Tuesday, September 13, 2011

Statute of Limitations for a Collection Agency Judgment Lien

We've already talked about the statute of limitations for debt collection lawsuits, but there is another statute of limitations that I don't think I've mentioned yet – the statute of limitations for collection agency judgment liens.

How a Judgment Lien Works

After a collection agency successfully sues you, it receives a court judgment. The court judgment gives a collector rights it did not previously enjoy. One of those such rights is the right to place a lien against your home. Such as lien is often referred to as a "judgment lien" because it is the direct result of a creditor's court judgment against you.

Judgment liens give creditors a security interest in your home
Once the collection agency attaches its judgment lien to your property, it owns a security interest in the property equal to the amount of the judgment. A judgment lien against your real estate (and, in some cases, against your car) secures the collector's previously unsecured debt.

How a Judgment Lien Can Hurt You

While any secured creditor has the right to seize the collateral securing its debt if the debtor does not pay, most collection agencies aren't going to place a lien on your home and immediately move to foreclose. This is because most homes today have mortgages against them. Because the mortgage lender filed its lien first, the mortgage lien has "priority" over the judgment lien. This would force the collection agency to pay off your mortgage if it wanted to foreclose on your house – not something most debt collectors are willing to do.

A judgment lien hurts you not because it gives the collection agency a claim against your property, but because it limits your ability to sell your property to another individual.

Selling a House That Carries a Collection Agency Lien

If you wanted to get strictly technical, you can legally sell your house to anyone you please, no matter how many liens it carries. The liens, however, stay with the property. If your buyer plans to finance his purchase using a mortgage lender, the mortgage lender will conduct a title search, find the judgment lien, and immediately balk.

You'd be hard-pressed to find a mortgage lender willing to loan a buyer the money to purchase your home until the collection agency releases its judgment lien. Remember how I mentioned that the collection agency would have to pay off your mortgage to foreclose on your home because your mortgage is a superior lien? In this case, the judgment lien would be the superior lien. If the mortgage lender ever needed to foreclose on the property, it couldn't do so without first paying off the collection agency's lien.

Selling your home? Think again
But here's where things really come to a head: As soon the collection agency realizes it holds the superior lien on a property, it can foreclose and seize the home no matter who owns it or who the other lien holders are (I'm not including tax liens here. Tax liens are a whole 'nother can o' worms that I do NOT want to open today.). Foreclose wipes out junior liens. Thus, if the buyer's mortgage was for $100,000 and the collection agency's judgment lien was for $5000, the mortgage lender would lose $100,000 over a $5000 debt (In this case it would sue the homeowner, but to a mortgage lender it just isn't worth the risk).

The potential for a big financial mess is enough incentive to prevent mortgage companies from financing home purchases if the home in question carries a lien.

Judgment Lien Statute of Limitations

The statute of limitations for judgment liens is dictated by the length of time a creditor can enforce a judgment in the debtor's state of residence. Let's use California for an example. In California, judgments are valid for ten years. After the statute of limitations passes, the collection agency can still collect on the judgment, but only if the debtor pays the debt voluntarily. The collection agency must also release its property lien.

Now, lets talk about renewal. Most states give judgment holders the right to renew their judgments if the judgment is close to expiring and creditor has not yet collected the judgment. We're still in California, guys. The collection agency has decided, after nine years, to renew its judgment....but the lien still expires on the date the original judgment was scheduled to expire (bear with me, I'm trying to make this as simple as I can).

The collection agency renewed its judgment, but it couldn't renew its lien. The renewed judgment gives the debt collector the right to file a brand new property lien, but it loses the priority of its previous lien. Thus, any liens filed after the collection agency's original judgment lien were once junior liens but, because the priority order did not change for those liens, they are superior to the creditor's claim when it files its second lien after renewing the judgment.

Judgment Statute of Limitations and Lien Laws Vary By State

I was using California law as an example, but the same policies apply in many states. Others do not allow creditors to re-file liens upon renewing a judgment. If you know the statute of limitations for enforcing a judgment has already expired in your state and a collection agency holds a judgment lien against your home, you can demand that the company immediately release its lien and send you written notification that it has done so.

If you're curious about the statute of limitations for judgments in your state, check out this chart from Bills.com: Collection Laws & Exemptions It lists the statute of limitations for both lawsuits and judgments in all fifty states.

Related Posts:

Can a Collection Agency Take My House?

The Lawsuit Statute of Limitations

Sunday, September 11, 2011

Debt Consolidation For Accounts in Collection

If old debts that ended up in collections are haunting you at every turn, debt consolidation may be a viable option for eliminating collection accounts and restoring your credit. Whether or not consolidating collection accounts is a smart decision financially depends on how old the collections are, the statute of limitations in your state and when you plan to purchase a big-ticket item that would result in a credit inquiry.

How Debt Consolidation Works

Contrary to popular belief, debt consolidation doesn't combine all of your debts. At least, not exactly. Debt consolidation occurs when you take out a new loan to pay off your existing debt. You then repay the debt consolidation loan over time. Debt consolidation doesn't reduce the amount of debt you owe, but it does make paying your debts much simpler since you only need to make one payment each month rather than the numerous payments you made before getting the loan.

Turn numerous debts into one monthly payment

Consolidating Debts in Collections

Any unsecured debt is available for inclusion in a debt consolidation loan – including collections. If collection agencies are threatening to sue you and the statute of limitations on each account has yet to expire, paying off those collection accounts may protect you from property liens, garnishment and other unpleasant situations in which debt collectors collect the debt by force.

Most collection agencies will set up a payment plan for you if you can't pay off the debt all at once, but being capable of paying off a collection agency debt in its entirety gives you greater negotiation room for a settlement. Although collection agencies will accept partial payments, they'd much rather receive a lump sum. Thus, consolidating collection accounts can be very beneficial for those who have high collections debts they cannot afford to pay.

Debt Consolidation Loan Interest Rates

If you're consolidating credit card debt, medical debt, personal loans, etc., debt consolidation does more than simplify the process. It can actually save you money. This is only true, of course, if your interest rate on the debt consolidation loan is less than the current interest rate your other creditors are charging you.

Unless your collection account started out as a credit card debt and the original contract you signed stipulated that interest charges would continue to accrue should the debt end up in collections, a collection agency cannot legally charge interest on your debt. Unless you can talk the collection agency into forgiving a significant amount of the debt, you'll be paying more over the long run with the debt consolidation loan.

Debt Consolidation Dangers

If you decide that a debt consolidation loan is right for you, make sure to shop around and read the fine print. Not all debt consolidation companies use ethical business practices and, if you fall victim to a scam, you may find yourself in a deeper financial hole than the one you're currently trying to dig yourself out of. Watch out for the following:

  • Scam artists: Not all companies that advertise debt consolidation are actually consolidators. Some are debt negotiation companies who take your payments each month and put those payments into a separate account to be used to negotiate settlements with creditors and collection agencies. Not only does this practice destroy your credit scores, it also places you in danger of new collection agencies popping out of the woodwork when your original creditors don't get paid and sell your delinquent debts as a result. 

  • High Interest Rates: If you have collections on your credit report, your credit score probably isn't stellar. Like any loan, the interest rate on a debt consolidation loan is based on your credit scores. If you do not qualify for a low interest rate, you may end up paying significantly more over time than if you'd ignored the debts and waited for them to simply fall off your credit report. 

  • Property Loss: Many debt consolidation loans are actually home equity loans and secured by the equity you hold in real estate you own. If future financial troubles result in you defaulting on a home equity loan, you could lose your property to foreclosure as a result. 

  • Additional Debt: If you include your credit card debt along with collection agency debt in your consolidation loan, it can be very tempting to rack up new charges once your cards are paid off. Even though doing so isn't a bright financial move, I can't even begin to tell you how many people do this. Those individuals are then left paying off their original debt consolidation loan and their new debt. 

Friday, September 9, 2011

How to Answer a Lawsuit Summons From a Collection Agency

If you get a summons from a collection agency, that means you are one of the unlucky debtors the collector decides to sue. You cannot ignore a summons and complaint. If you write it off as just another threatening letter structured in legalese to frighten you, you'll end up facing a default judgment. A default judgment gives a debt collector the ability to take such aggressive collection action against you as garnishing your wages, seizing your bank accounts and placing liens on your home and car. Answering the collection agency summons properly is the first step in fighting the debt collection lawsuit.

Read the Summons and Complaint Carefully

On a first read-through, the summons and complaint may be confusing – especially if the collection agency's attorneys intentionally structured the documents to contain as much convoluted legal jargon as possible. If you can't understand what the document says, its better to pay for a consultation with an attorney to have him explain the summons and complaint to you than responding incorrectly.

The summons should be fairly straightforward. It notifies you that you have been sued, notes who filed the lawsuit, notes the amount of time you have to respond to the summons and complaint and gives you a date and time to appear in court. The complaint, however, should contain each of the allegations the collection agency made against you. It's the complaint you must respond to.

The vast majority of people who receive a summons ignore it, either out of fear or apathy. Of those that do respond, many respond incorrectly and don't force the debt collector to prove its case in court. You want to admit to as little as possible in the hopes that the collection agency cannot prove its case and the judge dismisses the lawsuit.

How to Answer a Summons and Complaint

You don't have to use a special form to respond to a summons and complaint. Merely go down the list of allegations and respond to each in turn, noting whether it is true, false or partially true and why.

Unless you are using an expired statute of limitations as your defense in court, you will need to deny the allegation within the complaint noting the amount of the debt you owe. You want the court to make the collector prove that you owe what they say you owe. If the only income you have is exempt from garnishment, like Social Security payments, you may want to also include this in your Answer. A collection agency may lose its desire to continue with the lawsuit once it sees that collecting a judgment afterward will prove difficult, if not impossible.

The good news here is that most collection agencies that bother to sue do so after the debt has been bought and sold numerous times. When that occurs, the likelihood of the collector having any evidence at all to back up its claims is slim to none.

Turning in an Answer to a Court Summons

After you complete your Answer, make three copies. Keep the original. Drop off one copy at the courthouse where your hearing will take place, mail one copy to the collection agency suing you and send the last copy to the collection agency's attorney. While you aren't required to send your answer to both the collection agency and its attorney, doing so is a good idea because it covers all the bases.

Your initial goal by answering the collection agency's summons should be to get the company to drop its lawsuit. Just filing a response is a good start. If the debt collector knows you are going to force it to prove its case in court and it cannot prove its case, its likely to drop the lawsuit rather than fall deeper into the hole financially by moving forward with the case.

Related Posts:

Should You Send a Debt Validation Letter After Getting a Lawsuit Summons?

How to Use An Affirmative Defense in a Collection Agency Lawsuit

Make Yourself Judgment Proof

Should You Send a Debt Validation Letter After Getting a Lawsuit Summons?

Just about everybody has heard horror stories about collection agencies suing debtors. In lean economic times, lawsuits from debt collectors occur more frequently. Receiving a summons and complaint in the mail from a bill collector sends many panicky debtors directly to their computer. After doing some mild research in a variety of credit forums, they determine that the best course of action is to send the debt collector a debt validation letter. It makes the perfect answer to a summons, since all collection activity must stop until the collection agency validates the debt, right?

Wrong. And if you do this, you might just find yourself in hot water.

Debt Validation After a Court Summons

Collection agencies don't sue debtors as soon as they purchase their accounts. From a financial standpoint, doing so would be stupid – especially if collectors can convince a fair number of debtors to pay up without ever paying an attorney or setting foot in a courtroom.

So the collection agency will call you...and send you letters...and call you some more...and offer you a settlement....and so on and so forth. By the time the collection agency finally bites the bullet and files a lawsuit against you, its been trying to squeeze payment out of you for a very long time.

The Fair Debt Collection Practices Act notes that, while any debtor can demand that a collection agency validate their debt, they must do so within 30 days of their first contact with the collection agency. After that initial 30 day window, the collection agency is not legally obligated to either respond to the debt validation request or drop the lawsuit.

Answer The Summons, Then Ask for Validation

If you never recieved any notice that you owed a debt and the summons and complaint is the first paperwork you've ever gotten from the collection agency, you still have your 30-day window of time in which to ask the debt collector to validate the debt – but your validation request does not constitute an answer to the summons. If you have legitimate grounds to contest the lawsuit, by all means, send the validation letter, but if you don't file a formal answer to the summons with the court, you will find yourself facing a default judgment from the collection agency.

GC Services Collection Agency in Los Angeles

The Los Angeles-based collection agency GC Services has recently come onto my radar as they are one of the many collection agencies that do double duty collecting both commercial and government debts. This is the perfect example, in my opinion, of how the lines between government and the debt collector get blurred.

GC Services

GC Services came out of nowhere with a government contract to collect unpaid traffic tickets and the fines associated with them for Los Angeles county. This collection agency operates in much the same way as the others: collecting debt via dunning letters, phone calls, and credit report entries. I'm not concerned with GC Services' collection policies when it comes to retail debt. In that category they're just like any other debt collector. It's their government affiliation that bothers me.

Where Federal Law Gets Murky

Guess what? If you don't pay your traffic ticket, miss your court date but want to simply pay the thing and get it over with you can't just walk up to the clerk's office to pay the ticket. You have to deal with a GC Services representative. The court makes it easy for you by giving the collection agency its own window in the courthouse!

I'm floored by this. Honestly floored. According to the Fair Debt Collection Practices Act, the following behavior is prohibited:

"The false representation or implication that the debt 
collector is vouched for, bonded by, or affiliated with 
the United States or any State, including the use of any 
badge, uniform, or facsimile thereof."

And giving GC Services a booth in the Los Angeles county courthouse sends what message, exactly? Granted, this particular collection agency is obviously affiliated with the state of California (however tenuous that affiliation may be), but giving GC Services its own window and giving collection agents the ability to schedule court dates is confusing to debtors. They believe their state government and the collection agency are one in the same. This leads them to believe whatever the collection agent at the window or over the phone tells them – even if the information is inaccurate. We have statutes specifically to prevent this, yet its happening.

Wait, it gets worse. I have been informed that some consumers have been told by collection agency representatives that they have no other option but to pay off their traffic tickets and the resulting fines immediately. That isn't true. You can still contest a California traffic ticket after you miss your court date. You have the right to request a new court date and either fight the ticket or ask that the court reduce your fine....but there's no guarantee that a government collection agency responsible for collecting ticket fines is going to tell you that. Lets see what the FDCPA says..

"The use of any false representation or deceptive means 
to collect or attempt to collect any debt or to obtain 
information concerning a consumer"

Telling you that you can't have a court date when you can in order to procure payment is pretty deceptive, don't you think?

Paying the Traffic Ticket

Don't expect to be able to swing a deal with GC Services like you can with almost any other collection agency. They demand payment in full and your partial payments won't be accepted. This policy isn't restricted to unpaid Los Angeles parking tickets, but extends to all debts the company purchases.

From a financial standpoint, not accepting partial payments doesn't make much sense unless the company does accept partial payments and uses its "policy" as a scare tactic to bloat the importance of that particular debt. From what I can gather, the company will accept partial payments after a whole lot of haranguing, but in a few months they may just call you back demanding the full amount again.

Word to the wise: If you talk GC Services into a settlement at any point (and this applies to you retail customers. I highly doubt they can or will settle a traffic ticket) get it in writing.

Evidence of GC Services Violating the FDCPA

During my web research, these are just a few of the FDCPA violations consumers claim GC Services committed. Take note, if this happens to you, each of these offenses are illegal and worthy of a lawsuit.

  • Threatening immediate legal action with no intent to follow through on the threat
  • Informing consumers that their debts do not have a "dispute period." 
  • Monitoring and recording telephone calls without notifying the consumer
  • Harassing a debtor's neighbors with repeated telephone calls containing "messages" for the debtors
  • Threatening to garnish a greater amount than federal law permits
  • Lying about obtaining a wage garnishment order

I could go on, but I won't.

How to Fight GC Services

If you owe a fine to Los Angeles County then, by all means, pay your debt and get it over with. Don't wait until the account falls into collections. If you do, you may find yourself the victim of harassment and illegal activity as a result.

Short of filing a lawsuit (and if you've suffered an FDCPA violation and can prove it, you do have a case) there are several other things you can do to fight GC Services and help change the status quo in the process.

Write a letter to California's Attorney General, Kamala D. Harris, detailing your experience with this and any other collection agency that violates federal consumer protection laws. You can file your complaint online with the State of California Department of Justice or write to Ms. Harris at:

Attorney General's Office
California Department of Justice
Attn: Public Inquiry Unit
P.O. Box 944255
Sacramento, CA 94244-2550

    You also have the right to file a complaint with the Federal Trade Commission via the FTC's online Complaint Assistant. Unlike the Attorney General, the FTC doesn't have the option of fighting solely on your behalf, but if it receives enough complaints against GC Services it will mount an investigation and Los Angeles may have to find another collection agency to handle county fines.

    Disclaimer: I do not live in California and have never had personal dealings with GC Services. Any information in this post that does not directly pertain to federal law constitutes my opinion only. 

    Thursday, September 8, 2011

    Security Clearance and Bankruptcy

    Security Clearance and Bankruptcy 

    I see this question quite often, "Can I file bankruptcy and keep my security clearance?" so I'm going to address it here.

    Whether or not you can file for bankruptcy and keep your security clearance or obtain security clearance after filing bankruptcy in the past depends on the following factors:

    • The type of bankruptcy you filed
    • The type of debt you owed
    • Your financial behavior since the bankruptcy
    • How old you were when you filed for bankruptcy (yes, they look at that)
    • How much you owed when you filed

    Why Chapter 13 Looks Better Than Chapter 7 for Those With Security Clearance

    You can file and keep your position
    In general, filing Chapter 13 bankruptcy reflects better on your responsibility level than filing under Chapter 7 because Chapter 13 bankruptcy requires you to repay your creditors whereas, with few exceptions, Chapter 7 lets you walk away from your debts. Because you're trying to create as responsibile a persona as possible for your periodic security clearance reviews, if you have to file bankruptcy, Chapter 13 is usually the safest route to go to keep your security clearance job.

    However, if your debt load is ridiculously high and you qualify for Chapter 7, that doesn't necessarily mean that filing under Chapter 7 will cost you your security clearance. You have to weigh the pros and cons here. Is that job really worth being saddled with all that debt for another 3-5 years? If your debt load is high, you may want to go ahead and take the risk. You can always get another job, but you may not get another chance to have your debt load discharged in its entirety.

    Extenuating Circumstances Behind the Bankruptcy

    Your reviewers will looks at the extenuating circumstances behind your bankruptcy when making a decision about your ability to keep your security clearance. For example, if you filed for bankruptcy as a result of medical bills that got out of control (and you wouldn't be the first) when a family member fell ill, your reviewer can clearly see that your bankruptcy was not the result of a pattern of irresponsible behavior. An illness in your family, and the medical bills that come with it, isn't something you can change (military families have the great, all-encompassing Tricare so this scenario probably doesn't apply, but still...).

    If, however, you filed bankruptcy as a result of credit card debts, high-interest loans and other financial products you applied for and weren't able to keep up with, the security reviewer will see that you bit off more than you could chew financially and will take that into consideration when determining whether or not to extend or terminate your security clearance.

    Post-Bankruptcy Financial Behavior Affects Security Clearance

    Yet another factor your security review takes into consideration is your financial behavior since the bankruptcy. Your reviewer wants to see that filing for bankruptcy taught you an important lesson about managing your finances properly. If you immediately apply for and max out three or four new credit cards after the bankruptcy discharge, that sends the message that you haven't learned anything from your struggles and irresponsibily is the precursor to treason *cue scary music here*

    Take it easy with the credit cards post-bankruptcy

    Your Relationship With Your Chain of Command Makes a Big Difference

    I know each military branch has a different document outlining security clearance regulations and most say the same thing in a different way. What I found very interesting was that the Air Force Academy website emphasizes again and again that having a good relationship with your chain of command has a significant impact on whether filing for bankruptcy will result in your security clearance being revoked.

    While that may seem every different shade of wrong, its absolutely true. Your commanding officer putting in a good word for you may be all it takes for a security reviewer to skim your file and ignore a bankruptcy. You see, the reviewer has to make a decision: Does the bankruptcy indicate you were irresponsible by getting in over your head with your creditors, or does it denote responsibly by demonstrating that you're trying to resolve your debt problems rather than ignoring them? Your commanding officer's opinion of you can make all the difference in this case.

    Sometimes, Bankruptcy is Best

    Filing for bankruptcy won't automatically cost you your security clearance but, if you don't get your debts under control, sooner or later those debts will.

    As a rule, bankruptcy makes me cringe. The vast majority of the time the person could have gotten out of the situation another way but panicked and ran to a bankruptcy attorney who did the whole, "Stop the phones! I can save you!" routine and BOOM! a bankruptcy was slapped on the person's credit report. Sure, the credit bureaus have to remove that bankruptcy eventually, but you can't erase the fact that it happened. You filed. Its a public record. You'll be legally required to declare it on employment and loan applications, if asked, for the rest of your life.

    In the case of those with security clearance, however, bankruptcy can serve as a shield standing between them and their creditors – helping them keep their security clearance and their jobs.

    Related Posts:

    How Collections Affect Security Clearance Jobs

    How Collections Affect Security Clearance Jobs

    For the average individual, collections are a nuisance. For the consumer with a job that requires security clearance, collections pose a threat to their financial stability. If they lose their security clearance, they will likely also lose their jobs.

    As recently as 2007, 50% of all security clearance denials occured as a result of "financial considerations." In other words, "Your credit history makes you a security risk." That number applies to all branches of the military, by the way.

    Do You Have to Have Good Credit to Get and Keep Security Clearance?

    Good credit isn't a necessity to get and keep a job that requires you to have security clearance. What's crucial is that you do not demonstrate a state of financial need. The military wants to see that you are financially stable and not struggling with debt. If the military determines that your debt load is too high, they may just turn down your application for security clearance.

    The DoD can't risk careless workers spilling secrets.
    The reason for this hinges on the information you'll have access to. In the eyes of the Department of Defense, you have a much greater incentive to betray your country and sell sensitive information if you're up to your eyeballs in debt and looking for a way out. I'm guessing if "the enemy" or "the competition" would take the trouble of tracking down a likely individual and making a financial offer for sensitive information, the sum would be enough to stagger even someone who wasn't in debt. It would probably come down to greed and/or intentions rather than "Whoo-hoo! I can pay off my debt!". But the "don't be in debt" rule looks good on paper. In practice, ehhh...its flawed.

    Collections Accounts Add to Your Allowed Debt Amount

    There is no set figure you have to stay below in order to get and keep your security clearance. Experts estimate, however, that $3500 is the general figure to shoot for.

    But what's more important that the amount of debt you carry is how you got there. For example, a reviewer will scrutinize a $500 collection account more closely than a $5000 student loan debt that you pay on time each month. Why? The collection account denotes carelessness and irresponsibility whereas the student loan account does not. Carelessness and irresponsibility are more important than the amount of debt you carry, because these factors make you a bigger security risk to your country. Thus, collections on your credit report are particularly dangerous if you're headed for a security clearance review.

    Pay Off Collections Before Your Security Clearance Review

    As much as I hate to tell anyone to pay off a collection agency, the simple fact of the matter is that, in a security clearance review, paid collections reflect far better on you than unpaid ones. Sure, it won't help your credit score and paying them doesn't result in them being removed from your credit report, but it reduces the debt load you carry and makes you less of a security risk. Keep in mind, however, that the very fact you had debts that fell into collections will count against you during your security clearance review. You may be asked to provide a written statement explaining the reasons behind the collections on your credit report.

    If you plan to pay off collections before your security review, do so at least 60 days ahead of time. This gives the collection agencies time to update your credit reports accordingly, and for you to demand that they update your report if they don't do so within 30 days. You can choose to pay at the last minute, but if you do, make sure to get a statement from the collection agency noting that fact and noting that you have a zero balance. You can show this statement to your reviewer in lieu of an updated credit report.

    Related Posts:

    Security Clearance and Bankruptcy

    Wednesday, September 7, 2011

    How Much Do Collections Hurt Your Credit Score?

    You know that collections on your credit report hurt your credit score, but how much? Probably less than you think.

    How Much Collections Hurt Your Credit Score?
    Collection accounts are derogatory entries on your credit report, but a collection account isn't like a bankruptcy or foreclosure, which are the financial equivalent of Monopoly's "Go directly to jail, do not pass Go, do not collect $200" card.

    Here's why: Your credit's already damaged. 

    When a lender charges off your delinquent debt and sells the account to a collection agency, the payments you missed and the lender's charge-off damage your credit rating. A damaged credit rating is less vulnerable to negative entries that a positive credit rating.

    No one knows the exact scoring formula, but what we do know is that a negative entry hurts someone with good credit far more than someone with bad credit. Look at these two hypothetical scenarios:

    Joe has a credit score of 750. Or, at least, he thinks he does. When Joe goes to apply for an auto loan, expecting to get an excellent interest rate, he's quoted a rate far higher than he thinks he deserves. After going home and pulling his credit report and FICO scores, Joe is shocked to learn that a collection agency has hit his credit report for a debt he wasn't even aware of – costing his credit score 120 points. 

    Jane has had numerous debt problems in the past and can't keep up with her credit card payments. She finally defaults on the balance she owes – knowing that it will end up in collections. Jane's credit score is 550 when the credit card company finally charges off the debt. Four months later a new collection appears on her credit report, but Jane isn't too worried. The new collection only costs her 30 points – bringing her credit score down to 520. 

    In Joe's case, his good credit rating caused his credit score to go into free fall from a single collection hitting his credit report while a collection hitting Jane's credit didn't have that much of an impact. The degree to which a collection hurts your credit score – and how many points you can expect to lose – is directly related to how high your credit score is when the collection agency reports the debt. The higher your are, the greater the fall. 

    Estimating the Damage Collections Do to Your Credit Rating
    As much as you'd like to know ahead of time how much damage a collection account will do to your credit rating, estimating the damage is just that: an estimate. Each piece of information on your credit report affects your score to a different degree. Thus, two people with the same credit score may have drastically different results should the same collection account for the same amount hit their reports. On average, with an average credit rating, an individual may suffer anywhere from 50 to 75 points of damage, but that's just a ballpark figure. As I stated before, everyone is different.

    Collection Amount Affects Credit Score Damage
    One thing most debtors don't realize is that the amount they owe a collection agency influences whether or not their credit scores take a nose dive once the entry hits their credit files.

    Since time out of mind Fair Isaac's credit scoring model counted all collections pretty much the same way. The scoring formula didn't differentiate between a $20 collection for an unpaid library fine and a $5000 collection for a unpaid student loan. One person is clearly the greater credit risk than the other, but the system didn't reflect that.

    With the release of FICO '08 in early 2009, the scoring formula now has a way of differentiating between consumers who have clear debt management problems and those who got nickel and dimed all the way to collections. If the original debt you owed was less than $100, the resulting collection account may show up on your credit report but it won't hurt your credit score.

    Related Posts:

    Collections on Your Credit Report

    Collection Accounts and Your FICO Score

    Credit Reporting Period vs. Statute of Limitations

    Monday, September 5, 2011

    Deleting Collections From Credit Reports With the "One-Two Punch"

    If you've hung around debt collection forums for any length of time, you've probably heard of the "one-two" punch. The "one-two" punch essentially consists of sending a validation letter to the collection agency and immediately following that validation up with a credit bureau dispute. This is supposed to result in the credit bureaus deleting collections from your credit report. Here's how it works:

    How the One-Two Punch Deletes Collection Accounts

    The Fair Debt Collection Practices Act notes that, once a debtor sends a debt validation request, the collection agency cannot legally validate the debt to any entity other than the consumer that requested the validation until after it has sent proper validation to the consumer. Thus, the collection agency cannot legally validate the debt to the credit bureaus until after it sends proper validation to the debtor.

    The one-two punch rests heavily on time constraints. The hope here is that the collection agency won't be able to validate the debt to the credit bureaus within the 30 day time limit required by law. After the 30 days, the credit bureaus stop waiting for a response to the request and simply delete the collection tradeline from the debtor's credit report.

    Yet another potential help is if the collection agency validates the debt to the credit bureaus without responding to the consumer's validation request. This gives the consumer the right to sue the collection agency. Upon notification that a lawsuit is pending, most collection agencies would rather delete the entry than duke it out in court.

    Problems With This Deletion Tactic: Debt Validation Time Limit

    There seems to be some serious misunderstanding regarding when you can send a debt validation letter to a collection agency. The FDCPA gives you 30 days to dispute the debt with the collector. Those 30 days start on the day you first became aware of the existence of the debt. Sure, you can claim you didn't receive the boatloads of letters the company sent to you asking for payment, but if the company can prove via recorded phone calls or evidence of certified mail that you were aware of the debt for more than 30 days prior to sending your validation request, it isn't legally bound to respond to that request.

    So if you're going to try the one-two punch, do it within the first 30 days of being contacted by the collection agency, just to be safe.

    Confusion Over "Proper" Debt Validation

    Another aspect of the "one-two punch" hinges on the collection agency not providing the consumer with validation of the debt. Hunt around on the web for "proper" debt validation. What do you find? Probably a bunch of this:

    "Proper validation constitutes the amount of the debt, the name of the account holder and his Social Security number, the name and address of the original creditor, proof that the collection agency has a contract with the original creditor giving it permisison to collect the debt..."

    Blah, blah, blah. While we'd all love for this to be true, the FDCPA gives collection agencies a loophole by not stipulating what constitutes proper validation. Nothing. Nada. It's not there. Sure, there are FTC opinion statements, but those aren't fact or law. They're opinions. The truth is, the collection agency can send you a piece of paper with "IT'S YOURS DIRTBAG" scrawled across the front of it in red crayon and call it validation. While you may be able to nail them for harassment for that, they can still claim they considered it proper validation – leaving them free to legally validate your debt to the credit bureaus.

    When the One-Two Punch Works, Watch Out for Reinsertion 

    I've met people for whom the "one-two" punch has worked beautifully, so I'm not saying don't give it an honest effort. Be wary, however. If the collection agency isn't able to respond to the credit bureaus' validation request due to the fact that its actually adhering to federal law (many don't bother to follow the law) don't be surprised if the same collection account pops right back up on your credit report a couple of months after being deleted.

    This is because the FDCPA give creditors the right to have previously deleted information reinserted if the creditor can prove to the credit bureaus that the information is correct and was deleted in error. Sadly, with collection agencies, this often happens as a result of the company sending the credit bureaus a certified letter stating something along the lines of, "That information you deleted was correct. Look, we have the guy's name and the amount he owes. It must be right. Reinsert this please."

    And the demon reappears.

    So, by all means, give the one-two punch a try. I'd love to know how it works out for you, but make sure to watch your credit report like a hawk for a few months afterward to ensure that the same old collection account doesn't pop up on your credit report after you thought you'd had it deleted.

    Removing Collections That Aren't Yours From Your Credit Report

    Removing Collection Accounts That Aren't Yours From Your Credit Report

    Removing collections from your credit report that aren't yours is a little trickier than deleting old collection accounts. Many, many, many people claim that collection agency debts aren't theirs when, in fact, they are. Disputing a collection as "not mine" is the number one dispute the credit bureaus see, so don't expect to get very far there. Your goal is to convince the collection agency to delete the tradeline of its own volition.

    The first thing you do is to write a letter to the company requesting the name and address of the original creditor for the account. You need that information before you begin.

    Step One: Sending a Validation Request
    This is nothing more than a formality. The collection agency cannot validate an account that isn't valid – but they will. Send a letter to the company, CRRR, requesting that it validate the account. Do not include any other information with your letter, such as "this account is not mine" etc. The collection agency will send you a printout containing the same basic information about the account that you see on your credit report. With any luck, some of that information is incorrect. You want this in writing. It will come in handy later.

    Step Two: Calling the Collection Agency
    Surprised? You should be. I'm normally the first birdie to sing a warning against ever calling a collection agency. In this case, however, it can really work to your benefit. So lets face the beast head-on, shall we?

    When you call the collection agency, you'll have to go through an automated system to reach a collector. When the system asks you for personal information such as your Social Security number, just sit there. The system will not disconnect you. This isn't the same as calling the credit card company that really doesn't want to talk to you anyway and will disconnect you at the first opportunity. Collectors want to get you on the phone, and if the debt isn't yours, you don't want to give them any more information than they already have.

    When you finally get a human being on the line, be polite. Explain your situation honestly, making sure to set yourself apart from the pack as much as possible. I recommend the following introduction:

    "Hi, my name is ________. I noticed a tradeline on my credit report recently from your company requesting payment in the amount of _______. The account number for this account is _______. Would you like me to wait while you pull that up in your system?" 

    This shows both professionalism and kindness. You're demonstrating those aspects first because you want them returned. It's a heck of a lot harder for a debt collector to start yelling at you about what a deadbeat you are when you start out the conversation on such a civil note. Let's continue..

    "I know everyone calls and says this and its probably become so common that it makes you want to scream, (short chuckle) but this debt rightfully belongs to someone else. The name/Social Security number/address/etc. on the tradeline isn't mine. I am willing to do whatever is necessary to help straighten out the situation, both to help myself and to help your company pursue the correct debtor." 

    You say, "I know everyone says this" to demonstrate that you do know they hear it all the time. By pointing out that you are aware that everybody claims this but in your case its true, you set yourself apart as believable. You chuckle to mark the unpleasant humor of the situation and to add an element of humanity – humanity that you hope will be returned – to the conversation. You also note how helping you also benefits the company to give the collector additional incentive to help you.

    The first thing the collector will ask for is your Social Security number. Here's how you respond:

    Collector: Can I get your Social Security number please? 
    You: I mean you no disrespect and I want to get this situation resolved as much as you do, but try and understand my paranoia here about giving out information that can be used against me. After all, any information I give you can be used in an effort to collect the debt – even if those collection efforts are aimed at the wrong individual. 

    Your goal is to get the collector to tell you who to call to resolve the situation. A special number of a top supervisor, perhaps. The name and address of the person in charge would also be helpful. Any information you can glean from the collector that most debtors don't have access to will help you resolve the situation and stay out of court. Try saying this:

    "My goal in calling you today is to get this situation resolved as quickly as painlessly as possible for both of us. Who do I need to talk to within your company to accomplish that?" 

    If the collector won't help you, call back and try again. Your odds of getting the same representative are low. Sooner or later, someone will tell you who to talk to. Do not let your voice betray any shred of frustration or anger. Unlike most customer service representatives, debt collectors aren't trained to be nice at all costs. If you bite, the debt collector will bite back and any chances you had of getting the information you want will go up in smoke.

    Once you get an address or e-mail address of someone in a high-ranking position within the company (get the addresses of more than one, if possible. You want to send this letter to as many people as you can) send out a letter asking for help. I'm going to provide you with a sample you can tailor to your own situation. The italics in the letter are for your own clarity. Don't include those

    Dear Mr./Mrs. ___________

    My name is ____________. I am writing to you today with a situation you've probably encountered 1000 times, with only one or two cases out of that thousand being legitimate. I am one such legitimate case. The debt your company claims I owe isn't mine.

    I discovered this debt on my credit report with an incorrect name/Social Security number/etc. I requested the name and address of the original creditor for the account and I have never held an account with _______ or I currently hold an account with _________ but it is up to date. I recently requested validation of the account and received a response containing incorrect information. This benefits me, since it proves that your company is pursuing the wrong individual for this debt. I am writing to you rather than simply moving forward with a credit bureau dispute and litigation because I am hoping we can resolve this outside of court.

    I am willing to comply with any requests your company has that will prove my innocence in regards to this debt. Please understand, prior to receiving the validation response, I was hesitant to do so because I know that some collection agencies will simply replace the incorrect information with my information in an effort to collect the debt, not caring that they are pursuing the wrong person. I no longer have that fear because the validation I have in writing from your company contains the incorrect data you currently have on file and protects me in the event that data changes. It also serves as proof that the person you're looking for isn't me. Thus, exonerating me is not only beneficial to me, its also beneficial to your company since it frees you to pursue someone who will pay this debt.

    Please contact me at (email address) so that we can discuss this matter further. 

    Your Name

    I know how crazy this may sound to the die hard "Dispute-till-you-drop" camp, but I learned the hard way that collection agencies aren't all fire and brimstone. Higher-ups within the company don't depend on commission to pay their bills, and they're more likely to help you out of sheer human compassion. Given that few people anticipate this from collection agents, the trick works more than you'd think.

    Once upon a time I had a client whose boyfriend had a collection debt on his credit report that was actually his nephew's debt. The two shared the same name and, being ignorant of the way the system normally works, he called the collection agency himself, explained the situation and asked for help. He got it. The collection agent who answered the phone directed him to another employee at the company who was willing to straighten out his file. In the end, my services weren't necessary and I was delighted by my client's boyfriend's success.

    The point being, you might just get the help you're looking for if you ask for it.

    If the Collection Agency is No Help Removing An Account That Isn't Yours

    Just because the collection agency might help you, that doesn't mean its a certainty. Whether you're dealing with a genuine collection agency or a junk debt buyer makes a significant difference in whether or not you can get the negative report removed from your credit report with a few well-placed telephone calls and letters. Its much tougher to get a junk debt buyer to take you seriously because, if the account is old enough to have been sold to a junk debt buyer, then the debt collectors assume if the debt genuinely wasn't yours you would have already taken care of the problem. In addition, junk debt buyers have a lower successful collection rate that mainstream collectors because the debts they purchase are so much older. This makes them more gung-ho to collect from you, regardless of whether or not you can prove you legitimately don't owe the debt.

    Time to play hardball.

    Sending An Intent to Sue Letter to the Collection Agency

    Remember when I mentioned that collection agencies don't want to go to court? Its normally not worth their time or the money it would cost to defend themselves from consumers – especially when they aren't certain just what evidence a consumer has against them until after the discovery period.

    Step Three: Sending an Intent to Sue Letter to the Collection Agency
    If that collection account on your credit report isn't yours, notify the collection agency of that fact via an intent-to-sue letter. Let the collection agency know, in no uncertain terms, that the entry is incorrect and thus in violation of the FCRA because you never owed the original debt. Don't provide the company with copies of any evidence you have against them. Don't provide anything. You don't want to inadvertently give collectors legal ammunition that can be manipulated and later used against you in court. Just write the letter and point out the following:

    1. The account isn't yours and was placed on your credit file by mistake. 
    2. You never had an account with the original creditor and you can prove it.
    3. You can prove that the entry on your credit report contains information that indicates the debt is owed by someone other than you.
    4. Reporting incorrect information to the credit bureaus is illegal.
    5. You have the right to sue under the FCRA and you intend to do so unless the entry is immediately removed from your credit report. 

    And then you wait. With any luck, one intent to sue letter will be enough to convince the collection agency that you mean business and it will delete its negative entry from your credit report.

    If the Collection Agency Doesn't Fix Your Credit Report

    If threatening to sue the collection agency isn't enough to set a fire under them and get the entry deleted from your credit report, its time to dispute the entry with the credit bureaus. Unfortunately, this is little more than a formality. The credit bureaus validation process is little more than contacting the collection agency with a, "Hey guys, is this correct? It is? Okay thanks." But you'll need to prove in court that the collector violated the FCRA knowingly. That means notifying the collector that the information is incorrect before you contest it with the credit bureaus. When the collection agency validates the information as correct, that proves that the company violated the FCRA by knowingly validating an incorrect entry.

    And there's always a chance that the entry will get removed. You just never know. Its worth a shot. When the  credit bureaus validate the collection that isn't yours on your credit report, its time to take the fight to the courts and sue the collection agency. You could also try the "one-two punch" but I'll write more on that later. For the time being, I'm exhausted and this post is long enough as it is. There's so much information to include. *sigh* Ah well, such is the purpose of a blog. Bit by bit, we'll get there.

    Removing Re-Aged Collection Accounts From Your Credit Report

    Re-aged collections on your credit report can leave you getting turned down for loans and credit you actually qualify for simply because a collection agency is violating federal law. If you suspect that a collection agency is intentionally reporting the wrong dates to the credit bureaus in an effort to leave its black mark on your credit report for longer than the law allows, your first course of action should be to get a copy of your credit report from each credit bureau – Experian, Equifax and TransUnion.

    Remember, federal law entitles you to one free credit report per year. If you order that free credit report from AnnualCreditReport.com, you won't have to deal with giving out your credit card number and then canceling any ridiculous subscriptions later on down the road. AnnualCreditReport.com is regulated by the FTC, and its the only place you should turn to for free credit reports.

    Find Each Collection Account's Removal Date

    Find the correct deletion date
    Flip to the collection accounts section of each credit report. The error you're searching for is collection accounts that show up on your credit report for longer than the time limit allowed by the Fair Credit Reporting Act. The FCRA says that collection accounts must be deleted from your credit report 7 years from the date of first delinquency on the original account. The date of first delinquency is 180 days from the date of your very last payment to the original creditor.

    Here's where things get tricky. Collection agencies go to great lengths to prevent you from knowing this date. It benefits them to have their negative entry hanging around on your credit file for as long as possible. Because of this, some collection agencies will go so far as to "re-age" their accounts – intentionally reporting incorrect dates to the credit bureaus to ensure that collections remain on your credit report for much longer than the law allows.

    Thus, collection agencies will only report the date that the account was opened with their facility – not the date of first delinquency. It's up to you to match up the collection account with the original creditor's entry on your credit report. Most creditors charge off debts when they go 180 days with no payment. With few exceptions, the "charge-off" date listed on your credit report is the date of first delinquncy.

    Once you've matched up the charge-off date with the right collection account, do the math for yourself to find out when the account is supposed to fall off your credit report. Don't depend on the credit bureau's "estimated removal date" to do the math for you. If your account has been illegally re-aged, this date will be incorrect. If you don't have long to wait before these accounts disappear from your credit report forever, its often easier and less stressful to just wait until they fall off on their own rather than trying to fight them off.

    If No Original Creditor Matches the Collection Account on Your Credit Report...

    Many of you will go through this little exercise and discover that you've got several collection accounts showing up on your credit report for which there is no original creditor to match them up with. This can occur for several reasons:

    1. The original creditor was a credit card company. Credit card companies allow the charging of interest. Because the original contract includes this practice, any collection agency the credit card company sells the delinquent account to will also have this right. Thus, the charge-off amount won't match the collection amount because interest has continued to accrue since the account was charged off. 

    2. For whatever reason, the original creditor's tradeline no longer appears on the same credit report that the collection agency's tradeline appears on. This happens sometimes. Don't panic. Just check your other two credit reports for the matching creditor. It may be there, even if the collection agency doesn't report that that particular credit bureau.

    3. The account has been illegally re-aged. Under no circumstances should a collection account for a debt remain on your credit report after the original creditor's tradeline has aged off the report. The reporting period applies to both the original creditor and its collectors simultaneously. If no original creditor on any of your credit reports matches the collection account, there's a good chance the debt has been re-aged. 

    4. The collection account isn't yours. Collection agencies frequently don't have the same wealth of information about you that original creditors do. Often all they have is a name and address. This can result in a collection agency adding their negative tradeline to the credit report of the person who most closely matches the information they have – in some cases, the wrong person. 

    If no original creditor matches the collection agency's tradeline on your credit report, its time to find out who the original creditor is. The Fair Debt Collection Practices Act states that a collection agency must provide you with the name and address of the debt's original creditor upon request. So fire off a letter to the collection agency requesting exactly that. Don't forget to send your letter certified mail return receipt requested.

    If the Collection Account is Too Old And Has Been Re-Aged

    Collection accounts that show up on your credit report beyond the reporting period are the easiest to remove. Its always preferable to get the reporting company to remove the entry voluntarily, if possible, before filing a dispute with the credit bureaus. You want to fly under the radar with the credit bureaus. You don't want to make yourself noticeable in any way by filing frequent collection disputes – even if those disputes are legitimate.

    Send a letter to the collection agency informing them that it has come to your attention that the company's tradeline appears on your credit report beyond the legal reporting period. Demand that the company immediately remove their tradeline to remain in compliance with federal law. If you're really feeling froggy, cite the statute – FCRA Section 605.

    With any luck, the collection agency will simply fix your credit report to avoid any trouble. If the collection agency doesn't remove the entry after 30 days, send a second letter saying the same thing and giving the company 10 days to correct your credit report before you file suit against the collection agency for violating the FCRA and report the company to the Federal Trade Commission for illegally re-aging a collection account.

    (You can report collection agencies for this here.)

    If the collection agency still fails to comply, its only then that you should formally dispute the entry with the credit bureaus.

    Disputing a Re-Aged Collection Account

    Resist the temptation to file your dispute online, no matter how quick and accurate the credit bureau promises it will be. The online system is 100% computerized, and your goal is to reach a real person.

    Write a letter (write it by hand, don't type it. You don't want it read and categorized by a computer – and yes, they can do that) to the credit bureau. Include the following information:

    1. The fact that the debt in question has been re-aged.
    2. The name of the original creditor, the date of first delinquency and the date the collection account should have been removed. If both the original creditor and the collection account remain on your credit report, you can dispute both simultaneously. If not, note that the credit bureau in question has already deleted the original creditor's tradeline in accordance with FCRA guidelines and that the collection account should have been removed at the same time. 
    3. A copy of that credit bureau's file for you with the information in question highlighted. 
    4. A request that the credit bureau immediately delete the information

    With any luck, the person who gets your file will just delete the information immediately without trying to "verifiy" the entry with the collection agency like the computer system would do. Remember, the credit bureaus only have to verify information if the reporting company has supposedly made an error. In this case, you're claiming the error to be that of the credit bureaus – for not picking up on a re-aged debt. This gives the person reviewing your file more leeway.

    Reviewers have an average of three to four minutes to spend on each file. The more you can back up your claim, the better off you are.

    If the Credit Bureau Doesn't Delete the Entry

    If the credit bureau doesn't delete the re-aged collection account from your credit report, its time to take the fight directly to the collection agency. Send the company a letter noting the following:

    1. You recently requested the name and address of the original creditor from the collection agency and the date of first delinquency for that particular debt occurred more than 7 years ago. 
    2. The credit bureaus deleted the original creditor's negative tradeline after 7 years and 180 days in compliance with the FCRA.  The collection account should have been removed at the same time.
    3. You notified the credit bureaus of the discrepancy and the credit bureaus contacted the collection agency, which verified the dates were accurate when, in fact, they couldn't be if the original creditor for the account was accurate. 
    4. The dates for the collection account were clearly re-aged – an illegal practice under the FCRA. 
    5. The collection agency must immediately delete its tradeline from your credit report to remain in compliance with federal law. If it does not, you will report the collection agency to the Federal Trade Commission for re-aging, contact your attorney general and file a lawsuit against the company for violating federal credit reporting practices. 

    Give the collection agency a time limit, say, 10 to 15 days and then either pull your credit reports again or sit back and wait for the email from your credit monitoring service letting you know that information on your credit report has changed. If the collection agency doesn't do anything, follow through with your threats. A well-placed call from your attorney general can result in quick deletion of a re-aged collection account from your credit report. If that doesn't do the trick, receiving a summons will almost always cause the offending tradeline to mysteriously vanish. After all, a collection agency is in the business of making money. What company wants to pay money to go to court to defend itself against a case it can't win?

    Saturday, September 3, 2011

    Collecting Debt From the Dead: Survivors' Rights Against Collectors

    When I was in my late teens, my father died. He wasn't feeling well one evening so he went to bed early...and just never woke up. He left behind some debts that ended up in collections and before too long, collectors were calling our house on a semi-regular basis. My mother wasn't emotionally capable of taking these calls, and I was trying to take care of her the best way I knew how: by fielding away my father's creditors. My story to any collection agencies that called was that my mother had packed her bags and left myself and my father three years prior and I had no idea where to find her. Once I even mustered up some fake sobs and asked the collection agent if he found her, would they please call and tell me? 

    Long story short, I didn't have to give the collection agencies a lie when they called to collect after my father's death. If I had a time machine, one of the things I would do is go back in time and give my young self instructions on how to handle this. I can't do that, but I can give those instructions to you. 

    But first, the basics. 

    Debt After Death: The Probate Court

    When a person dies, that individual's estate goes into probate. The estate isn't limited to property the deceased owned, but encompasses all of his/her worldly assets (there are some exemptions that are not included in the estate, but they aren't relevant for the purpose of this post). It's the creditors' responsibility to file claims with the probate court against the estate within the time limit set by the state. At the end of the probate period, the court "settles" the estate by paying off creditors that filed legitimate, timely claims and turning the remainder of the deceased's assets over to his heirs. 

    Oftentimes, there are creditors that don't get paid. Those creditors, unwilling to do what they're supposed to do and write off the account as a total and complete loss, "accidentally" sell that account to a collection agency. Thus, they get some scratch for the debt while simultaneously passing the buck to someone else. 

    The natural course of events transpires and debt collectors begin calling the deceased's house nonstop. The surviving family members inform the bill collectors that the debtor is dead, but the debt collectors don't believe that. The family might even send the collection agency a copy of the death certificate. Sometimes, this is the end of the story, but more often than not the dog and pony show is just beginning. 

    You Owe Your Dead Parent/Husband/Wife/Brother/Grandmother's Debt!

    First and foremost, debt collection is an industry with a high turnover rate. Agents don't stay at the job very long. It's just too disheartening and most people aren't nasty enough – or desperate enough – to make that a long-term profession. Because of this, bill collectors rarely have the training and experience necessary to know all of the small ins and outs of collection law – especially when it comes to the deceased. 

    Make the collection calls stop
    To make matters worse, bill collectors work on commission. The more money they collect, the more money they make. This gives collectors who know better a strong incentive to toe the line of the law or even jump over it entirely. Most consumers know their basic rights, but have no idea how to handle debt collection activity after the death of a loved one. 

    So the debt collector calls and demands that you pay the debt of your husband/sister/brother/grandparent and you say..what? You've been put on the spot. You know nothing about this debt, but this person says you have no choice but to pay it. If the collector is particularly nasty, he'll threaten to do something like sue you, garnish your wages, take your car and home or ruin your credit rating. If you're like many scared consumers, you're blinded by grief and confusion and you either promise to make a payment or worse – give the debt collector your banking information to allow the company to debit the money directly from your bank account. 

    How the Law Protects Survivors

    Here's the first thing you need to know. With few exceptions, you do not owe this debt.  Let me say that again for emphasis. YOU DO NOT OWE THIS DEBT. Got it? Good. 

    The law is a grey area as to whether or not a bill collector who knows your loved one is dead can still call and ask you for payment. The Fair Debt Collection Practices Act makes it perfectly clear that collectors can only discuss the debt with the debtor, not a third party (in this case, you). But when the debtor is dead, the debt collectors almost always ignore this rule and, to the best of my knowledge, there's no case law on this yet. 

    But one thing is painfully clear: a bill collector can never, ever threaten someone with legal action they cannot actually take. The collectors cannot lie to you in an effort to scare you into paying off your dead loved one's debts. They'll do it without blinking an eye, but its illegal. 

    (If you're curious about just how low collectors will go to collect the debts of the deceased, this New York Times article, You're Dead? That Won't Stop the Debt Collector is both fascinating and cringe-worthy at the same time.)

    What To Do When the Collection Calls Start

    When your phone starts ringing off the hook with calls from collectors wanting you to pay off the deceased's accounts, your first course of action should be to inform the collector that the individual has passed away and ask for an address to send the death certificate to. Contrary to what you may believe, most debt collectors aren't evil beings sent from the bowels of Hades to terrorize the living. They'll give you the correct address and hang up the phone. So here we go, step by step:

    1. Get a copy of your deceased loved one's death certificate.

    2. Write a cease and desist letter to the collection agency noting that the only individual legally responsible for paying the debt in question is dead and that the company is not to contact his/her family members any further. 

    3. Mail the death certificate and cease and desist letter to the collection agency via certified mail with a return receipt requested. 

    4. Repeat the process for every collection agency that calls until the calls finally stop. 

    5. Sue at your discretion. 

    Exceptions to the No Liability Rule

    In rare circumstances, family members can be liable for a deceased loved one's debts. Namely, if you were a joint account holder for the account or you live in a community property state that applies the community property rules to debt as well as assets. That's important. Collection agencies and creditors alike would love for all consumers to believe that living in a community property state is enough to be saddled with their spouse's debts upon their death but it simply isn't the case. All community property states treat debt after death differently, so know your state's rules before you assume you have to pay your deceased family member's collection debts after they're gone. 

    Related Posts:

    Friday, September 2, 2011

    Bill Collection Letters to Someone Else – With Your Address

    A letter from a bill collector isn't something you ever want to see nestled between your phone bill and the pizza coupons when you check the mail – but if the collection letter has your address and someone else's name, you can breathe a temporary sigh of relief.

    Not worrying about being hounded by bill collectors is one thing, dealing with the repetitive "junk mail" they're sending to someone else who they apparently think lives in your home is quite another.

    Of course, when you receive something that looks like a collection letter, you open it – especially if its not addressed to you. You're curious. It's okay, we all are. You've probably heard over and over again that opening someone else's mail is a violation of federal law, and it probably is. But if I know one thing about the law its that there are all these pesky little contingencies involved. Joe Schmo often goes and reads federal statutes, interprets them to the best of his ability (i.e. incorrectly) and then spreads drivel all over forums he frequents. This drivel then trickles down to 1000 other places until the original law is all but ignored in favor of Joe Shhmo's interpretation. You get me?

    I have yet to come upon a case in which someone has been jailed for opening a letter with their address on it that just happened to be addressed to another person. Just sayin'.

    Someone Else's Collection Letters

    So you've got these collection letters that just keep coming. Why should you do anything other than read them, chuckle to yourself at someone else's misfortune and toss them in trash? Two reasons:

    1. The person the collection letters are addressed to, lets call him John Doe, may have no clue that bill collectors are even after him. Eventually the collection agency may just decide to sue him and guess whose house the summons will arrive at? Ignoring the summons on top of all the collection letters will leave John Doe with a default judgment he isn't even aware of. If you have no moral compunctions about putting another person in that position when you can prevent it, fine, but Jiminy Cricket frowns on things like that.

    2. John Doe may have just given his creditor a fake address – your address – before stiffing them for the bill. That should anger you just a little bit. Here you are receiving collection letters because some jerk used your address as the basis for his scam. The least you can do is notify the collectors so that they can start looking in the right place and hopefully catch him. 

    The big question, of course, is how to notify the collection agency that they've got the wrong guy without admitting that you broke the law and opened someone else's mail.

    Part of the difficulty in notifying a collection agency that they're sending dunning letters to the wrong address stems from the fact that the Fair Debt Collection Practices Act prohibits collectors from putting any information on the exterior of an envelope that would indicate that the communication is from a debt collector. Most bill collectors avoid this by simply putting the return address on the envelope rather than the company name. If you've ever dealt with collectors before, however, you know that simply marking the letter "Return to Sender" isn't going to result in the company calling off the dogs. If bill collectors keep sending collection letters to your address but those letters aren't for you, here are some options to consider:

    Acknowledging That You Opened Someone Else's Collection Letter 

    This is pretty innocent. As a matter of fact, I've done this one myself. Call the collection agency and explain that while you were opening your mail you discovered the collection notice. Only after reading it did you realize that it wasn't addressed to you. It's an innocent error. Who really expects the mail in their mailbox to be for a stranger? In my case, the collection agent was surprisingly nice and helpful (My jaw hit the floor. I called geared for battle. Oh well, another time) but you can't always expect that.

    Just admit you opened it. 

    You have a decent chance of getting the agent to begrudgingly accept the fact that the company made an error and take your address off the company mailing list. If the bill collector starts railing about you breaking the law by opening someone else's mail, take it calmly and point out that it isn't reasonable to expect that mail in your mailbox, with your address on it, isn't addressed to you. If you want to really make sure that you don't get any more mail from the collection agency, go to your good friend Google and track down the perpetrator for them. Have John Doe's real address on hand when you call.

    Playing It Safe With the Collection Agency

    If you like to play by the rules and don't want to risk a jilted collection agency doing something crazy – like filing a lawsuit against you for opening someone else's mail (because, lets face it, they are all about the Benjamins) you can opt to type out a nice letter noting that the recipient of this "piece of mail" is not a resident of the given address. Include an unopened collection letter (if you open it you're just giving yourself away) with your note and send both to the return address the collection agency provided on the letter.

    Now – and don't screw this up – if you're playing it safe do NOT address the collection agency by name in your letter. The collection agency didn't list its company name on the envelope, and you're playing by the rules and feigning ignorance, remember?

    With any luck, one of the above tactics will prove successful and you won't receive any more collection letters at your address for a mysterious debtor who doesn't live there.