It can be embarrassing to have an erroneous debt in your name sent to collections, a debt you know nothing about. Unfortunately, it’s not uncommon for these errors to happen, nor is false debt collection. For example, between 2020 and 2022, consumers lodged more than 280,000 complaints about their credit, which is more than double the amount of complaints lodged in 2019.
So, if an account in your name gets sent to collections by mistake, what can you do about it? In this article, our NewsBlaze finance reporter C. J. Walker will discuss your legal options and provide a detailed walkthrough for challenging credit reporting mistakes.
How False Debt Collection Happens
Even if a debt may belong to you, it doesn’t hurt to have it verified in writing because what if the lender/creditor reports that you owe more than you borrowed? Or what if a thief used your identity to rack up thousands of dollars of debt in your name?
First, debt collectors are required by law to give consumers a debt validation letter that specifies the nature of the debt, the amount owed to the parties involved, and the due date for payment. A sample of a debt verification letter can be found here on this underlined link. Be sure to ask for a debt verification letter if you need more details concerning the debt you’re being requested to pay. This is the ideal choice if you intend to settle the debt through collections.
How Debt Collectors Operate
When a debt is unpaid for an extended length of time, debt collection is initiated. After 30 days have passed since the payment was due, it can be considered delinquent. Creditors will contact you with demands for payment, including letters and phone calls.
After a certain period of time, often between 120 and 180 days of nonpayment, the creditor, such as a bank or healthcare provider, gives up trying to collect. In order to recoup losses, the original creditor may sell your debt to a debt collection firm.
Another debt collection agency will then begin sending you notices. Creditors might contact you via phone, letter, email, or text message to try and collect a debt. A third party has acquired the collection rights, but the debt itself remains the same and must be paid in full.
Once you are satisfied the debt belongs to you, be sure to obtain the appropriate details to ensure you’re paying the appropriate debt collector.
And, further, if you haven’t received a validation notification from the debt collector within 10 days of the initial contact, you should ask for one. In case you decide to send a debt verification letter, now is the time to ask for the debt collector’s postal address.
Debt collection mistakes are widespread, so debt validation letters are crucial. Avoid paying money you don’t owe or restarting a debt that can legally bar you from paying it due to the statute of limitations. When the statute of limitation applies to a debt the person previously owed the law forbids them to pay it.
Debt Collection Affects Credit Scores
Debt collections will stay on your credit reports for seven years once the account becomes delinquent. The exceptions to the rule are the medical bills that go into collections, but are later paid by an insurer; those negative accounts on your credit score will automatically be removed when a consumer pays them off.
According to Nerdwallet, “Some of the newer scoring models – such as VantageScore 3.0 and FICO 9 – ignore collections that have been paid. But FICO 8 credit scores, the ones most widely used in lending decisions, will consider even paid-off collections if the original debt was over $100.”
The Big-Ass Elephant In the Room: When a Lender/ Creditor/Collector Takes You to Court
Lenders file lawsuits ritually to recover large debts. The game plan is to get a verdict even if by default which means you failed to appear in court. So here is the plan: Lenders know that once the court rules in their favor by ordering the defendant/borrower to pay the debt the lender can file a writ of execution to recover the debt either through your bank account or any assets you own that is comparable to the amount owed to the lender/creditor.
Nerdwallet.com gives this advice on how to deal with a court summons involving debt collection:
- As stated earlier, debt collection lawsuits can result in wage garnishment(depending on which state you live in) a bank levy, or a lien on your property or other valuable assets.
- Make sure that the debt collector has proof that the debt actually belongs to you, that the amount is accurate, and that the debt hasn’t expired. Each state has a statute of limitations for debt, after which you can no longer be legally sued for payment, but you can still be contacted.
- Find legal help: Hire an attorney who specializes in debt collection defense. If you can’t afford court costs, look for low-cost or free legal aid programs near you via the Legal Services Corporation or LawHelp.org.
Verifying Debt in Writing
In what ways must a debt be verified in writing?
Written debt validation notices containing information about the debt being collected must be sent to you in accordance with the Fair Debt Collection Practices Act (FDCPA). It needs to go out no later than five days after the initial contact.
Here are important steps to follow if you need a debt verification letter and how to interpret your own are explained below, as well as resources for locating sample letters. In the letter verifying the debt, you will find:
- A statement that unless you challenge the debt after 30 days of the collector’s initial contact, they will assume it is valid.
- A promise to verify the debt by mail if you request it or dispute the debt in writing within 30 days.
- A promise that the collector will respond to your requests for information about the original creditor within 30 days.
If you haven’t received a validation notification from the debt collector within 10 days of the initial contact, you should ask for one. In case you decide to send a debt verification letter, now is the time to ask for the debt collector’s postal address.
- Ask for proof of debt and what information to include because it may be best to ignore debt collection notices rather than draw further attention to yourself by sending a verification letter if, for example, the statute of limitations on the debt is about to expire.
- Send the letter via certified mail with a request for a return receipt will allow you to keep track of your communications with the debt collector.
Debt Letter Enquiries
Make the following inquiries in your letter concerning:
- The debt collector’s reasoning for why you owe the money: Inquire as to the identity of the original creditor and obtain proof of your debt, such as a copy of the agreement, if necessary.
- Make sure the debt collector verifies the debt’s age by requesting a copy of the last billing statement received by the original creditor, the date of the last payment, and whether or not the debt has passed the statute of limitations.
- Ask if they have the proper licensing to collect debts in your state.
- Don’t forget to send the letter via certified mail with a request for a return receipt will allow you to keep track of your communications with the debt collector.
Debt collectors are only obligated to reveal the original creditor, the outstanding balance, and the identity of the individual owing the debt before they resume collection attempts, but you can ask for any information you choose.
Consumers can utilize one of the debt verification letter samples provided by the Consumer Financial Protection Bureau. The trick is to request debt verification information in as much detail as possible.
In the letter verifying the debt, you will find:
- A statement that unless you challenge the debt after 30 days of the collector’s initial contact, they will assume it is valid.
- A promise to verify the debt by mail if you request it or dispute the debt in writing within 30 days.
However, acquiring such details can shed light on whether or not you owe the debt in question, whether or not the statute of limitations has run out, or whether or not there has been an error, such as an overstatement of the amount owed.
When you request confirmation of a debt, what occurs next?
Debt collectors are required to suspend all collection efforts if you send a dispute letter within 30 days of the initial contact. After 30 days, you can still send a verification letter, but the collector will be allowed to pursue payment until it answers.
Any debt collector who ignores your verification letter or refuses to provide a validation notification is in violation of the Fair Debt Collection Practices Act. You can report such conduct to the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), or the attorney general in your state.
Finance Reporter C.J. Walker can be reached at [email protected]
