Signs That a Collection Agency is About to Sue You

When dealing with collection agencies, nothing is scarier than the prospect of a lawsuit. Unfortunately, debt collectors aren't known for their ethics and will often say whatever they need to say to coerce you to make payments--including threatening to sue you. So how do you know if a collection agency actually plans to sue you or not? There is no surefire way to tell, but there are certain signs to look for that can tip you off to an impending lawsuit.

1. The Statute of Limitations is Approaching

After the statute of limitations or "SOL" passes, it technically isn't legal for a collection agency to sue you. Because lawsuits are a last resort, debt collectors will do everything in their power to ensure that you pay up before the SOL arrives and the debt is no longer enforceable. If it becomes clear that isn't going to happen, a smart collector will file a lawsuit against you before the SOL arrives. Keep track of the SOL on your debt and if you suddenly start receiving lawsuit threats around that time, take them seriously.

2. You Got a New Job and You're Paying off Debt

Think your employment record is private? Think again. New jobs often appear on your credit report and, if you owe money to a collection agency, you can rest assured that debt collectors are monitoring your credit report religiously. If your credit report shows that you have a new job and/or are paying off other creditors, the collection agency will go to great lengths to get a piece of the action--and that may just include a lawsuit.

3. You Have a Large Amount of Unpaid Debt

Suing debtors costs money. Although collection agencies can include attorney fees in the lawsuit, they may or may not be able to collect on that debt. Because the collection agency has to pay its attorney up front, it generally isn't worth the collection agency's time to sue you over a paltry amount. Just to clarify, a debt of $5000 is a lot more likely to land you in a courtroom than a debt of $200.

4. The SOL Hasn't Expired and You Blocked the Collection Agency From Contacting You

When used correctly, a cease and desist letter can be an invaluable tool to protect yourself from debt collector harassment. When used incorrectly, however, it can put you in a dangerous position. Just to clarify, a cease and desist letter informs the collection agency that it can no longer contact you. Federal law requires collectors to honor cease and desist letters from debtors. The problem arises when the collection agency can no longer contact you. If it cannot contact you, its only option to collect the debt is to file a lawsuit. This is only true, of course, if the statute of limitations has not expired. Once the SOL expires, the collection agency isn't supposed to sue you anyway--regardless of whether you ban it from contacting you or not.

5. Your Account Has Been Referred to a Real Attorney

Collection agencies are infamous for having in-house lawyers that write letters as empty as they are threatening. If you receive notification that the collector has sent your account to an outside attorney, take note. Googling the attorney should give you a good idea of what he/she does. Forums are also invaluable when it comes to getting information about whether the attorney follows through with his/her threats. Once your account is referred to a real attorney, tread carefully.

Related Posts:

Can a Collection Agency Sue After the Statute of Limitations Expires?

Send a Cease and Desist Letter to Debt Collectors 

Debt Collection Lawsuits: The Statute of Limitations Defense

The Debt Collection Lawsuit Threat

Ask Lee: Paid Collection Added to Credit Report Years After Payment in Full

Lee,

A collection agency reported for the first time in five years on 08/2013 that I had a paid collection with them. They are claiming it was assigned to them 03/2008 for a medical lab bill for $75.00. They are reporting the status as of 08/2013 - Paid; Date of 1st Delinquency 10/2007; Balance as of 08/2013 - $0 ; Last Payment Date 05/2008. I contacted the credit reporting agency and disputed this claim. The credit reporting agency came back and said that they have check with the collection agency and the debt is valid. What recourse to I have to fight this. I have no other blemishes on my credit. Is this legal?

Thanks!

                                                                                                              ---Anonymous 


Dear Anonymous, 

Collection agencies can, unfortunately, report your account at any time during the seven-year reporting period that begins with the date of first delinquency. Many people pay collections quickly in the hope that they will never be reported only to discover the account reported as "paid" on their credit reports. A paid collection is just as harmful for your credit scores as an unpaid one. 

The good news here is that, if you obtained the collection agency's agreement in writing not to report the debt to the credit bureaus in exchange for immediate payment in full (something everyone should do before paying a collection) you can contact the collection agency and demand that it remove the entry since it is violating its previous agreement. With a written agreement, you could take that one all the way to court if you really wanted to push it. In most cases, however, once the collector sees that you have a written promise from the company not to report, it will pull its report rather than spend the time and resources to defend itself in a courtroom. 

If you didn't get this agreement, you could always contact the collection agency and try to reason with them. After all, this debt was paid off in 2008. The fact that the company didn't report it until now is simply ridiculous. Worst case scenario--this debt remains for another year before it must be removed. The date of first delinquency is 2007. That means the debt cannot remain on your credit report beyond 2014, regardless of when the collection agency first decided to report it. 

I do have more good news to soften the blow. That $75.00 debt isn't going to do the same damage to your credit scores as a debt of $1000.00 or even $100.00 would do. Depending on which version of FICO your future lenders use, it may not impact your score at all. The most recent FICO scoring system does not acknowledge collection debts lower than $100.00 when calculating your credit score. 

Contacting the credit bureaus and disputing the debt in this case isn't likely to do much good. I always recommend that as a last resort since once the credit bureaus verify a debt as valid, they have no obligation to do any further investigating. And, of course, once the credit bureaus verify a debt the collection agency--knowing the consumer has little further recourse--is less likely to try and work things out with you. In your case, you aren't disputing the validity of the debt, only the time frame within which the paid collection showed up on your credit report. The disputing system isn't set up for that. It's either valid or not valid. Black or white. The system, my dear, is broken and has been for quite some time. 

My best advice to you over this paid collection is to contact the collection agency and try to reason with them. Remain calm and civil. If you get someone on the phone who is naturally belligerent  call back and ask for a supervisor. Explain that you paid this collection years ago with the understanding it would not appear on your credit report. For it to do so five years after the fact is purposeless for everyone involved. Paid collections popping up years later is something I see often and I sincerely hope you are able to work this one out. As far as paid collections go, yours is small and will be removed in less than a year, so you're in the best possible position you could be in. 

Best of luck,

Lee 

Can a Collection Agency Freeze Your Bank Account?

The short answer is yes, a collection agency can freeze your bank account--but only under certain circumstances. If you've got bill collectors on your heels threatening to levy your bank account, its a good idea to familiarize yourself with when and how your bank will institute an account freeze and what you can do to have the account released after the freeze occurs. This is assuming, of course, that your frozen bank account contains exempt funds.

How Debt Collectors Freeze Bank Accounts

A collection agency can't simply call up your bank and demand that it freeze your accounts. A freeze can only occur after the collector obtains a judgment. If you live in a state that allows private creditors to place a hold on your bank accounts (and to the best of my knowledge, Delaware is the only state that does not permit the practice) the collection agency serves the judgment paperwork--generally a writ of execution, but the correct procedure will vary by state--on your bank. The bank must then freeze the funds in your account for a period of time ranging from 10 to 20 days. During this time, you have the right to contest the freeze and attempt to have it lifted. After the freeze period expires, the collection agency levies the amount you owe (or the entire balance, if its less than what you owe) from your bank account.

Read More: Checking Account Garnishment

Bank Account Freeze and Garnishment Exemptions

State laws vary wildly when it comes to releasing frozen bank accounts. One rule of thumb here, however, is that if you have exempt funds in your bank account, you have to notify the collector and the bank. A collection agency cannot legally levy funds it knows to be exempt. The following forms of income are exempt from seizure by collection agencies:

• Social Security
• Veterans' benefits
• Unemployment
• Child support
• Federal employee retirement benefits
• Railroad retirement benefits
• Welfare benefits

There are exceptions to this rule. If the collection agency is working to collect a government debt, such as unpaid taxes, student loans or child support, it may seize exempt funds from your bank account. 

Read More: Student Loan Collection 

How to Release a Bank Account Frozen By Collectors

New federal regulations require banks to examine accounts and automatically exempt any federal benefits or other exempt payments from the freeze and subsequent garnishment. That doesn't mean that the system works perfectly. In some cases, its up to you to ensure that your bank doesn't hand over your exempt income to a collector with a judgment. Most states require banks to notify you of an account freeze and give you instructions for contesting the freeze before allowing a debt collector to levy the account.

In some cases, its up to you to prove that the frozen funds in your bank account are, in fact, exempt from garnishment. You can generally request exemption forms from the bank. By claiming your exemptions and providing both the bank and the collection agency a copy, you are notifying them that they cannot legally take your money. If the collector chooses to levy your account anyway, the fact that you previously notified them that the money was exempt gives you leverage to go to court and fight to have your exempt funds returned. 

The OCC has a rather thorough FAQ regarding bank account freezes and garnishment that may help some in this situation. You can find it here: OCC FAQ

Frozen Non-Exempt Bank Accounts

Unprotected funds in your bank account that may be frozen include tax returns, paychecks, savings, gifted money, etc. If the collection agency knows where you bank, it could freeze your bank account and seize these forms of income at any given time after winning a judgment against you. 

Can Collection Agency Place a Lien Against Property With More Than One Owner?

Let's face it, real estate is expensive. Because of this, many people opt to purchase real estate with their spouse or another family member. Homeowners can also set up their real estate for "joint tenancy." This allows the property to pass directly to the co-owner without passing through probate. Unfortunately, having a co-owner doesn't protect you from collection agency liens.

You bought it together, but is it safe?

Collection Agency Property Liens

A collection agency has the ability to place a lien against property you own by suing you in court for a debt and winning. This gives the company a judgment they can use to attach a lien to your property. Should you sell the property with the lien still in effect, the proceeds from the sale go toward paying off the lien before you ever see a dime. If you have sufficient equity in the property and the collector's judgment is for a sizeable amount, it may even opt to force the sale of your property through foreclosure.



Read More: What Happens If a Collection Agency Sues You and Wins?

Joint Property Owners and Collection Liens

When a collection agency files a lien against a property with more than one owner, the lien attaches only to the debtor's share of the property. The co-owner is not legally responsible for the other owner's debts. Nor is he/she responsible for paying off the lien. If the debtor dies before the collection agency attaches a lien to the home, property ownership passes immediately to the surviving owner and the collection agency loses its right to attach a lien--since the new owner isn't responsible for the debt. If the collection agency attaches the lien prior to the co-owner's death, however, the surviving property owner inherits the lien along with the property.

Tenancy By the Entireties and Judgment Liens 

Unlike joint tenancy, if two co-owners hold property in tenancy by the entireties, both individuals have a legal claim to 100% of the house. Tenancy by the entirety can only be held by spouses, but it provides your home with valuable protection in the face of aggressive bill collectors. Generally, debt collectors cannot collect

Tenancy by the entirety only available to married couples
Photo credit: Ben Earwicker

from your spouse. You are the one who incurred the debt thus you are the one they must collect from. In the case of tenancy by the entireties, attaching a lien to the property would hinder the rights of a spouse who did not incur the debt. Thus, if you and your spouse hold property in this manner, collectors can't typically attach a property lien and then take it.

Read More: Can a Collection Agency Put a Lien on Your House or Car?

The exception to the rule comes into play if you happen to live in a community property state. In a community property state, if you and your spouse were married when you incurred the original debt, she/he is just as liable for the debt as you are. Because your spouse is also liable, tenancy by entirety would not protect your home from a collection agency's judgment lien.

Can Collection Agency Put a Lien on Your House or Car?

A lien could cost you your home.

If you've ever had an experience with a collection agency, you know that their primary method of getting debtors to pay is to make incessant phone calls and send dunning letter after dunning letter through the mail. Debt collectors, however, are not limited to these annoying yet harmless debt recovery methods. Collection agencies also have the right to sue you in court and, if they win, put a lien on your house, car or other property.

Debt Collection Liens on Your House or Car

After winning a lawsuit against you, the court awards the debt collector a civil judgment. State laws vary, but collectors must generally file this judgment in the land records office in your county or with the Secretary of State's office. This creates a lien against your home. The lien prevents you from selling your house without

paying off the judgment. A bill collector's right to attach liens isn't limited to the house you live in. Collectors can also attach liens to vacant land, vacation homes and vehicles.

Read More: What Happens If a Collection Agency Sues You and Wins?

Foreclosure or Repossession By a Collection Agency 

A lien gives the debt collector the right to foreclose on your  home or respossess your car. The company then sells the asset and applies the proceeds to your debt. The good news here is that home foreclosures by collection agencies are a rare bird. Most people owe a mortgage on their home and the property may carry other liens as well. Because liens must be paid in the order they are filed, a collection agency doesn't stand a good chance of recovering its debt by foreclosing on your home. Foreclosure isn't cheap, and there is no guarantee that the collector could sell your home for enough money to make the foreclosure worthwhile. The same is true when it comes to repossessing your vehicle. In general, foreclosing on a house or repossessing a car is more trouble for a debt collector than its worth.

Read More: Can a Collection Agency Take My House?

If you own your home or car outright, however, and neither carries outstanding liens, you're in far more

Selling your home helps collectors recover your debt.

danger of the collection agency seizing the asset. That danger increases if the debt you owe is particularly high. As a rule, the higher your debt is, the more likely you are to face a collection lawsuit and possible foreclosure or repossession.

How Long Does a Collection Agency Lien Last? 

Collection agency judgment liens don't remain attached to your home or car forever. Each state has its own regulations regarding the length of time that a judgment is valid. Once its judgment expires, a collection agency's lien expires as well.

Read More: Statute of Limitations for a Collection Agency Judgment Lien

Unfortunately, waiting out a collection lien isn't a short process. Most states permit judgments liens to remain in effect for ten years. If the judgment isn't paid off within that ten-year period, the creditor can renew its judgment. Renewing the judgment, however, doesn't automatically renew the lien. If the lien isn't renewed, it expires and must be removed--even if the judgment itself was renewed and is still valid.

Odds are a collection agency won't remove an expired lien on its own. It's usually up to you to prove that the lien is no longer valid and that the land records office in your county must remove it. Once the lien is no longer attached to your house or car, you can sell them without being forced to apply the sale proceeds to your collection debt.

Ask Lee: Debt Validation Time Limit for Collection Agencies

Hello,

I had 3 Collection agencies show up on my Credit Report showing collection accounts. I sent certified mail to them asking them to validate the debt & never heard back from them in the 30 days. On day 31 I sent another certified letter, with copies of my original letter as well as my return receipt from my original letter demanding they remove the trade lines in accordance with the FDCPA. I also sent copies of everything to all 3 credit bureaus explaining these companies did not respond in 30 days, provided the letters, certified receipts, etc, telling them it was their duty to remove these trade lines as the 3 companies didn't comply with the FDCPA. Is that all correct? I gave the collection agencies until 8/06/13 to remove the trade lines or I'd take legal action.Does this all sound like I've taken the correct steps? Thanks.

                                                                                                                              Kevin 

Kevin,

For starters, I need to clarify something: The 30 day restriction is on YOU, not the collection agency. You have 30 days after your initial contact with the collector to send in a validation request. The FDCPA does not set a timeline under which the collection agency must respond to you. Theoretically, the collection agency can wait a year to respond to your validation. The FDCPA does, however, prohibit the collector from conducting any further collection activity against you (excluding credit reporting) until it responds to your validation request. So after receiving your validation but prior to responding, the collection agency can not call you, send you dunning letters or fill up your e-mail inbox with angry payment demands. If they do, they are violating the FDCPA. They are not violating the FDCPA by not responding to your validation request within 30 days. You can review the section of the FDCPA that concerns validation here. 

The confusion over this issue often stems from the fact that, once you dispute the debt collector's tradeline with the credit bureaus, the collection agency has a time limit of 30 days to respond to the credit bureau's investigation or the credit bureaus will remove the tradeline. 

As far as the dispute goes, certified mail is good but make sure you always request a return receipt when mailing something to a collection agency. Many collection agencies, believe it or not, are ethical companies that operate within the law. Some, however, will just claim they never got your validation request. They can easily get away with this. If you have no proof you send the debt validation request, its your word against theirs. 

You have grounds to dispute an item with the credit bureaus if it isn't yours, you don't recognize it, etc. You don't have grounds to dispute a tradeline because the collector didn't provide you with a validation within 30 days because the collector isn't required to do so. I don't know how your dispute will go. It's possible that the credit bureaus will investigate the item anyway. I always recommend that consumers only dispute with the credit bureaus as a last resort. If the credit bureau "investigates" (and they don't conduct a genuine investigation. They basically do little more than ask the collection agency "Is this correct?") and sides with the collection agency, they can choose to ignore any further disputes you make--even if you have documentation that clearly illustrates that the collection account is an error. 

You have the right to take legal action against a collection agency for reporting incorrect information or violating the FDCPA in any way. Unfortunately, since failing to validate within a 30-day time limit isn't an FDCPA violation, you cannot sue under those grounds. If the accounts legitimately aren't yours, consider visiting with an attorney and mounting a lawsuit. In many cases--especially if the debt is small--a debt collector would much rather delete the tradeline than devote its time and resources to defending a lawsuit over a negligible amount. 

Best of luck,

Lee 

How to Stop Collection Calls at Work

Few things are quite as embarrassing as receiving collection calls at work. Even if the collector doesn't identify himself as such, many employers frown at employees getting personal calls. It's illegal for a collector

Collectors calling you at work? Make it stop.

to discuss your debt with a third party, such as your boss or co-workers, but as we've seen in the past, just because its illegal, that doesn't mean it won't happen. Long story short, bill collectors calling your workplace have the capacity not only to shame you, but to put your job in jeopardy. As angry and frustrated as you may be, you have the ability to stop collection calls at work for good.

Read More: Can Bill Collectors Call Your Family?

Stopping Collection Calls to Your Employer

The Fair Debt Collection Practices Act governs collection tactics. It states that, while debt collectors have the right to call you, they don't have the right to call you at any time or place they they know to be inconvenient for you. If calling you at work is inconvenient, then its time to let them know that.

Your first course of action should be to tell the collector verbally that you cannot take personal calls at work therefore calling you at work is inconvenient. Make sure to use the word "inconvenient." Its a trigger word that some bill collectors are taught to listen for. Some collection agencies will honor your verbal request and only call you after hours. Others will ignore you. Keep in mind that a debt collector who doesn't know the ropes may not understand your rights. Feel free to cite Section 605 of the Fair Debt Collection Practices Act in your conversation. Inform the collector in a civil manner that you are invoking your right to dictate the times and places that you cannot be contacted by a collector.

Read More: Can Your Record Phone Calls From Debt Collectors?

Cease and Desist Letter Stops Collectors Calling You at Work

If a verbal request doesn't work, its time to create a good old paper trail. Write a letter to the collection agency notifying them that the FDCPA protects you from receiving calls at times and places that aren't convenient for you. If you feel its necessary, point out that if the collection agency doesn't heed this request, you have the right to file a lawsuit against the company for damages due to its failure to adhere to federal law and any lost wages you suffer as a result of getting fired due to the number of personal calls you receive from collectors. Send your letter Certified mail, Return Reciept Requested. This forces the collector to sign for it--preventing then from claiming they didn't get your letter and continuing with the collection calls at work.

Read More: The Partial Cease and Desist Letter

Your Legal Rights Regarding Workplace Collection Calls

Odds are that once you've sent the collection agency a formal request to stop calling you at work, they'll comply. After all, this demonstrates that you know your rights. Unfortunately, not all collection agencies are alike and there are always a few bad apples in the bunch. If the collection agency calling you at work is one such bad apple, a verbal and written request may do little to deter them. Should this happen to you, its time to pull out the big guns: legal action.

The FDCPA gives all consumers the right to sue third-party collectors that don't adhere to federal collection guidelines. If you've sent the collection agency a Cease and Desist letter and have been ignored, send

Write a Cease and Desist letter to the collector.

another. By sending a second Cease and Desist, you aren't attempting to make the collection calls at work stop, you're trying to build a strong court case.

You don't need a lawyer to file a lawsuit against a collection agency. You may even wish to notify the collection agency, in writing of your intentions. Few collectors want to face down a debtor in court over an FDCPA violation. The very fact that you're suing will likely make you--and your debt--more trouble than you're worth. Should you decide to sue, keep in mind that the FDCPA limits your damages to no more than $1000 unless the calls have caused you real-life financial  hardship. One example of a real-life financial hardship would be if the collection calls caused you to lose your job. Few cases of workplace harassment by collectors actually comes to this, but its crucial that you are well-informed of your rights and options in order to stop embarrassing collection calls in the workplace.

Does Foreclosure Hurt Your Credit If Your Name Is on the Title But Not the Mortgage?

If you and your spouse want to buy a home but you either don't have good credit or lack a steady income, your spouse can apply for the loan in his/her name only. Your name can then be added to the home's title after the fact. If your spouse has good credit, he/she can qualify for better rates without your name being on the loan. You, of course, still legally "own" half of the home since your name is on the title. Everybody wins--unless, of course, the home gets foreclosed.

How Much Does Foreclosure Hurt Your Credit?

Foreclosure is disastrous for your credit report and scores. Even worse, the better your credit is when the foreclosure occurs, the more it will hurt you. You could lose 150 to 250 points after the foreclosure shows up on your credit report. If your credit was particularly good when you lost the home--as is sometimes the case with "walk-aways" --you may lose as many as 300 points.

The good news here, at least for you, is that because your name isn't on the loan, the foreclosure itself will

not appear on your credit report. Your name on the home's title doesn't give the lender the legal right to report the incident to your credit report or even pursue you for payment. You didn't sign the original loan documents agreeing to pay the debt or agreeing to let the bank foreclose on the home if payments suddenly stopped coming. Your spouse's credit gets trashed but, in most cases, your credit comes away from the foreclosure without a scratch.

Post-Foreclosure Collection: Are You Liable If Your Name Wasn't on the Mortgage Loan?

If the bank can sell your home for more than your spouse owed on the mortgage loan, that's the end of the story. If the home carried an upside down mortgage or a floundering real estate market makes the home harder to sell, the bank may be forced to sell the property for less than your spouse owes in back payments, fees and foreclosure costs. Unfortunately, most states give lenders the right to pursue borrowers for any remaining deficiency after a foreclosure.

The real trouble arises if you live in a community property state. Community property states give lenders the ability to pursue either spouse for one spouse's debt. In other words, the very fact that you're married makes you liable for unpaid debts--even if those debts are in your spouse's name only. While this doesn't make the foreclosure suddenly appear on your credit report, your credit may suffer when the bank attempts to collect any mortgage deficiency left over after the foreclosure sale.

(Read More: Community Property States and Defaulted Spousal Debt)

Lets look at the following example:

Five years ago, Joe and Mary bought a home. At the time they bought the home, Joe had excellent credit and a good job. Mary had a very limited credit history and was a stay-at-home mom. Because she lacked stable credit and an income, Joe purchased the home in his own name and put Mary's name on the title. Two years later, Joe lost his job. He couldn't keep up with the payments and the bank foreclosed on the home. Joe and Mary owed $150,000 on the home, but the bank sold the property for only $100,000.

After the foreclosure, Mary found steady employment that paid well so she and Joe switched roles. He now stays home and Mary works. In an effort to collect the $50,000 deficiency, the bank decided to sue. Because Joe and Mary live in a community property state, the bank decides to sue Mary instead of Joe. Even though Joe's name was on the mortgage and Mary's was not, Joe no longer earns an income that the bank can garnish. Mary does. After winning the lawsuit, the bank garnishes Mary's wages.

If your lender sues you and wins, you'll end up with a civil judgment for the foreclosure debt on your credit report. Civil judgments are public records that, like foreclosures, are extremely detrimental to your credit score.

The moral of the story here is that yes, a foreclosure can hurt your credit if your name isn't on the mortgage loan--but not directly. It all depends on your state's laws, your lender's policies and whether or not you and your spouse end up owing a mortgage deficiency after the foreclosure takes place.

Ask Lee: Settling With Client Services After Citibank Charge Off

Lee - 

I recently had my Citicard charged off and I just received a call from a collection agency named Client Services. I did not hide from them and I told them our situation and stated I would like to settle. They offered 35% settlement or a payment plan which was 35% + additional costs. In your experience, what is the lowest you have heard (Citibank) settlements to go? I know we will also get dinged for more money on our 1099 taxes for the unpaid amount, so I didnt want to go more than 25% if I knew it was possible. 
Are you aware of Client Services and thier affiliation to Citibank? I know they are a collection agency, but were they hired by Citibank to recover post charge off debt or does Citibank sell off the debt to them? Hard to determine from talking to them because they name drop Citibank, payments can be made to Citibank NA, but yet I feel Citibank is no longer attached to this debt after it was charged off and they are nothing more than collection agency sharks. It may help to understand this and how it may pertain to the negotiation process, as selling off debt is for pennies on the dollar and any settlement will be likely be profitable for Client Services.

Difficult to work with collections, but can they threaten to add more fees (due to lost time since the took debt on)? For example, the amount goes up if I wait to pay it when I have funds in 2 weeks? This is a untruthfull tactic to retrieve more money, correct? If so, I will stick to settling the ~12k Amount owed to Citibank sans any fees or threat of fees.

Another concern is the actusl settlement contract they stated they would email me. Any advice on what the contract should contain? Separately, I would like to ask they include and report to credit bureaus as "settled as agreed", "account closed" or delete the trade item completely. When asked, they try to say they didnt know or its a different department. While my credit is awful right now and I am not worried one bit about it whatsoever, I would like to insist they add "settled as agreed" verbage, so I can get a better start on my credit rebuilding.

As far as payment, they want my bank account number. Thier defense us they do this kind of thing everyday and I shouldnt be worried. Well, I refuse. There must be other less intrusive ways to pay. Can I pay with a certified check and send with tracking? Also read that it may be good to add "by cashing this check, you authorize this account to be settled in full..." to the check. 

I would appreciate you expert advice and guidence. They cannot scare me with negative credit. My hope is to succesfully settle and proceed safely, so I am not swindled $ and then they turn around and resell the debt to someone else....or worse yet, a lawsuit for full amount by Citibank.

Strongly believe many will learn from my experience and dialogue with you. Thank you in advance Lee and I look forward to your response. 

---Anonymous

Anonymous,

There seems to be a general relief among debtors that creditors – especially collection agencies – offer pennies on the dollar deals and that if they only hold out long enough, they'll get the same offer. This simply isn't the case. My job is to help people stay informed regarding their rights against debt collectors and to help them build and maintain acceptable credit scores. Because of this, I can't tell you the "lowest" I've seen Citibank go because I don't generally see the actual numbers. What I do know is percentages, and 35% is a pretty good settlement offer--especially since its coming from Citibank and they like to play hardball.

With the name "Client Services," you'd think that this collection agency would merely be an in-house collector for charged off Citibank accounts when it is, in fact, a third-party collection agency. After losing a class action lawsuit in 2008 for violations of the FDCPA, my guess is that Client Services will play things pretty close to the vest. Then again, I've been wrong before and some collectors are just downright reckless, especially in a poor economy. 

Client Services is infamous for giving you arbitrary deadlines. The goal is to create a sense of urgency that drives you to pay the debt immediately rather than taking the time to research the debt, send a validation request, etc. Because this debt was originally a credit card debt, the collector does have the right to charge you interest and will probably try to tack on a fee or two, but you're right that you shouldn't let the deadlines scare you. 

Because your debt is so high, its worth offering a higher settlement amount in exchange for a full deletion of the collection agency's tradeline. Peon collectors will likely refuse to do this, but if you can get yourself passed up the line to a supervisor (and the supervisor's supervisor) you might have some luck. Then again, the opposite may be true. A peon collector may agree to your request merely for the commission that a big debt brings. He thinks, of course, that the company will never follow through, but you'll make sure you have all of the settlement terms in writing with the company's logo or on company letterhead before you pay them a dime. Negotiating at the end of the month is almost always more successful than trying to do so at the beginning of the month. Collectors have quotas to meet at the end of the month, and a debt as big as yours will help them meet those quotas. 

Almost all collection agencies will demand you pay via bank draft. This is because it gives them access to your bank account. Once they have those magic numbers, they can either wipe your account clean or, if the debt is still within the statute of limitations, sue you and immediately levy your bank account. Here's the thing about Client Services that makes me nervous: if you refuse to pay by bank draft and instead pay by check, they will electronically process the check--leaving you without a cancelled check to prove that you did, in fact, pay off this debt. By all means, pay by cashier's check or money order, but do not give any collection agency your bank account number. Ever. 

You asked what the settlement contract should contain. Make sure it contains the following: 

• The company's logo or letterhead. If they decide to violate the agreement later on, you don't want to show up in court with an e-mail from Joe Blow agreeing to your terms only to have Client Services claim no knowledge of that e-mail or who sent it. If it were me, I would demand that they either fax the agreement or send it via snail mail. 
• A statement of the exact amount you'll be charged
• An agreement from the collection agency stating that the remaining debt is completely forgiven and that they will not pursue you for the balance in any way. After all, the last thing you want is to settle the debt and then have the collection agency sue you for the rest. 
• An agreement from Client Services noting that it will not sell the unpaid settlement balance to any other company. 
• An agreement from Client Services that it will delete all information that has appeared on your credit report as a result of the company's debt collection activity. The beauty of this is that they'll not only have to delete their tradeline but, upon your insistence, any hard inquiries the company conducted as well. 
• If the collection agency absolutely refuses to delete its tradeline, the agreement should state that the collection agency agrees to update your credit report as "paid." The collection account in itself is bad enough, you don't want it to also reflect that you settled the debt. This looks bad to future lenders. If you're going to pay, make sure they update your credit report as "paid" not "settled."

Your credit will improve over time as the account ages. Accounts that have no recent activity have less of an impact on your scores than more recent debts. Provided you pay your creditors on time, maintain low balances on your credit cards and regularly monitor your credit report, you should see your credit scores slowly increasing over time. 

--Lee 

Original Creditor or Collection Agency Forged Signature on Documents. Now What?

Hi Lee,

Your blog is wonderful, thank you. And, I REALLY need your advice.

I have a $3,100 bill from OC for a business debt that the company claims I signed a PG. I told them I didn't PG and it wasn't my responsibility. In 10/2012, they dinged my credit.

I'm currently refinancing a large jumbo loan and it appears the OC now either sold or hired a CA to collect. The CA has now dinged my credit, and the amounts are slightly different and it appears as 2 separate debts.

I spoke with CA and they provided me with the contract and I believe my signature was forged. 

However, because of the size of the loan and the dramatic payment reduction I will receive monthly, I simply need this taken off my credit immediately, and would be willing to pay for delete if I could get this removed. However, based on this blog I don't suspect this will be a possibility. In addition, if the CA agrees to PFD how can I get the OC to remove the entry?

Is there another option? Time is of the essence, so hiring an attorney and filing suit over $3,100 is not a good option either, IMO.

Please advise, thanks!

---Anonymous

Anonymous,

First of all, thank you for the compliment. If this blog has helped even one person, all the effort has been 100% worth it.

Now, for the meat and potatoes of the problem...even if the collection agency agreed to a pay for delete (and you never know, they might. $3100 is nothing to sneeze at), you couldn't get the original creditor to delete its entry. The pay-for-delete only works for the collection agency. The original creditor doesn't benefit and, as a result, its entry will still remain for the full reporting period. Unless, of course, you become a financial and/or publicity threat to the company. There are three ways I can think of to take care of this problem without following through with a lawsuit. Keep in mind, this is just what I would do if I were in your situation. This does not constitute legal advice.

Potential Solution #1

If you know for a fact that you didn't sign a personal guarantee and your signature was clearly forged, this is fraud. A handwriting expert would quickly be able to tell whether the signature was a forgery or whether you signed it and simply forgot (even when we sign things in a completely different way, there are still personal handwriting markers that remain). You and I both know that you don't have the time to deal with a messy lawsuit right now – but neither the original creditor nor the collection agency know that. And this is to your advantage.

If it were me, I'd hire a handwriting expert to analyze both my signature and the signature on the personal guarantee. If he/she finds that the signatures were made by two different people, ask the handwriting expert to put those findings in writing. If you're having trouble locating a handwriting expert, check with the closest university.

Now its time to take a trip to an attorney's office. Don't worry, you don't have to sue, you just have to put together an airtight and scary-as-hell threat. Explain what's going on to the attorney and ask to hire him/her to notify the collection agency and original creditor of the handwriting expert's findings and demand that they cease collection efforts immediately and remove all negative information connected to the fraudulent personal guarantee from your credit report. Provide the attorney with two copies of the handwriting expert's letter. Along with his own letter, he'll need to send a copy of the handwriting expert's findings. This demonstrates to the original creditor that you have proof against them. If you have proof and they have nothing but "But she/he signed it, your honor. Honest!" then you're more trouble than you're worth. They won't want that to go to trial.

It could be a problem if the OC is unorganized and careless. Then the threat may fall through simply because one hand doesn't know what the other is doing. That's always a possibility. You, however, will come at them with two things that give any company pause – legitimate proof of wrongdoing and an attorney. Nothing says "I mean business" like a lawyer touting proof of fraud.

You may run into an attorney who insists upon actually suing the company and who refuses to send his own demand letter coupled with the handwriting expert's findings because he claims it won't work. If this happens,  watch out! If you have a solid enough case that the attorney wants to take it to trial, then you very clearly have a solid enough case to attempt to resolve the issue outside of court. In this scenario, its very likely that the attorney knows a good case when he sees it and wants to convince you to sue because he'll make more money from a lawsuit than a letter. The good news is that, since attorneys who play in my field make so much less money than, say, a corporate attorney or defense attorney, they often legitimately want to help people. I'm just saying watch out for dishonesty in the legal profession. I guess that's akin to saying "Watch out for sharks in the ocean," huh?

Potential Solution #2

Although you have no desire to deal with a lawsuit right now, that doesn't change the fact that, with a forgery, you have every right in the world to file one. Solution #2 requires that you use your handwriting expert's analysis to file a lawsuit for fraud against the original creditor and/or collection agency. It's important not to focus solely on the original creditor just because they are the ones whose documentation reflected the forgery. If you request validation, the Fair Debt Collection Practices Act dictates that a debt collector cannot pursue further collection activity until it provides that validation. And guess what? It isn't unheard of for debt collectors to forge debtor's signatures on documents. The forgery could have been born anywhere.

Neither the original creditor nor the collection agency wants to go to court. They don't like going to court for frivolous lawsuits and they hate going to court to defend themselves against a claim as serious as fraud--especially when the plaintiff has an expert providing him/her with solid documentation that supports that claim.

It's very likely that both the original creditor and the collection agency would decide that removing that $3100 debt from your credit report is a lot cheaper and less time-consuming than bringing in an attorney and defending themselves against a claim of fraud. I've seen collectors back out of lawsuits that had a lot less merit and delete their credit report entries simply to spare themselves the time and money required to successfully defend against a lawsuit. You don't have to have an attorney to do this, but notification from an attorney packs a much scarier punch that a lawsuit you file on your own.

The only major issue that comes into play here other than time is money. Handwriting analysis isn't cheap and neither are lawyers--even if you only use them for a short period of time. Unfortunately, the cheapest way (filing this lawsuit yourself, going to court, requesting discovery documents, etc.) is the most time-consuming and you'll have to sacrifice money for time in order to get the credit problem taken care of so that you can refinance your home.

Potential Solution \#3

Report all of this to your attorney general and ask for help. Send a copy of the forged signature and your real signature. One well-placed call from the attorney general can usually make the bad guys go away--at least for a while. Also, file an online complaint with the FTC on both the original creditor and the collection agency. While the FTC won't settle your claim for you, they will investigate if they get enough similar complaints.

I understand your urgency to get this taken care of to ensure that you can refinance your home, but even if things go well there is no guarantee that this issue will be cleared up by closing. I would consider putting off refinancing until after you've cleared up this mess. Without the time constraint looming over you, you'll have time to aggressively pursue the lawsuit that you so desperately deserve to file. These people should not be allowed to get away with this.

Best of Luck,

Lee

Does Loan Modification Hurt Your Credit Scores?

When you can't afford to make your house payments,  loan modification could be the answer to your mortgage woes. In a nutshell, loan modification lowers your monthly payments by reducing your interest rate, reducing the principal of your loan or extending your mortgage's repayment terms. When the government first began pushing loan modifications midway through the recession, banks weren't exactly on board. Granted, they went through the motions because they had to, but people who met the qualifications for a loan modification often ended up losing their homes to foreclosure due to their bank's incompetence (or carefully orchestrated sabotage, as some believe). Luckily, banks don't fight loan modifications like they once did. That doesn't mean, however, that the process isn't still fraught with problems. In some situations, a loan modification may help you keep your house but hurt your credit scores in the process.

Loan Modification and Missed Mortgage Payments

If you think the government's loan modification program the Home Affordable Modification Program or "HAMP" is the only loan modification available, you'd be wrong. Some banks have their own modification programs they use to help keep homeowners in their homes. HAMP doesn't require you to miss any mortgage payments before your trial modification begins, but if your bank uses a private modification program, it can require that you fall behind on your payments before changing the terms of your loan.

Fill out modification app as soon as issues arise.

Missing payments – especially mortgage payments – is disastrous for your credit scores. If your lender requires you to be, say, 90 days' late before you can qualify for a loan modification, you can expect your credit scores to take a nosedive. Your payment history accounts for 35% of your credit score, and missing a single payment could shave over 100 points from your score. Everyone is different and the exact formula is a secret so there is no way to know how much of a hit your credit will take. This much we do know: when you stop making payments to your mortgage lender – regardless of the reason – your credit will sustain serious damage.

Trial Loan Modification Coding Problems

Before you are eligible for a permanent loan modification  you must prove to your lender that you can comfortably afford the new payment. Thus, most programs require that you make timely payments on a temporary modification before your new payment becomes permanent.

Banks report the payments you make to the credit bureaus using a code. Until recently, there was no code for trial loan modification payments. As a result, banks reporting trial modifications as partial mortgage payments. Not paying the full amount you owe makes you appear irresponsible with money and will result in credit damage. Although a trial loan modification code now exists, there is no guarantee that your lender will use it. Thus, its imperative that you keep an eye on your credit during a trial modification allowing you to catch any coding problems early on and fix them.

Loan Modification Impact and Credit Report Removal

If you haven't missed any payments and your bank codes your payments properly when reporting them to the credit bureaus, your credit report may not be affected by the loan modification.  If your credit score is adversely affected, however, take comfort in the fact that the damage isn't permanent.  After 7 years, any credit damage you sustained in the attempt to save your home will be removed. As long as you continue to pay all of your creditors on time during this period, you can expect your credit score to increase significantly after the credit bureaus remove the loan modification from your credit report.

Related Articles:

How a Trial Loan Modification Affects Credit Scores

What is a Key Derogatory on Your Credit Report?

How Much Does One Collection Hurt Your Credit Score?

What Happens If a Collection Agency Sues You and Wins?

Debt collectors love to threaten debtors with lawsuits. It's the ace up their sleeve. It seems to be ingrained in the psyche of every American to fear lawsuits the way some dogs fear thunder. When you hear that word,

you just want to go hide under the bed and shake until its all over. Most of the time, the collection agency doesn't actually sue--they just threaten to. Granted, the Fair Debt Collection Practices Act makes it illegal for a debt collector to threaten to do something they have no real intentions of doing, but you can't exactly prove someone else's intentions in court. Collectors know this and use it to their advantage.

But what happens if the collection agency does sue? Lets go over some of the potential consequences of a collection agency lawsuit.

Wage Garnishment

This is a fairly common consequence of a debt collection lawsuit. If the collector knows where you work, they can obtain a wage garnishment order through the court and serve it on your employer. Your employer can't fire you just because it received a garnishment order (that's discrimination) but if you already have a garnishment order against you, say, for child support, and your employer receives a judgment garnishment, they're well within their rights to send you packing.

Some people avoid wage garnishment by switching jobs each time a garnishment order goes through or simply by being unemployed (the most effective way is by being self-employed, but we're not gong to go there today). Keep in mind, however, that an aggressive collection agency can call you to court for a post-judgment interrogatory and force you to disclose your employer.

Property Liens

Own a house? Own a car? Watch out. Collection agencies can use their judgments to place liens against property you own. This prevents you from selling the property without paying off the lien. Of course, in some cases, collection agencies use their liens to seize the property, but these situations are still thankfully few and far between. If you have a mortgage or auto loan, your property is probably safe from seizure, as the

Own a house? Watch out for property liens.

collector would have to pay off your existing lien before it could apply any proceeds to its own debt.

Bank Levy

Just like a collection agency with a judgment can force your employer to garnish your paycheck, it can also force your bank to hand over any money you hold in checking or savings accounts. Certain funds, such as retirement money, unemployment, child support, etc. are exempt, but a collector can generally seize any and all non-exempt funds your account contains--even if doing so takes your account down to zero. And if you happen to have a joint bank account with another individual, that person stands to lose their money too. Even in states that protect joint account holders, only half of the money is typically protected.

The worst part of a bank levy isn't the fact that a collection agency can seize every penny. It's the fact that they can execute the levy over and over again until you either switch banks or the debt is paid in full. While switching banks will give you momentary relief, the collector will eventually find you and levy your new account. If it can't track down your bank account, it can drag you back to court and force you to disclose your new bank to a judge. Ouch.

Credit Damage

If the financial consequences of a collection agency lawsuit weren't bad enough, you'll have to suffer the credit consequences as well. You already know that a collection account deals a significant blow to your credit scores. Fortunately, that account can only remain on your credit report for 7 years and 180 days from the date you stopped paying the original creditor.

If the collection agency sues you and wins, however, a civil judgment shows up on your credit report. A civil judgment is a public record, just like a bankruptcy or foreclosure, and deals some serious damage to your credit scores. Unlike collection accounts, the reporting period for a judgment isn't retroactive. It begins the date the judgment is entered. Your state's enforcement period dictates how long a judgment remains on your credit report. If the enforcement period is less than 7 years, the credit bureaus remove it after 7 years. If the enforcement period exceeds 7 years, (and most do) the judgment remains for the full enforcement period. In other words, a collection agency's judgment could haunt your credit report for a decade or more.

Long story short, if a collection agency sues you and wins, you're in a world of hurt. This is why its so crucial to seek help before things reach this point and to learn how to defend yourself in court if a collection agency follows through on its threats to sue.


Related Posts:

The Debt Collection Lawsuit Threat

Funds Exempt From Bank Account Garnishment

Make Yourself Judgment Proof

Does Reporting Collection Agencies to the Better Business Bureau Do Any Good?

The Better Business Bureau takes more complaints on collection agencies than almost any other business category. Last year, the BBB received over 15,000 complaints from consumers regarding debt collectors and their behavior. So its no surprise that the BBB has quite a few articles posted on how consumers can successfully deal with debt collectors

How to Report a Collection Agency to the Better Business Bureau

Filing a complaint with the BBB against a debt collector is relatively simple. Visit the Better Business Bureau's website at www.bbb.org. Select your region of the country and select the online complaint form. Fill out the complaint form to the best of your ability. Include any actions debt collectors from the company in question have taken that are illegal. For example, any of the following complaints can be included in your BBB report:

• Calling you in the middle of the night or at other odd hours
• Contacting you after you've sent a cease and desist letter
• Using foul or vulgar language on the phone
• Calling your repeatedly, dozens of times a day
• Informing others, such as your family members or employer, about your debt

This is just the tip of the iceberg. Any violation of the Fair Credit Reporting Act can be included in your BBB report. You must include your name and contact information when submitting your complaint. The BBB does not accept anonymous complaints.

Will the Better Business Bureau Do Anything About Collection Agency Complaints? 

The Better Business bureau will process your complaint and send a copy of the complaint to the collection agency. The collection agency then has the opportunity to address the complaint and resolve the issue. In most cases, this doesn't happen. Collection agencies are notoriously cavalier about their customer relations. They know their reputation is mud just by being a collector. Thus, it benefits the company very little – if at all – to bother with BBB complaints.

If the collection agency answers the complaint, it may propose a solution which the BBB will then pass on to you. Most likely, however, it will merely forward the BBB copies of documents "proving" that the collector is right and you are wrong. Since few collection agencies have proper and thorough documentation of consumers' debts, the documents forwarded will likely be the same bogus documents collectors like to try and validate debts with. You know, those computer printouts with your name and debt on them:? This doesn't prove anything and certainly doesn't serve as a sufficient counter to your claim that the company broke the law.

Will Your BBB Complaint Hurt the Collection Agency's Rating? 

If the collection agency is a BBB accredited business and does not adequately address and resolve your complaint then yes, your report will hurt the company's rating. But, knowing how their very existence is infuriating to most consumers, few collection agencies bother to seek accreditation with the BBB. Those that do are taking a big risk. Nobody sends in a positive report to the BBB about a collection agency's performance except, perhaps, the creditor.

Should I Bother Filing a BBB Complaint Against a Collection Agency?

If the likelihood that the collection agency will even respond to your complaint is low, should you even bother filing one? Yes! Some of the larger collection agencies are accredited with the BBB. This is for the benefit of creditors who may consider hiring them. Accredited business have to respond to your complaint or risk damaging their BBB rating. In addition, if the proposed resolution doesn't satisfy you (and it won't) the company must go through mediation.

Accredited businesses recieve three free mediations, but consumers have to pay for these services. Most consumers who file complaints that reach this point, don't want to fork over the cash for mediation with the company and give up the complaint. The BBB then considers the situation "resolved" and sides in the company's favor. After all, it did everything it was supposed to do, right?

How Much Does BBB Mediation Cost? 

From what I can tell, mediation for accredited members is roughly $1500 and $3000 for non-accredited members. The consumer is supposed to pay at least half of this, plus $250 an hour for the mediator. This reeks of  a scam. Few consumers have that kind of money lying around to force a BBB-accredited business to do what's right and, in this case, follow the law. That doesn't mean you shouldn't file a complaint and keep a record of doing so. It's just one more bullet in your collection agency arsenal.

I'd love to hear from people who have filed BBB complaints against debt collectors and how those complaints panned out. Have you gone through this process? What happened? Was the collection agency accredited? Did it respond? What solution did the collector propose? Leave your stories in the comments section.

How Long Does a Foreclosure Stay on Your Credit Report?

Okay, so today I learned that some very intelligent people (loan officers and mortgage brokers, mainly) are completely clueless as to how long a foreclosure stays on your credit report. They're talking about decade-long reporting periods and I'm just sighing and facepalming like Picard. This is akin to a doctor lauding the health benefits of the Atkins diet.

You can't talk sense into some people. You just can't.

So here's the skinny on how long a foreclosure stays on your credit report: 7 years. There are three reasons that well-educated people, for some ungodly reason, seem to want to believe that foreclosures stay on your credit report for ten years or more:

1.) They're making assumptions based on general public record reporting periods
2.) They found themselves in a pinch and need numbers, any numbers, stat!
3.) They drink. A lot.

The Public Records Hangup

The deal with public records is this: the majority of public records hang around and haunt your credit report for a decade or longer. Got a civil judgment? Unless you live in one of the few states with an enforcement period of less than 7 years (in which case the reporting period for the judgment is 7 years) you're looking at a good 10 years or more of that judgment sticking around and damaging your credit. The same can also be said for bankruptcy. A Chapter 7 bankruptcy carries a 10-year reporting period. A Chapter 13 bankruptcy  however, adheres to the same 7-year reporting period that most other negative items do.

Foreclosures, because they have such a detrimental impact on your credit scores, often get lumped into the 10-year category. For example, how often have you heard someone say something along the lines of: "That will hurt your credit as much as a bankruptcy or foreclosure!" or, "Foreclosure and bankruptcy are the worst things for your credit!" See?

The truth of the matter, is that although foreclosures are public records, federal law limits them to a reporting period of no more than 7 years. So it doesn't matter what state you're in, or what type of foreclosure it was or what your loan officer/mortgage broker/real estate agent says. Foreclosures get deleted after 7 years. Period.

Foreclosure Damage for More Than 7 Years

Just because the foreclosure itself doesn't stay on your credit report for more than 7 years, that doesn't mean that damage related to the mortgage is limited to 7 years. Before your lender forecloses, you've got to default on your mortgage. And that, my friends, will skin your credit down to the bone. The mortgage default is a different entry than the foreclosure and that too hangs around for 7 years.

So, if you default on your mortgage and your lender takes 2 years to foreclose, you can count on 9 years of credit damage. Two from the default, five that the default and the foreclosure share, and two more from the foreclosure after the default gets deleted.

Do You Have to Admit to Foreclosure?

Here's where mortgage lenders get tricksy. (yes, I meant to say "tricksy"). They know that, after 7 years, that foreclosure gets deleted from your credit report and, short of digging through some old public records, there is no way for them to find out about it. So they include a question about past foreclosures on your mortgage application. Oh yeah. Don't be surprised if you dance to the bank after a foreclosure falls off your credit record only to discover that your lender wants you to fess up to it anyway.

It's considered fraud to lie on a mortgage application. But if the federal government thinks you need to be let off the hook after 7 years, shouldn't your mortgage lender do the same? My advice: download or request a mortgage application from several lenders and just don't bother filling out the ones that ask about your previous foreclosure. You can rest assured that, given your "history" they aren't going to offer you a lower rate than a lender who has no clue that, once upon a time, you lost a home.

Related Articles: 

How to Get a Real Free Credit Report Without a Credit Card

Credit Reporting Period vs. Statute of Limitations

What Happens to a Second Mortgage Before and After Foreclosure?

Credit Bureau Changed Removal Date For Collections After Dispute

Lee,

I have an account on all 3 cb. All 3 were set to be removed March 2014. I didn't remember this account so I disputed them. They all came back as verified but experian changed the removal date as November 2019. I have called them multiply times sent in the original credit report showing the original removal date but the won't help. They say there's nothing they can do because that's the information they are getting from the creditor. What can I do? Is it legal for experian not to help me even when I have the original report showing the dates were changed. This is the one thing stopping us from buying a house. Thank you

--Katrina 

The Fair Credit Reporting Act requires the credit bureaus to thoroughly investigate disputes before making a ruling. Unfortunately, this rarely occurs and sending documentation of an error doesn't seem to help many consumers. The credit bureaus mark disputes with a code and verify electronically. They don't sit and peruse your evidence.

In order to fight this properly, you'll need some sort of documentation of what the debt is. If you don't recognize it, contact the collection agency (by mail – NEVER by phone) and ask for the name and address of the original creditor. They have to provide you with this information. If you still don't remember the debt or can't put your hands on the paperwork, call the original creditor and try to get your hands on evidence of when the account fell into default. Make copies of your proof. 

Write a letter to the collection agency informing it that it has illegally re-aged your account and you have proof that the account is scheduled to fall off your report in March of 2014 – not November 2019. Use a marker to black out any personal information and send copies of your documentation and your previous credit report along with your letter. Demand that the collection agency adhere to federal law and report the correct information to the credit bureaus lest you file a lawsuit for violating the FCRA. Make a copy of the letter for your records and send the information by certified mail, return receipt requested. This way the collection agency can't claim the information was never received. 

Don't contact the credit bureaus during this time. Just wait and see what the collection agency will do. If they do nothing, its time to pull out the big guns. 

Hire an attorney to draft a letter to the collection agency threatening to sue for FCRA violations if these errors are not immediately corrected. A threat on an attorney's letterhead generally gets their attention a lot better than letters you send yourself. If they still do nothing, sue. Your documentation will go a long way in court, but I strongly doubt it would ever get that far. It's much easier for the collection agency to just correct its mistake than to fight a lawsuit. Of course, this is up to you. If you want to follow through with the lawsuit, the collection agency can't stop you. You can request that it pay your legal fees in addition to the standard FCRA damages--making this whole nightmare time-consuming but free. 

Having the name of the collection agency might help. Knowing which illegal/or unethical debt collection methods  the major collection agencies use sometimes helps me help others. Best of luck to you. 

--Lee

Settling Collections Before the Statute of Limitations Expires

Hi Lee,

I currently have an account with citi and another with usaa at $4000 each which were just charged off. I would like to get a paid for delete for both at most 50%. I plan on buying a house in a year. A CA is managing the Citi account but Citi still owns it. What do you suggest is the best way of handling both of these debts. I live in Florida SOL is 4 years and I am no where near that. I realize that settling without a PFD would not help my credit score.. Help!! Thanks..

- SA


SA,

I appreciate your enthusiasm. Unfortunately, your odds of getting a pay for delete from either of these creditors is slim to none. Let me explain:

The credit card companies want the full amount. The collection agencies also want the full amount because they collect a percentage of whatever they can convince you to pay. Even if the collection agency were to agree to a pay-for-delete for a debt this young, they only have control over their own trade line. The original creditors' trade lines that illustrated the charge offs are still going to be there unless that pay-for-delete comes from the credit card companies themselves.

I see what you're trying to do. You want to negotiate a pay-for-delete with the original creditors. Doing so would require them to pull the debts out of collections – effectively eliminating the collection agencies' trade lines – and delete their own charge offs as part of the arrangement. You then get a clean credit report and the ability to qualify for a mortgage while only paying half of the debt. 

These days, however, pay-for-delete's are a rare beast and you'll almost never be able to negotiate one with an original creditor. You may be successful in getting the debt settlement you want, and you may be successful in getting it from the original creditors instead of the collection agencies, just don't expect a pay-for-delete to be a part of that agreement. Most of the time, there's really no point to paying anything on a debt if the creditor in question won't delete it from your credit report. 

Buying a house in the future isn't an immediate concern. The potential for a lawsuit is. Although a lawsuit is more likely when you owe more than $1000, collectors in this tough economy are often suing for much less – and you're sporting two debts with a $4000 price tag each. 

Whatever you do, tread carefully. If you start making calls and asking for a settlement, that's going to show your creditors that you have some extra cash on hand that you could be using to pay the debt. Why should they agree to settle the debt with you for half of what you owe when its much cheaper for the credit card company or collection agency to simply sue you and force you to pay the whole thing? Collection agencies often don't have a leg to stand on when it comes to lawsuits, but your debt is relatively recent and there's a fair chance that the paperwork to back up your debt in court is still easily attainable – especially if its the original creditor who opts to sue. 

Don't get me wrong, I'm not saying its not a good idea. I'm just saying its not a good idea right now. If you wait until the SOL has expired on both debts before starting negotiations, the collection agencies have no choice but to work with you if they want to get paid (and if you're offering 50% of a $4000 debt, they'll want to get paid). Do it now however, and its akin to waving a red flag in front of a bull. If you think collections will hurt your chances of qualifying for a mortgage, wait till you see what a civil judgment and garnishment will do. You can certainly try, but in my opinion it simply isn't worth the risk.