Thursday, December 22, 2011

What To Do When a Collection Agency Validates Your Debt

We've discussed in depth what a debt validation is and why its crucially important to fire one off the second you hear from a collection agency. In a previous post I mentioned that I would discuss what to do if a collection agency responds to your debt validation letter. One of my readers has been kind enough to point out that I never did that. Sorry guys. Let's take care of that now.

Responding to a Debt Validation Letter

Over the past 10 years or so, consumers have become much better informed about their rights against bill collectors. While its always a good thing for consumers to know and defend their rights, it started costing the collection industry big bucks when every Joe Schmo out there sent a validation letter as soon as the collector contacted him.

The answer to this ever-growing problem was automated validations (You had to see that one coming). Not all collection agencies use a computer program to churn out automated debt validations, but many do. The goal of this, of course, isn't to actually follow the letter of the law and validate the legitimacy of your debt. The goal is to make you give up, tuck your tail between your legs and trudge to the bank to pay off the account.

But we aren't going to do that are we? Didn't think so.

The Automated Debt Validation Letter

The automated debt validation response that you're likely to receive from a collection agency isn't going to give you any details. As a matter of fact, it isn't going to give you much of anything other than how much you owe – a fact any debt collector would have been more than happy to scream at you over the phone. Let's look at an example of the typical automated debt validation response for a defaulted credit card debt, shall we?

Mr. Doe:

Our records indicate that you requested a debt validation on 01/01/2012. Per our records, the amount you owe is $xxxx. Please review the enclosed contract from the original creditor and contact our office immediately to discuss payment arrangements

Bill Collector

Not all validation responses are the same, but this one incorporates what you're most likely to encounter. This debt collector has included the amount you owe (like that's a big secret) and a blank credit card agreement. The debt collector calls the blank credit card agreement a "contract." This is a psychological ploy to make the uninformed consumer believe that the collector has just sent him a copy of his contract with the original creditor and therefore must have adequately validated the debt.

And more often than not, the blank credit card agreement the collection agency sends isn't even the same agreement that you signed. Unless you have the original agreement handy, there's no sure way of knowing, but that would certainly be an interesting fact to bring up in court.

What the Law Says (and doesn't say) about Proper Debt Validation

This is where things get really sticky. I've seen it everywhere that a response from a collection agency isn't a "legitimate" validation unless it contains a copy of the contract the debtor signed with the original creditor (bearing the debtor's signature) and, in the case of credit cards, the signed credit card slip for every purchase made.

I really hate to burst your bubble, but the law does not require a collection agency to find that for you. Here's where the FDCPA fails you: it does not define what constitutes a legitimate debt validation. That is not an oversight on the part of the Federal Trade Commisison. Trust me when I tell you that slip up was intentional. You see, if the FDCPA clearly defined debt validation, then collection agencies would legally have to provide exactly what the FDCPA required. Because most of them can't provide anything even resembling a legitimate validation, their lobbyists work hard to ensure that they never have to.

That does not mean that you're out of luck. While the FDCPA doesn't define validation it does note that the collection agency must provide you with the name and contact information for the original creditor. It's not much, but its a start – especially if the collection agency "validated" your debt without providing you with this information.

FTC Opinion Letter on Debt Validation

Just because the FDCPA does not formally state what a collection agency has to provide you with, that doesn't mean that some of the head knockers over at the FTC don't have their own opinions as to what does and does not constitute validation. This letter from Jeffrey Wollman clearly sides with the consumer on the issue:

FTC Opinion Letter

How Do I Respond When the Collection Agency Validates?

If the collection agency sends you their basic "Here's what you owe" letter and a blank credit card agreement in response to validation, its a good idea to point out that no reasonable person would consider that validation. Here's a sample response for the above situation. Remember, you should always tailor your letters to fit your specific situation.

To Whom It May Concern:

I requested a validation of the debt your company claims I owe on xx/xx/xxxx. In response, I received a letter noting the amount that I allegedly owe and a blank credit card agreement. Consumers have the right to request a validation of debt to ensure that the company collecting the debt has not made an error. Sending me notice of the amount I supposedly owe does not prove that I owe the debt, it merely proves that your company seeks to collect the specified amount. In addition, the blank credit card agreement merely illustrates the rules and regulations applicants must agree to when applying for that card. It does not contain my signature and, as such, has nothing to do with me.

Please note I am not requesting a verification of your records or a verification of the credit card company's current policy. I am requesting proof that I incurred this debt, how much was incurred and that you have the right to collect it. Proof of my liability is my legal right under the Fair Debt Collection Practices Act.

John/Jane Doe

Even if the collection agency doesn't send validation, you're accomplishing two things with this letter:

1. You're demonstrating that you know your rights and you won't be easily bullied. You'd be surprised how many people manage to avoid lawsuits simply because the collection agency knows they are well informed and thus more likely to pose a threat to the company's bottom line in court.

2. Should the issue end up in a courtroom, your letter will pass through the judge's hands (provided you remember to keep your paper trail!). The letter tells the judge, in no uncertain terms, why the collection agency's validation wasn't a real validation. Sometimes, a simple consumer letter explain your debt validation issue far better than a consumer law attorney ever could. 

Tuesday, December 20, 2011

Do I Owe My Husband's/Wife's Debts After Marriage?

If you're like most couples, getting married means co-mingling your clothes, junk and, of course, your finances. The last thing any money-savvy person wants to do, however, is to marry into debt. If your new husband or wife owes money to collectors, getting married could land you in hot water even if you aren't the one responsible for paying off the collection accounts.

Responsibility for Husband's or Wife's Debts

I cringe every time I see something floating around online discussing "marital debt" and how husbands and wives are legally obligated to pay off the other's debts. Your responsibility for debt that your spouse owes depends upon your state laws and your specific situation. I'm going to try to plow through the complexity of marital debt here and break it down for you once and for all which portion of your husband or wife's debts you do or do not owe.

You'll be pleased to know that you aren't legally responsible for paying off the thousands' of dollars worth of credit card debt that your spouse racked up before meeting you, the defaulted student loan he's hiding from or that old collection account that just keeps growing. Marriage may make two people "one" from a religious or moral standpoint, but that connection doesn't hold water in the financial realm. Now listen up, because this part is important: You have no liability for debts your husband or wife incurred that existed prior to your marriage no matter what state you live in.  Got it? I don't care what the credit card company or debt collector said (lies), if your husband or wife accrued these debts before marrying you, you are in the clear.

Community Property States and Marital Debt

Before we go any further, I want to address community property law. Nine states are currently community property states:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas 
  • Washington
  • Wisconsin
In general (the exact laws governing community property vary for each community property state), any debts or assets that a couple incurs during the course of a marriage are the property or responsibility of both parties.  Thus, if your wife racks up a $5000 credit card debt and you live in a community property state, you're just as responsible for paying off the debt as she is. Because you were married when she made the charges, the account constitutes marital debt even if you weren't aware the account existed. 

But – and this is a big "but" – community property law does not apply to debts your husband or wife owed before you got married. Those debts remain separate. Period. So the good news here is that living in a community property state does not mean that you have to assume liability for your fiance's past financial mistakes. 

Marrying Into Debt

Ok, so you know you aren't legally responsible for your husband or wife's debts provided he or she incurred those debts before the two of you got married. That does not mean, however, that the existence of these debts can't have a negative impact on your finances and your marriage. 

Your spouse is responsible for payment. That means that payment for the debt must come out of your husband's or wife's income – income that would otherwise be directed to running your household. So while the debt isn't marital debt and you don't have to pay collectors directly, you'll still feel the financial blow when collectors come calling.