Coping with debt collectors
First off I need to point out that you should always pay your bills - simple as that. And I should point out that nothing herein should be construed as legal advice, it is simply designed to let the consumer know they have rights.
Life was good - nice house - two cars in the garage - toys when you want them - kids going to good schools - solid job - bills paid on time. No sweat. The American Dream is a reality. And then it happens. It could be an auto accident or a sudden illness (over 60 percent of people filing for bankruptcy in this country cite medical bills as the reason). Or that good job disappears and is sent to Communist China by some low-life sleaze.
Suddenly you are in serious debt - the house payment looms larger than you ever realized. One of the cars gets sold off, along with the boat and PWC. The medical bills pile up at a rate you cannot believe. You struggle and fight to stay above water and then realize that something has to give as you start falling behind. Those credit cards are suddenly a major enemy - get rid of them, now! But the bills keep coming. And suddenly you are getting phone calls - all day and all night from a bill collector. He's driving you nuts. Not to worry - you have rights under the Fair Debt Collection Practices Act (FDCPA), rights bill collectors will never tell you about; as they go along breaking the law and lying to you at every opportunity.
The one thing a bill collector will ALWAYS do is lie to you - from the moment you answer the phone. Best defense, screen your calls and NEVER talk to them. There is no future - NONE WHAT-SO-EVER - in talking to a bill collector.
The best method is to send them a "Dispute and Validation" letter. This letter MUST be sent by CERTIFIED MAIL, RETURN RECEIPT REQUESTED. Yes, it will cost you more than five dollars to send the letter, but it will provide you with a wealth of protection and peace of mind. Why certified mail, return receipt? Because if you just send it first class they will lie (surprise, surprise!) and claim they never received it. Heck, some of them lie even AFTER signing for the letter.
Who are these low-life scum? They are bottom-feeding collection agencies who thrive on the misery of others. They buy charged-off debts for pennies on the dollar. Example; a $5,000 credit card debt can be purchased for no more than two hundred dollars (sometimes as little as fifty or even twenty-five dollars).
What is a charged-off debt? The Fair Credit Reporting Act (FCRA) requires that the original creditor (your MasterCard or Visa holder) CHARGE OFF, or show your non-secured (i.e. credit card) debt to be non-collectible no later than 180 days from your last payment.
What happens then? The three credit reporting agencies are notified and your credit rating will be trashed - and will remain so for up to seven years. THIS WILL NOT CHANGE no matter what the debt collector tells you!
What will the bill collectors do? Once they buy the debt they will immediately contact you and begin various forms of harassment. These will include constant phone calls to your home and work (illegal), threats of legal action (which is illegal), misrepresenting themselves as attorneys (also illegal), threatened garnishment of your wages (uh, huh, illegal), and threats to tell your neighbors you are a crook (yep, illegal). They will use obscene language (illegal), fail to tell you your rights under the FDCPA (illegal), tell you they have filed suit and the sheriff is on his way to arrest you (illegal), and refuse to give you the name of their firm and its address (oh, yeah, that's illegal).
What if I pay the debt collector? Your credit rating remains trashed and each time you send in a payment the statute of limitations clock is restarted and not one penny will go to the original creditor.
Do I actually owe the collection agency? Your debt was with the original creditor, who took a charge-off of your bill as a bad debt. Technically, at that point, your obligation to pay ceased. The low-life collection agency will do everything in their power to convince you that they are "representing" their client (the original creditor), but they are lying. NO MONEY you ever send to a collection agency goes to the original creditor! And, by the way, they will lie to you about that as well.
Can I simply pay the original creditor? Not really and why would you? Once the bill is charged-off and they have trashed your credit rating they don't want anything further to do with you. In most cases they are not set up to accept any money from you because the account is closed and off the books. And even if you were to pay them - say to sooth your guilty conscience - your credit rating will remain trashed.
The surprise waiting for you if you pay the collection agency. Many times the low-life collector will make an offer to accept a portion of your debt. Let's say you owed the original creditor $5,000, the agency bought the debt for $200, and has added on various fees and interest to the point they are now demanding $8,688, BUT they will settle the debt and clear your credit report (a lie) for only $4,344. WOW, that's a saving of 50 percent! Of course their profit on this is $4,144. Remember, the original creditor gets NONE of that money AND your credit rating will still be trashed. NOW FOR THE BIG SURPRISE - if you accept the deal and send them the $4,344 you will shortly receive an IRS form 1099-C showing INCOME to you in the amount of $4,344 because by accepting the DEAL you acknowledged the debt is yours and since they "wrote off" half of the amount due, that amount then becomes income to you - and the IRS will back them up and come after you for the income tax on $4,344.
The latest scam by collection agencies. Collection agencies are now buying up literally billions of dollars in old, charged off, out of statute and time-barred debts. As usual they are trying to get consumers to cough up cash by using the usual lies and distortions they are famous for. But now they are truly pushing the envelope. If they cannot collect - and in some cases they don't even try to collect - they will send out an IRS Form 1099-C showing the amount of the debt as income to the consumer. They do this by "forgiving" the debt as bad and uncollectible and they are then allowed to deduct the debt from their taxable income. So how does this work? The bottom-feeders buy-up portfolios of out-of-statute debts for less than a penny on the dollar. Let's say you have a twenty year old, charged off credit card debt of $5,000. The bottom-feeders pay $50.00 for your debt (sometimes even less), as part of a portfolio consisting of thousands of debts. They then add interest charges, fees, and even penalties to the $5,000 boosting the debt to $12,000. At this point they may or may not contact you - evidence to date indicates they HAVE NOT been contacting the debtor. Next they send out a 1099-C form showing income in the amount of $12,000 along with a letter stating the collection agency is "forgiving" the debt. By this action they are allowed to show a $12,000 deduction on the uncollected debt and you, the supposed debtor, is stuck having to pay income tax on the $12,000.
The worst situation is where you are not the debtor - you may have a similar name to the miscreant, but it's not you. The collection agency will come after you and make your life a living hell to try and make you pay. Once again you need to send them a dispute and validation letter demanding they prove you owe them.
Now for the important part. As long as these bottom-feeders call you there is not much they can do, BUT if they send you a letter you have to respond to it within thirty days. If you do not dispute the debt that is - as weird as it sounds - an admission by you that you owe them the money and they may try to take you to court and get a judgment. THIS IS IMPORTANT - if you receive a letter immediately respond with a dispute and validation demand. Surprisingly in the majority of cases you will never hear from them again.