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.