Q&A: Missed Payment to Collection Agency: Will They Sue?

Lee,

I have a Capital One Debt of ~$6000. It's been sent to Machol and Johannes a Debt Collection Law firm in Denver, CO. I have been making monthly payments of $50 per month to them for the last 2+ years.

 I had set this up to pay automatically through my banks online bill pay. For some reason, the auto bill pay stopped when Jan 1, 2014 came. They called me in early to mid February to tell me that they hadn't gotten January or February's payments. I checked the bill pay and they were right. So I immediately set it back up and made 2 payments in February. One within a week of them notifying me of January's missed payment and one when I got paid again in February. I get paid twice a month. 

About a week or so ago, I got a letter from them saying that since I had not paid them in a "timely manner as my contract with them obligated me to do" that I had to now pay the full amount due by a certain date, which I don't recall what that is/was and I no longer have the letter, or they would pursue further courses of action, which i assume could be garnishing my pay or putting a lien on my bank account. Can they do this? Should I contact them and explain what happened with the bill pay and try to work something out, or what should I do? Please help. Thank you

--M.

M, 

For starters, alluding to "further courses of action" is nothing new for a debt collector. And even if this notice was sent to you by an attorney, that attorney is still acting as a debt collector. Nine times out of ten, its a scare tactic. The simple facts of the case are that you've been making timely payments to the collection agency--which is more than most people bother to do. 

If they've been getting timely payments from you, they may reason that you're in good enough financial shape to pay the rest of the debt off in one lump sum. Believe me, they'd much rather have a lump sum than the partial payments you've been making. Your slip-up in January gave them the perfect excuse to demand that you pay off the remaining balance in full. To me, this sounds like a test. A "Let's see if we can get the whole thing out of him" test. 

You see, the law does not allow them to put a lien on your house, garnish your bank account, garnish your wages, or seize any of your assets without suing you in court and obtaining a civil judgment. That's quite the process. Sure they could do it, but its usually not worth it for a collection agency to devote the time and resources toward suing you if you're already making payments. 


Consider contacting the collection agency (or the collection agency's attorney if that's who is making the threats), explain the situation and why you missed a payment, and offer to increase your monthly payments. The bottom line here is that the collection agency wants more than $50 a month. They took what they could get out of you at the time, and now they see an opportunity to get even more. You have to decide whether or not you want to play ball. 

You should also evaluate just what they could get out of you if they did take you to court. Many forms of income, such as Social Security, retirement pensions, unemployment and welfare are all exempt from garnishment (unless the debt in question was a government debt). If you rent, you don't have to worry about a property lien. And the forms of income that are exempt from garnishment are also exempt from a bank levy. In that case, you're pretty much "judgment proof." This means that a collection agency can sue you, but they're not going to get anything out of it. The judgment would, however, appear on your credit report and damage your credit rating. In general, if a debt collector knows ahead of time that you're judgment proof, they won't waste time and money suing you. 

If you have a copy of that original "agreement" the collector is referring to, you may want to take a second look at it. It's possible that the agreement provides you with a payment grace period (unlikely, but possible) or doesn't mention missed payments and their consequences at all. 

Best of Luck,

Lee