Debt Collection

Do debt collectors have to follow any law?

Yes. The Fair Debt Collections Practices Act (FDCPA), 15 USC § 1692-1692o.

What is the Fair Debt Collections Practices Act (FDCPA)?

The FDCPA requires that debt collectors treat you fairly by prohibiting certain methods of debt collection.

What debts are covered under the FDCPA?

Personal, family, and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or charge accounts.

How may a bill collector contact you?

A collector may contact you in person, by mail, telephone, telegram or fax. A bill collector also may not contact you at work if the collector knows that your employer disapproves.

What is the debt collector required to tell you about the debt?

Within five days after you are first contacted, the collector must send you a written notice telling you the money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

May a collector continue to contact you if you believe you do not owe the money?

A collector may not contact you if, within 30 days after you are first contacted, you send the collection agency a letter stating you do not owe the money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed. For an example of what to say in the letter, see the sample letters our E-book “When the Bill Collector Calls”.

A bill collector keeps calling for someone I do not know. How can I make him stop?

Write to the bill collector. Send your letter certified, return receipt requested. For an example of what to say in the letter, see the sample letters our E-book “When the Bill Collector Calls”.

Can a debt collector reveal information about my debt to my family, friends or boss?

No. Under the FDCPA discussions about the debt can only be held with (1) the individual, (2) the creditor, (3) an attorney representing one of the parties, and (4) a credit bureau.

What control do you have over payment of debts?

If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

How long does a delinquent debt remain on my credit report?

Delinquent debts remain on credit reports for seven (7) years. Chapter 7 bankruptcies remain on credit reports for 10 years.

If I pay a delinquent account, will that remove it from my credit report?

No. Payment will not automatically remove the debt. You might be able to negotiate removal of the negative information as part of a payment agreement with a third-party collection agency. For instructions on how to negotiate, see our E-book “When the Bill Collector Calls”.

I have a debt older than 7 years. Should I pay it off even though it longer appears on my credit report?

If you are still being contacted about a debt that is old, it is quite likely the account has been sold and perhaps a number of times. There is no statute of limitations on how long a collection effort can go on, but your state may have a statute of limitations on how long a creditor or collector has to sue you. In many states, however, paying an old debt may reactivate the statute of limitations on how long a creditor can sue to recover the debt.

A debt collector has violated my rights. Can I sue?

Yes. The FDCPA allows individuals and class action plaintiffs to sue in federal or state court within a year of the violation.

I have bad credit and am considering paying a company to fix my credit. Will this work?

No. Companies or individuals promising quick fixes are almost always fraudulent. The simple rule to remember is that no one can have accurate information removed from your credit file.

I owe a debt and I am trying to come up with a way to pay. But in calls to me, the debt collectors is threatening and rude. How can I stop this harassment?

Certainly, abusive, threatening and obscene language is more than likely to be part of a phone call than written communication. Collectors know the rules about such conduct. When this happens, ask for their name and their employer. Make notes recording the content of the call. Then send a letter requesting that the debt collector only contact you in writing. In your letter, explain the abusive behavior. Send the letter certified with a return receipt requested. There are sample letters available in our E-book “When the Bill Collector Calls”. You should also request in writing that the debt collector not contact you at work.

I was contacted about a 10-year old debt. Isn’t there a limit on the time for collections?

There may be a limit on the time a bill collector has to sue you to collect a debt. The statute of limitations may vary from state to state. However, there is generally no limit on how long a company can attempt to collect on a debt.

I had a huge medical bill last year and got behind. Can medical bills be sent to a private debt collector?

Yes. An unpaid bill, like any other debt claimed to be owed, may be reported to a collection agency or credit bureau. What’s more, an unpaid medical bill can appear as a negative entry on your credit report.

A debt collector says I owe fees that are almost as much as the original debt. Is this allowed?

The FDCPA says a collection agency or debt collector may not collect any amount greater than your debt, unless your state law permits such a charge.

May a bill collector access my credit report?

Access to your credit report is limited to certain “permissible purposes” that are listed in the Fair Credit Reporting Act (FCRA). One of the purposes listed in the FCRA is “collection of a debt.” A collection agency may also report to a credit bureau, but the FCRA prohibits giving false information to anyone, including a credit bureau. For more information on this subject see our E-book “The Credit Handbook”.

I got a call from an attorney about an old debt. Is the attorney subject to the FDCPA?

Attorneys who collect debts for third parties on a regular basis are “debt collectors” under the FDCPA.

What should I do if a collection agency sues me?

If a collection agency files a lawsuit against you to collect a debt, respond to the lawsuit, either personally or through your lawyer, by the date specified in the court papers to preserve your right.   For more information on this subject see our E-book “When the Bill Collector Calls”.

I had an account sent to collections. Now the original account and the collection both appear on my credit report. Is this wrong?

Both entries are considered part of your credit history, and once the collection action is entered, that becomes the active account. However, the delinquency date reported by the original creditor should be the same as reported by the collection agency. The delinquency date dictates the establishment of the 7-year period. And that is how long the account will remain on your credit report. The delinquency date that triggers the removal of negative information from your credit report should remain the same no matter how many times the debt is sold.

Can federal benefits be garnished?

Many federal benefits are exempt from garnishment. But federal benefits may be garnished under certain circumstances, including to pay delinquent taxes, alimony, child support, or student loans.

Am I responsible for paying the debts of a deceased relative?

No. When an individual dies, it’s not unusual for creditors to attempt to collect debts from surviving relatives. However, you are not responsible for the debts of family members who were not your spouse.

Credit Reports

Why did the credit reporting agencies’ turn down my request for credit?

Credit reporting agencies’ do not recommend that your credit application be accepted or rejected. Credit grantors make that decision based on your payment record and their own criteria.

Do credit reporting agencies’ rate my accounts?

No. All they do is maintain records. Each creditor reports the status of your account according to your manner of payment.

What is in my credit file that keeps me from obtaining credit?

We do not know, since credit reporting agencies do not grant credit. Each grantor has established criteria for making credit decisions. Your credit may appear to be perfect, but having too much credit or too many outstanding balances are examples of why your request for credit might be declined. Sometimes the decision is not even based directly on the credit file; for instance, you may not have been at your current residence or in your present job long enough.

Why is last reported employment outdated?

What is listed as your last employment is actually the last employment reported to the credit bureaus by credit grantors. Employment information is typically reported from applications for credit and therefore is not regularly updated. This information is not used by credit grantors or employers in making their decision, but is used for demographic purposes.

What is a credit score?

A credit score is a composite that indicates how likely you are to pay on a loan or credit card as agreed. It is a predictor of future performance. It is one piece of information credit grantors use when evaluating your application. For more information on this subject see our E-book “The Credit Handbook”.

Is the credit score part of my credit file?

The credit score is not part of your credit file. It is a process that assists the credit grantor during the credit application process. The score may change as your credit information

Are credit reporting agencies a part of government?

No.  Credit reporting companies are just that. They are in the business to make money, just like the mega-billion banks that run the credit industry. They generate their income by selling credit reports to creditors.

Is it illegal or immoral to have your credit profile improved?

No. It is not illegal or immoral to eliminate mistakes on your credit reports. In fact, the federal government, under the Fair Credit Reporting Act (FCRA), Section 1681e, protects your rights to do so.

How does information about me get into my credit report?

 The banks, retail stores, utility companies, etc. report your payment record to the credit reporting companies each month. The credit reporting companies then give that information to a second tier of regional reporting companies who sell it to retailers and banks or anyone who legitimately requests information about you.

What happens when I file a dispute?

When the credit reporting company receives your dispute request, they will contact the data provider or source that provided the information. That source might have up to 45 days to verify whether the information they reported is correct.

What happens if the data provider updates or cannot verify the information?

If the data provider or source cannot verify the information, it will be removed from your credit report. Otherwise the information will be updated as instructed by the data provider.  A credit report reflecting the results of the investigation will be sent to you via U.S. Postal.

What happens if the data provider does not respond within the required timeframe?

If the data provider or source does not respond within the required timeframe, the credit reporting agency will prevent the information from appearing on your credit report. A credit report reflecting the results of the investigation will be sent to you via the U.S. Postal Service.

If the data provider verifies the information, what happens next?

If the company or source that provided the information to the credit reporting agency verifies the record, it will remain on your credit report. At the completion of the investigation, you will be notified in writing that the information was verified as being accurate and will remain on your credit report.

After a dispute is complete, what do I receive?

You will receive a credit report reflecting the results of the credit bureau’s investigation.

What if I disagree with the results of an investigation?

 If you disagree with the results of an investigation on your credit report, you have the right to add a 100-word statement to your report that explains your side of the situation. For more information on this subject see our E-book “The Credit Handbook”.

What is a consumer statement?

A consumer statement is a personal statement that you may add to your credit report. It typically explains why a negative item is listed on your credit report. Creditors or lenders may review the consumer statement and take it into consideration when making their credit decisions. The statement remains on your credit report until you request that it be removed.

Why do the credit reporting agencies have separate reports for husband and wife?

The credit reporting agencies collect information based on individual social security numbers. Only by checking both the husband’s and wife’s credit report can the credit reporting agency ensure accuracy.

Who can request information about my credit file?

Under the FCRA, a credit reporting company may only disclose your credit report if someone is granting credit, reviewing your account, or collecting on your account, reviewing you for employment purposes, reviewing your application for insurance, reviewing your eligibility for a license or government-related benefits, providing information for a business transaction (such as renting an apartment), a court order, an IRS subpoena, or someone whom you given written permission.

How often are mistakes entered into my credit file?

Frequently. Some experts say a significant number of credit reports contain errors. These are inaccurate, erroneous, or obsolete information that can cost you the credit you deserve.

Who will remove items from my credit report?

Only the credit reporting agencies have the power to remove items from your credit report.  But, as required by law, the credit reporting agencies must correct or remove inaccurate, erroneous, or obsolete information.

Are credit reports all the same?

 No. Each of the three credit reporting agencies’ reports looks different and may not contain the same information. The companies maintain their own databases and do not often share.

Do the credit report agencies own the information on my credit report?

No. But, you do not own the information either. It is owned by the individual merchant or creditor who reported it to the agency.

Once a credit reporting agency has removed an item from a customer’s credit report, can it be reinserted?

Credit reporting agencies are often reinserting items that they have previously removed from a consumer’s credit report. According to the FCRA, one of the requirements for reinsertion of items is that a consumer must be notified within five days when an item is reinserted.

Debt Settlement

How does debt settlement work?

Debt settlement works by negotiating a payment for less than the balance owed (principal) on your unsecured personal debt accounts. This is different from simply reducing the interest rate with debt consolidation and credit counseling, which do not affect the total debt balance.

What happens to my credit under a debt settlement?

Few people with debt trouble have perfect credit to begin with; and it is likely your credit score (usually called FICO score) will decline during the settlement process. Regardless of your credit score, it is recommended against applying for new credit while going through a debt settlement program. It simply doesn’t make sense to take on new debt while you’re trying to tackle your existing debt problem. On a positive note, credit scores tend to improve quickly once a debt settlement program has been completed. 

Is debt settlement the same as debt consolidation?

No. A debt consolidator makes one loan to you to pay-off all your debts. They charge you interest on this loan and in some cases you are still required to pay interest to your creditors.  As a result, your principal debt balance remains the same and you remain years away from becoming debt free.

How much do debt settlements cost?

The amount it costs you to become debt free is dependent on a number of factors including:  credit balances, your ability to contribute monthly escrow payments into your program, the amount that can be negotiated from your balance and how quickly it is negotiated, and what fees your debt settlement firm charges you. As of October 27, 2010, debt settlement fees must be relative to the amount of your debt. For example, if Firm A charges 18% of whatever your balance was at the time you enrolled in the programs. Firm B charges a 12% fee and this might look like a better deal, but in reality, it is ONLY a better deal if Firm B can negotiate the same deal within the same amount of time. This is rarely the case. So when evaluating the cost of debt settlement, keep your eye on the actual out-of-pocket cost and not just on the fees. 

Is a debt settlement a loan?

 No. A debt settlement program does not and should not involve any loan. 

What about creditor and collection agency calls?

 No debt settlement company can realistically promise to eliminate all collection calls.  However, a good debt settlement company will understand the stress these collection calls can create and the importance of offering the support and expertise to help counteract potential collection harassment. For more information on dealing with collection harassment, see our E-book “When the Bill Collector Calls”

Are there any tax consequences to doing a debt settlement?

It is unlikely, but possible that you will owe taxes on the amount of debt forgiven by creditors.  Here’s why. Financial institutions are required by the IRS to report canceled debts (the portion forgiven during the settlement) over $600 to the IRS, and the debtor is required to report that as income on their tax return. 

Can I be sued?

While creditors have the legal right to bring a lawsuit for non-payment of a debt obligation, such lawsuits are far less common than aggressive debt collectors would have you think. Most creditors would rather work things out amicably in a negotiated settlement than spend more money taking customer to court (with no guarantee of being able to collect on a judgment). That’s why thousands of litigation-free settlements are transacted every month all across the country. 

Can my wages be garnished?

If you listen to some debt collectors, you might be fooled into thinking they will seize your very next paycheck unless you make a payment right then and there. But this is mainly an intimidation tactic. First, a creditor must bring a lawsuit, obtain a judgment, and then take an additional step to obtain authorization for the garnishment. No one can take your paycheck without court approval, and you must be given notice of such court action through formal documentation. 

Will I still be able to use my credit cards?

You will not be able to continue using any of the credit cards or other accounts enrolled into a debt settlement program. When you are negotiating to have creditors forgive half or more of the balances owed, they simply will not extend more credit unless you bring the account current again and get back on a plan to pay off the full balance. 

I was told that a debt settlement would show on my credit like a bankruptcy?

Actually, that’s a myth and a rumor that’s going around. Debt settlement is not like a bankruptcy, but rather is an alternative to bankruptcy. 

What are the differences between Debt Settlement and Credit Counseling?

Debt settlement and credit counseling are two different approaches to debt relief. These differences primarily show up in length of time it takes to become debt free and the overall amount it costs. With credit counseling, you will eventually pay back all of the debt balances, plus interest and fees; whereas with debt settlement, you pay back only a portion of your debt. This makes debt settlement a much faster path to handling your debt (2-3 years) than credit counseling (5-9 years). And this means a lot less money out of your pocket. 

What kind of debt can be negotiated?

As a general rule, any type of unsecured debt can be successfully negotiated. An unsecured debt is one that is not tied to a specific material item that could be repossessed by the creditor. Credit card debt, medical bills, department store cards, signature loans, unsecured lines of credit and revolving charge accounts are all types of debt that can be included in a debt settlement program. The main exception is student loans, which in most cases are government backed loans that cannot even be discharged in a bankruptcy proceeding. 

What if a creditor won’t negotiate?

Most debt settlement companies successfully negotiate with thousands of creditors all across the nation. In the course of business, they establish contacts with the major banks, collection agencies and collection attorneys. In the rare instance where a creditor balks at accepting a reasonable settlement at the time it is proposed, it is often a matter of simply waiting for a different phase of the collection process. 

Is it wise to take out a home loan to pay-off my unsecured debts?

Right now, your debt is unsecured. That means, even if you default on your payments, the creditors cannot take any of your physical property away from you. If you secure it with your home and something happens where you can’t make your payments, the roof over your head is at risk.

Are there debts that can’t be entered into a debt settlement program?

Secured debts cannot be negotiated through a debt settlement program. This includes home loans, second or third mortgages, equity lines of credit, auto loans, and financing contracts tied to a specific piece of property that may be legally repossessed by the creditor. In addition, federal and state income taxes cannot be included. 

Can I do the debt settlement myself?

Yes, it is certainly possible for a consumer to negotiate his or her own debts. However, there are several important factors that should be taken into consideration before making such a decision. First, do you have the time? For individuals with serious debt problems, the complexities of the negotiating process can be very time consuming. Second, it requires a certain kind of psychological toughness to haggle with creditors. With all the tricks, traps and pressures tactics used by creditors, most people will find themselves better off with professional assistance. Third, as with any profession, there are techniques not easily mastered by an amateur. Without professional coaching, the likely result will be high-percentage settlements in the best case, and outright failure in the worse case. 

Identity Theft

What is identity theft?

Identity theft, also known as identity fraud, is the misappropriation of another person’s information in order to fraudulently derive financial gain. The perpetrator, using the victim’s personal information, receives financial gain in the form of credit from banks and retailers, gains access to the victim’s existing accounts, is able to establish new accounts with banks and retailers, can apply for auto and other loans, can apply for a job, and even file bankruptcy under the stolen identity. It is possible the impersonator can steal thousands of dollars in the victim’s name over several months before the victim learns of the problem.

How does the thief steal someone’s identity?

The thief only needs your social security number, your birth date, and other identifying information such as your address and phone number. Once armed with this information, the thief can easily obtain false driver’s license with his/her picture. Through the use of the false driver’s license, the thief will often submit a change of address for your bank statements, credit card bills, and other important financial-related correspondence.

Where does the thief obtain personal information?

Identity thieves employ both low-tech and high-tech means to acquire information.  Lost/stolen wallets, carelessly discarded bills, bank statements, and other financial information in the trash and theft from mailboxes provides an abundance of information, and provides the thief with all the information he/she needs to begin the process of stealing your identity. Although identity theft is not a recent problem, usage of the internet has accelerated the problem.

What can I do to protect my identity from being stolen?

Although it is nearly impossible to completely close access to your personal and credit information, you can dramatically decrease the risk of identity theft through prudent management of your personal information and changes to your daily habits. There are companies that specialize in preventing identity theft for pennies a day. (Click here to find out more about identity theft protection).

What should I do if I become a victim of identity theft?

The following are four steps you must take immediately:   1) Contact all three major credit reporting agencies by telephone to request a fraud alert be placed on your credit profile;   2)Request a copy of your credit report from all three agencies;   3) Contact your bank and other creditors; and      4) File a police report. For more information on this subject see our E-book “Who’s in Your Wallet?

What if the police will not take a report?

Many police departments are reluctant to take a report on this type of crime claiming that you are not the victim, but the credit grantor is the victim. They may want to request to come from the creditor, who often will not cooperate because it is not cost-effective to spend their time and energy to assist the police. Even if the creditor won’t prosecute, you must insist that the police take the report so you can demonstrate good faith in attempting to clean up the credit mess.

If I become a victim of identity theft, should I cancel my credit cards?

Since your credit worthiness may be on shaky ground, it may be best not to close your existing accounts as new credit may not be extended to you. Instead, you should not only notify those accounts that have been affected, but also those accounts that may not have been affected and request a fraud alert be placed on the accounts. See our E-book “Who’s in Your Wallet?

Should I apply for a new Social Security Number?

This is easier said than done and, in most cases, not a good idea. Your social security number is an integral part of your identity, and is nearly permanently attached to your credit report and government documents. Furthermore, the Social Security Administration is reluctant to issue new social security numbers. Your credit report will continue to reflect your old number, and this may appear suspicious to new creditors or potential employers and cause you further problems.

Will I be responsible for the theft?

Yes and no. From a monetary standpoint, if a thief uses your credit card in a credit cards scam, your are responsible for only $50.00 or possibly nothing. However, you may spend months, even years, dealing with collection agencies, financial institutions, bill collectors, and police departments in an effort to clear your name.

Are there laws against identity theft?

Yes. In 1988, Congress passed the Identity Theft and Assumption Deterrence Act that makes the use of another person’s identification with the internet to commit fraud a felony. Many states also have laws protecting consumers.

What is email fraud?

The typical email fraud includes a copy of a legitimate business’s logo and asks you to click on an embedded hyperlink and enter your personal information which they capture and use in fraudulent activities.

How can I know if an email is legitimate or not?

Although there are not many signs that will alert you that the email is not legitimate, these are the two to watch out for: 1) The email may contain spelling and grammatical errors, and 2) The hyperlink contained in the body of the email takes you to a site other than the “sender’s” site.