your payment for four months in a row and you suddenly owe an additional $100.

As your debt grows through late charges, interest is steadily being added to your debt. The more you owe, the greater the monthly interest charges – resulting in your defaulted credit card debt steadily climbing out of control. 

Collection Fees Contribute to High Debts

Bill collectors aren't just charging you interest on your credit card debt – they're also adding fees of their own to pad the company's profits. Just like the ability to charge interest, collection agencies also possess the right to add their own fees to your unpaid balance if the original creditor's contract included a provision for collection fees – which almost every new credit card agreement does. 

What to Do When Bill Collectors Are Wrong

There are many ways your unpaid credit card debt can grow both before and after the original creditor sells it to a collection agency. In some cases, however, the collection agency simply made an error. Don't expect bill collectors to take you seriously or investigate the issue upon being informed over the phone that the amount of the debt is incorrect. A debt collector will see this as just another excuse from a consumer who doesn't want to satisfy his or her financial obligations.

Rather than duking it out with a bill collector over the phone, send the collection agency a debt validation letter. I'm not going to go into depth about debt validation letters here since I covered that topic in a previous blog post (What is Debt Validation?), but you can demand in your debt validation letter that the collection agency inform you of how it arrived at the amount it claims you owe. Even if you know the debt belongs to you, you still have the right to demand validation from a bill collector – especially if you suspect the company is demanding the wrong amount. 

Related Posts:

Friday, April 8, 2011

I Filed Bankruptcy, but the Collection Agency Keeps Calling!

I Filed Bankruptcy But the Collection Agency Keeps Calling!

When you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay goes into effect protecting you from collection activity or legal action from any of your creditors. Most creditors respect the automatic stay and step back to let the bankruptcy court work its magic. Collection agencies, however, often overlook your rights and will continue calling you and sending you collection letters even after you file for bankruptcy.

Note: For those who have filed a previous bankruptcy case in the past year that was dismissed by the court, the automatic stay is limited and sometimes nonexistent, depending on how many times you filed previously in the last 12 months. 

Violating the automatic stay in bankruptcy is illegal and if anybody knows illegal – its the debt collectors. They're all about illegal activity.

Does the Collection Agency Know you Filed Bankruptcy?

In some cases, collection agencies continue calling because they simply aren't aware that you filed bankruptcy. Your attorney notifies your creditors, but sometimes attorneys send notices to the original creditor rather than the collection agency that bought your debt. The original creditor isn't under any obligation to inform the debt collector that an automatic stay is in place and it can no longer call you or send you letters. Thus, the illegal communication efforts continue.

Inform Debt Collectors About Your Pending Bankruptcy 

If a collection agency is violating the automatic stay, stopping the behavior is usually as simple as answering the telephone when the collection agency calls, informing the debt collector on the other end that you've filed for bankruptcy and giving the debt collector your bankruptcy case number.

Unfortunately, as we've discussed so many times before, debt collectors have high turnover and, because of this, receive little training so as to ensure that they work as many days as possible before the company must hire yet another bill collector to take the old one's place when he burns out. If the debt collector isn't aware of the seriousness of the automatic stay, he may simply hang up the phone and move on to the next call – leaving your number in the automated dialer.

Be patient. Spend an entire day if you must just answering the telephone and calmly giving each bill collector your bankruptcy case number. It's unlikely you'll have to dole out this information more than once or twice before the company gets the message and the collection calls stop.

Notify Collection Agency of the Automatic Stay in Writing

If your efforts to notify debt collectors of your pending bankruptcy case over the phone prove futile, put the notification in writing. Send a letter to the collection agency via certified mail, return receipt requested, informing it that you have a bankruptcy case pending and contacting you or otherwise pursuing collection activity during this time is a violation of the automatic stay and ILLEGAL. Once again, include your bankruptcy case number so that the company can verify your claims if it wishes. If you have an attorney who doesn't charge extra for this service (he shouldn't, since it was his responsibility to notify creditors of your bankruptcy in the first place) ask him to draft the letter for you. Collection agencies almost always take letters from attorneys more seriously than those of consumers – even if the letter's content is the same.

Put it in writing

Suing Collectors That Violate Bankruptcy's Automatic Stay

If a collector willfully and purposefully violates the automatic stay after being notified of your pending bankruptcy case, you have the right to file lawsuit against the collection agency and seek damages and legal fees.

Remember, the automatic stay is supposed to give you a breath of relief from collection efforts while you restructure your financial life. If you filed bankruptcy yet a collection agency keeps calling, its violating your federal rights and can be held accountable for those actions in court. 

Wednesday, April 6, 2011

Fake Collection Agencies Scam Consumers

Jake's Story

Jake, 21, put away every spare penny he earned working part-time as a waiter while enrolled in college. After seven months, he saved up enough money to negotiate a settlement with the collection agency that held his two-year old credit card debt. The next day, when a debt collector called, Jake was ready. He hemmed and hawed, claimed poverty and worked the debt down to roughly half of what he originally owed. Jake had never before felt the kind of relief he experienced when he mailed out the money order.

A week later, Jake receives yet another call from the collection agency demanding payment. He points out that he already sent the money order only to have the debt collector inform him that the company does not accept money orders. Soon what actually occurred becomes clear: Jake sent his payment to a con artist posing as a debt collector and still owes the full amount to the collection agency.

Who is that debt collector really?

Fake Collection Agencies

It's rather ironic to call a fake collection agency a scam artist since the term applies equally well to most legitimate collection agencies. Fake bill collectors run their scam by contacting innocent consumers claiming to be representatives of a debt collection company. They'll make up a company name, an amount you supposedly owe and harass you mercilessly – just like a real collector. Paying these scam artists is doing nothing more than flushing your money...which is pretty much the same thing that happens when you pay an actual collection agency. 

Collection agency scams range from basic to frighteningly advanced. While some clueless con men call consumers at random, hoping to find some equally clueless consumer willing to pay off a nonexistent debt, others extend more effort finding the right victims. Don't automatically assume that just because a debt collector knows your address, your middle or maiden name, your date of birth or even your Social Security number that the bill collector works for a legitimate company. The internet and public records database host a wealth of personal information about you that scam artists are more than willing to use when duping you into paying a fake collection account. 

Signs That a Debt Collector is Really a Con Artist

To keep yourself and your bank account safe and secure, here are just a few signs to watch out for when determining whether that debt collector on the other end of the line is the real mccoy or just a skilled con man.   

1. The collection agency the debt collector claims to work for has a title that makes the company sound as if its affiliated with the federal government. Con artists do this in order to further frighten consumers into paying debts that don't exist. Be on the lookout for words like, "U.S.", "Federal", "State", "Bureau" and "National." Real collection outfits typically have more commercial titles that don't necessarily betray the fact that the company collects overdue debts. 

2. The amount the debt collector claims you owe is less than $500 and often less than $100. Skilled con artists know that consumers are more likely to pay off debts simply to prevent further collection calls if those debts are small. 

3. The bill collector requests that you pay the debt via wire or money order. A real collection agency will almost always demand that you pay your debt by giving the company permission to directly draft your checking account. This gives the company access to your banking information so that it can easily garnish your account later on. 

4. The company name doesn't pop up in a Google search. Even the smallest collection operations have someone out there complaining about them, and a Google search will turn up evidence that the company exists. A real name, however, doesn't guarantee the debt is legitimate. Some fake collection agencies use the names of real companies when running their scam.

5. The same collector calls you every time. Collection agencies often employ hundreds of collectors, and different agents will call you at different times. If the same individual continues to call you, you may just be looking at a one-man fake collection agency. 

6. The collector is blatantly ignorant of the law and violates the FDCPA repeatedly during collection calls. While real debt collectors are also known to violate the FDCPA, numerous consumer lawsuits in recent  years have resulted in collection agencies cracking down on illegal debt recovery techniques. Therefore if the caller swears at you, threatens you and seems to have no answers for the educated questions you ask, you may just be dealing with a fake. 

What to Do If You're Contacted By a Fake Bill Collector 

Your first step when you realize the person you're one the phone with is likely a con man should be to feign ignorance while getting as much information out of him or her as you can. The more accurate information you can get, the easier it will be for authorities to find the scammer and shut his fake collection operation down for good. 

Turn the tables on scammers.
It's a given that a con artist won't give you his real name but, if money is on the line, he may be dumb enough to give you his actual telephone number or address. The FDCPA requires that real debt recovery companies send you written documentation of the debt within five days after first making contact with you. If you suspect the collector is a fake, ask for your written statement. You'll either never hear from him again or you'll recieve a bogus statement in the mail. Check the statement for a return address or any other clues you can pass on to law enforcement officials. 

And don't forget to check your credit report just in case. Even if you're 100% certain that you don't owe any outstanding debts, collection calls from out of the blue may be a sign of genuine identity theft rather than a fake collection agency. 

Related Posts: