Advice: Debt Collection and Credit Repair

Please note this is not legal advice, but an opinion. If you decide to pursue legal action, we recommend consulting a competent lawyer versed in the laws needed in dealing with collection agencies: the FCRA and FDCPA. There is a glossary of the most commonly used terms and their abbreviations at the very end of this post. Please take the time to familiarize yourself with each one.

What is the FDCPA/FCRA, and how does it pertain to me?

In a nutshell, it was decided in 1977 (about when credit cards were available to the masses) that creditors collecting on debts could not burden a debtor for life. Thus the 7.5 year reporting time and the statute of limitations were implemented. Basically stated, creditors have a set limited amount of time to report and collect on legally owed debts. Anything past that time is forever lost to them.

It was also decided that to protect debtors/consumers, a set of rules and regulations were needed to protect them and to control what could and couldn’t be reported on their credit reports. This came to be called the Fair Credit Reporting Act or FCRA, and was implemented in October 1970. It was also decided that collection agencies had to follow a set of rules and regulations when attempting to collect. This was called the Fair Debt Collection Practices Act or FDCPA.

This mostly applies to third party debt collectors, and not original creditors. However some states have similar consumer protection laws that mirror the FDCPA. The FDCPA covers debts by consumers, and not businesses. Every time a debtor uses credit from a lender, both debtor and the lender are subject to the rules and laws of the FDCPA and FCRA.

How to deal with Collection Agencies

A lot of people think that if they just talk to a Collections Agency, they can straighten things out, make the debt go away, or come to an “agreement” with them. This is far from the truth! Remember, collections have one goal in mind: to get as much money from you as they can. It doesn’t matter to them how they do this, and in cases of unscrupulous Collections Agencies, it doesn’t matter what they say to achieve their goal. They often do not care about your hardships, or that your spouse was in an accident and was the sole earner. They do not care that you got sick and missed two pay checks and thus fell behind on bills. They want the money. That being said, that doesn’t mean all CAs are cold and heartless, just that they want you to pay. Is some cases, as in assigned debt, the faster they collect from you the higher their commission. Typically, they’ll pay pennies on the dollar but will still want all of the debt owed.

This is merely a guideline, and everyone has a unique situation. However, there are a few basic points that are common for everyone:

• All written communication should be sent by Certified Mail with Return Receipt Requested. Sending a written dispute letter (and keeping a copy for yourself) provides you with the date the letter was accepted. This not only creates a paper trail, but also starts the clock to which a Credit Reporting Agency or a Collections Agency must abide by.
• If you’re having trouble disputing a mark with Credit Reporting Agencies (or CRAs, like TransUnion, Equifax, Experian), it’s often recommended to send your dispute via Certified Mail, Return Receipt Requested. This is in contrast to online dispute letters via the Reporting Agency’s website.

Common Tips when Dealing with Collection Agencies

Know your rights! This is where looking up the Fair Debt Collection Practices Act (FDCPA) helps you. It allows you to retaliate if the Collections Agency is using abusive, unfair, or deceptive methods to collect from you. It also provides the guidelines for when and how they can contact you:

• They are not allowed to contact you before 8 AM, or after 9 PM unless you agree to it.
• They are not allowed to contact you at work if you have informed them, via writing or orally, that you are not allowed to get calls there.
• You are allowed to request the Collections Agency to stop contacting you via phone, and they will be required to continue only via written communication.
• They are not allowed to share the details of the account with anyone except the debtor.

If you wish to cease communications via phone, get their address, send them a letter via Certified Mail (Return Receipt Requested), and specifically tell them to only communicate via writing. Keep a copy of the letter for future reference, as well as the number the USPS uses to track the letter. Do not sign the letter. Collections agencies can sometimes be tricky, and it’s not unheard of them to transpose your signature to documentation they currently have.

Know your state’s telephone recording laws. When you can, record the conversation. Some states require that only one person needs to know that the telephone conversation is being recorded; in that case, it would be you. This is to keep track of the Collections Agencies to ensure they are not infringing on your rights. If they do, you can pursue them for damages. There are recording apps for most smartphones that you may wish to look into.

If you’ve decided to record, your FIRST response when picking up the phone from a CA is to say: “This is John Doe, this conversation is currently being recorded as allowed per X state laws.” Again, verify the recording laws per your state before attempting to record. Recording does two things: It informs the CA that they are being recorded (which may encourage them to cooperate), and the record becomes evidence that can be used in a court of law.

If you cannot record, due to state laws (or you just don’t have the capability to do so), keep a log book. Write down the time, the date, and what was said. Write down what they requested, what you responded, and so on. A log book can be used as evidence. Let them talk. Let them go through their spiel. Write down everything if you aren’t recording: for future reference, and to check against your records (it could simply be that they have the wrong person).

Request their mailing address. Repeat it back to them to confirm. If you don’t want them to contact you again via phone, inform them. Be very clear about it. Repeat it in the certified letter you send to them. You may also inform them to not contact you at your work too. Repeat that in the certified letter as well. Once they have been informed they cannot contact you at your place of business or your personal number, they can only contact you to inform you that they won’t contact you again (or if they are informing you of legal action). Any other contact contact via phone is a violation of the FDCPA.

Request they send the account information via mail. This is important! You are requesting they send all the information about the delinquent account to you in writing. This will allow you to have the documentation in your hands, where you can look at each piece versus trying to remember it in your head. It also prevents you from saying something that can hurt you legally: Admitting you owe the debt (even if you’re not sure), agreeing to make a payment, or inferring that you can make a payment. All these things may hurt you.

You should clearly state something along the lines of “This is not an admission of owing the debt, but I need the information regarding said debt to verify whether or not it is indeed mine. Please send me a validation notice. Please send the information to […].” A validation notice is just that: it notifies you of the amount of the debt owed, the name of the creditor to whom the debt is owed, and directions on how to proceed if you think you don’t owe the debt. The collections agency must send the validation notice to you within five days of the initial phone call. Failure to send it is a violation of the FDCPA, and if you’ve recorded the call, you can use that in court.

If at any point the Collections Agency becomes aggressive, rude, or keeps repeating the question of when you can make a payment, just hang up. Simple as that. If by this point you have not requested they cease calling you, make sure you inform them the next time they call. (And they will call again!) Even if you have to talk over them, keep repeating yourself. Again, if you are recording the call, this can be used as evidence.

Once you receive the validation notice, even if you know you owe the debt, send a debt validation letter within 30 days of receiving the Collection Agency’s validation notice. If you believe in good faith that the debt is in error, send them a dispute letter stating the debt is not yours. Even if you know you owe the debt, the collections agencies must prove that you owe the debt. Failure to provide these important details means the agency is not legally entitled to collect said debt. They should be able to answer the following questions:

• Is the amount shown the actual amount owed?
• Has there been any interest or other charges added, and are the interest and the other charges added legally?
• Where is the original contract stating the details of the terms of the debt?

Validating a Debt

It is your lawful right to request that the Collections Agency validate a debt they are trying to collect on. Once you have requested a debt validation, by law, the Collections Agency must stop collection attempts. If they continue to do so, the debtor can sue. A debtor can dispute all (or a portion) of said debt, and it all begins with a collection notice.

Once a collection notice has been received, the debtor has 30 days to respond. Failure to respond verifies said debt automatically. If a notice to verify said debt is sent within 30 days of the initial collection attempt, then the Agency must stop collection attempts until the required information verifying the debt is provided.

There is no time requirement within which a Collections Agency needs to validate the debt. They could take a week, a month, a year, or longer; but during that time period, collections must cease.

The first step a CA has to take when attempting to collect on a debt is to verify that you indeed do owe said debt(s). Unfortunately, there are only two things that a CA needs to provide:

• The name of the creditor to whom the debt is owed to.
• The amount of the debt owed.

One should always request a Collections Agency to verify the debt, as well as request the address to the Original Creditor to whom the debt is owed to. Once again, all communications should be in writing, sent Certified Mail, Return Receipt Requested via the USPS.

Please note that there are certain instances when verifying a debt could cause more damage than intended. For instance, it makes no sense to request a verification on a debt that is at or near the Statute of Limitation or that is at or near the reporting clock. Doing so only increases the chance that Collections takes legal action while they still can.

Pay for Delete

Negotiating with collectors can be tricky. Luckily, some of them are willing and able to negotiate a settlement offer in exchange for deleting the item from your credit reports. This exists as an option for a collections agency, and is not an obligation, so it may not always work. However, you miss 100% of the shots you don’t take, so it can only be beneficial to do this (assuming you do it correctly and carefully). Here is a guide for doing it.

Common Myths

There are hundreds of myths involving credit reports, scores, and collection agencies. Here are some of the most common myths we’ve run across:

“If I don’t pay the debt(s), I will go to jail”
Ok, maybe if we lived over 100 years ago! This is one of the most ridiculous myths out there by far, and the worst thing about this myth? CAs use this as a terror tactic to get debtors to pay. THERE IS NO DEBTORS JAIL! Again, THERE IS NO DEBTORS JAIL! Now, you will hear about people in the news who have gone to jail stemming from debts owed, but if you look at the case closely, it’s not that they didn’t pay their debts that landed them in jail, it’s that they defied a judge’s order to pay said debts. There is a BIG difference there!

“The person I talked to said they were a lawyer and therefore wasn’t governed by the FDCPA/FCRA”
No wonder lawyers get a bad rap, they make it themselves! This is FALSE. The FDCPA states that ANY person/lawyer or firm that is hired to collect on a debt, is considered a debt collector and thus falls under the rules of the FDCPA.

“Talking to a collection agency resets the statute of limitations/collection clock”
This is incorrect. Simply talking to them does NOT reset the SOL/collection clock. However it’s what you SAY that can make a difference. If you make a partial payment, verify the debt as yours, or infer that you CAN make a partial/full payment, THAT resets the SOL/collection clock.

“If I pay a debt owed in collections, it will be removed from my credit report”
Paying a debt owed on your CR does NOT remove the negative mark. It stays on there! The only thing that will change is that the debt will be updated to say “paid in full” or something similar. The DOLA will also change to the date you paid the debt.

“If I pay a debt owed in collections, my credit score will increase”
Again, no. A paid debt in collections is no better than a debt owed simply because the damage is already done by the negative item showing on your report. The ONLY way to increase your score is to remove the negative item by doing a “pay for delete”. However if you’re going to be making a large purchase, like a house, the lending institution/bank may want to see the debt paid before they will lend monies. Thus a paid debt on your report would be beneficial. Again, the DOLA would be updated, BUT your score would not increase.

“It’s been 10 years since I’ve last heard from a collection agency on a debt. Today I get a call from a different collection agency saying I owe the debt”
Nothing prohibits a collector from calling about it, nor do they have to cease attempting to collect on a debt. In most states, the amount is still owed, but the collections agency is simply not allowed to sue. Reference the FTC guidelines on time-barred debts.

“If I pay a debt owed in collections, and it has been removed from my report, I will never see/hear about the debt again.”
This is one of the most contentious myths out there that confuses a lot of people. Sure, in a perfect world, you paid a debt and it SHOULD NOT come back on your report. However a month, two months, a year or maybe even longer, you get your report and there is that damn debt again! How can this be? You paid the debt, but it’s still there! The problem is that there is NO database that CAs keep or follow that shows which debts are paid and which debts are owed. So your debt can literally be sold over and over and over, which means it will show it’s ugly face again and again and again on your report. It is than up to YOU, as the debtor, to provide the necessary documentation that the debt was paid, or that it is past the SOL. The good news is that if you can prove the debt has been paid, or past the SOL, the negative item can be quickly removed.

“I requested a ‘pay for delete’ from a CA and they refused, insisting I pay the full amount. Aren’t they legally required to accept a ‘pay for delete’?”
No. A pay for delete is an option a debtor has, however the CAs are NOT REQUIRED to accept it. In fact, they may not be allowed to accept it if the debt they are collecting on is assigned debt and the OC wants the full amount. More on that in the “Pay for Delete” heading below.

“I received a call from a CA for an amount owed to the OC, but they’re adding “X” amount to the original debt as interest and fees, can they do this?”
Typically, NO. Not unless your original contract with the OC allows for this, or your state law allows for this. Otherwise, they cannot add on any interest, fees, or other charges.

You’ve been served papers!

• DON’T PANIC! You MUST answer the lawsuit! Failure to do so (failure to show) results in an automatic default judgment against you! This judgment wrecks your score and it can literally take years for it to go away. See “Judgment” in the terms listed below for additional information. I would highly suggest you retain the services of a competent lawyer at this point. Typically one gets sued over a very high amount debt, and as a last resort when the SOL is nearing on said debt. I liken it to the “Hail Mary” play in football. The CAs know that time is running out and there’s just enough time left to get one last play in. What is the “Hail Mary”? It’s a trick play. Just like it is in football, so it is in collecting. I typically find that the CAs DON’T have the required documentation to prove the debt belongs to the debtor. So much so that before entering the court room, the CAs attempt to get the debtor to pay something to “avoid the unpleasantries of a court battle.” However when asked for proof of the original contract, or to provide the debtors signature, etc. they’re all thumbs! It’s their last scare tactic.

In Summary

• It’s a lot to process, but remember, this is your credit report you’re dealing with, and anything negative listed can/will affect your job, housing, banking, loans, education, and general overall health. Having a correct report is vital! Again, this is a viable tool afforded to you in dealing with debts, whether you think it’s moral or not. Know your rights! Don’t be afraid to stand up for yourselves, and don’t be afraid to go toe-to-toe with a CA. You’ll be pleasantly surprised that more than likely, you will win!

Most commonly used Terms

Here are a number of the most commonly used terms, their abbreviations(if there is one), and their meanings in alphabetical order. I won’t go over all the terms used, just the important ones for this presentation. Please take the time to go over these as the following examples (further on down) will be used with these abbreviations. Please note that I don’t go into a lot of details for some of these but just enough for you to understand what they mean.

• Assigned Debt No abbreviation. This is the most typical kind of medical debt, and usually the easiest to negotiate a settlement offer. Not 100% sure as to why it’s so easy to settle, I think it’s because the hospitals just want to get anything they can. This is when a creditor “gives” or “assigns” the debt to a collection agency for them to collect. The collection agency gets a percentage of the amount collected or a set amount, by the creditor upon a successful collection. Collection Agencies take their cues from the original creditors, if the original creditor won’t allow a settlement offer less than 100% of the amount owed, the collection agency can’t offer or accept anything other than 100% of the amount owed. Simple as that.
• Purchased Debt No abbreviation. I placed this here so that it wouldn’t get lost in the shuffle. This is the most common type of junk debt that collection agencies purchase. It can be literally any type of debt that a collection agency purchases to attempt collections on. Typically credit cards, etc..
• Bankruptcy(BK) The legal proceedings to discharge your debts owed under the various chapters 7/13 (or Chapter 20 as some call it when people do a 7 followed by a 13 a bit after). A bankruptcy stays on your credit report for UP TO 10 years before it will fall off. Chapter 7 is a “clean slate” where almost all your debts are forgiven. Chapter 13 is a payment plan program where you make a set amount of payments for a set amount of years. Failure to abide by the payments and payment dates can toss the proceedings as well as any fraudulent activities. It is wise to keep your discharge letter for life, as you will more than likely need it to prove to a collection agency that a debt was discharged!
• Charge-Off No abbreviation. This is the accounting term a creditor uses when they have decided to move your debt owed off of their books to the “bad debt” ledger. You will most likely get a 1099-C form listing the debt owed as income from the IRS. Why, because the IRS deems the forgiven amount as income! Who knows how they come to that conclusion. This can create a headache when April rolls around, so keep it in mind! Another important thing to remember is that a charge-off does NOT mean the debt is forgiven, or that it disappears! It just means the creditor has decided it is no longer worth their effort to collect and is then sold to collection agencies as junk debt.
• Collection Agency(CA) These are firms that specialize in buying junk debt, and pursue collection activities against debtors. Some follow the rules in collecting, but the majority do what they can to collect.
• Credit Card(CC) As is.
• Collection Clock No abbreviation. This is in reference to the amount of time a debt can be collected on, tied with the statute of limitations listed below. This term is interchangeable with the statute of limitations term because each state is different in regards to the amount of time allocated for various debts. I would suggest researching what the times are for your state. This also is tied with collection agencies as depending on what you say to them, it can reset the collection clock/statute of limitations on said debts owed. More on that in the examples to follow. Also tied to the Date of Last Activity.
• Credit Reporting Agency(CRA) These are in reference to the big 3 reporting agencies: Equifax(EQ), TransUnion(TU) and Experian(EX;) that list, and report your credit history. It is VERY important to make sure your reports are accurate!
• Creditor No abbreviation. This is the bank/lending institution(or a personal acquaintance in bankruptcy proceedings) that a debt is owed to.
• Credit Report Just as it states, given by the big three credit reporting agencies.
• Certified, Return Receipt requested(CRRR/CRR) Actually two terms in one. Certified Mail, and Return Receipt requested. This involves delivering mail through the USPS. This is very important when communicating with collection agencies and the credit reporting agencies, as letters sent CRRR are physical proof of your attempt to contact/deliver correspondence and they are literally impossible to refute.
• Date of First Delinquency(DOFD/DFD) Just as it states, the date the credit line was FIRST delinquent. This is often confused with the Date of Last Activity(DOLA) but it is VERY important to be able to differentiate between the two. This affects the date to which the negative credit line will remain and eventually fall off your report. IT CANNOT BE CHANGED, except if a judgment has been issued against you! Many collections agencies try to change this as it affects how they can collect on delinquent accounts, but it is ILLEGAL and is known as re-aging. More on that below. They way the y calculate the DOFD is from the date the account is never brought current. For example, if you missed a month, that would become the DOFD, but if you brought the account current the following month and made several on time payments, and missed another month after that. that new month you missed would become the new DOFD. Debts fall off your report 7.5 years from the DOFD.
• Date of Default(DD) The date the original account became 180 days past due. Debts fall off your report 7 years from the DD.
• Date of Last Activity(DOLA) Again, just as it states. This refers to the date that any activity, whether it be a partial payment, full payment, etc. or debt validation was made on the credit line. As with the DOFD, collection agencies use this as a way of collecting, and it affects their collecting practices. This is tied with the statute of limitations/collection clock. This CAN be changed, but it DOES NOT change the date to which a negative credit line will fall off a credit report.
• Debt Validation(DV) The process by which a collection agency MUST, BY LAW, validate the debt they are attempting to collect on. More on this below.
• Debtor No abbreviation. This is the individual(for this purpose) that owes a debt to a creditor.
• Fair Credit Reporting Act(FCRA) In a nutshell, the law/act that controls the behavior of credit reporting agencies(CRAs) and specifically outlines what they can and cannot do, plus your rights. Here is a good LINK
• Fair Debt Collection Practices Act(FDCPA) This outlines what collection agencies CAN & CANNOT do to collect on a debt. This is VERY IMPORTANT and I urge everyone to read up on their rights. In a nutshell it determines WHO they can contact about a debt owed, WHAT they can and cannot say, WHEN you can be contacted, and HOW you can be contacted. Keep in mind that violations can lead to legal claims against the collection agencies. Fair, Issac & Company(FICO) Started by a mathematician and engineer in 1956, they provide analytic and decision making services, primarily credit scores, for financial lending institutions. In a nutshell, they guesstimate how much of a credit risk you are based on past credit/lending practices. Scores range from 300-850. One either HAS a credit score within the range, or THEY DON’T have a credit score. One CANNOT have a ZERO(0) credit score. If a lending institution states you have a zero credit score, they are using their own, or someone other than FICOs credit scoring system.
• Judgment No abbreviation. This is closely tied to the statute of limitations, the collection clock, and the various forms of bankruptcy. When a judgment is issued against a debtor, it means a judge has listened to both parties(collection agency & debtor) and found the debtor liable for the amount asked for by the collection agency. The original debt amount may include attorneys fees, interest, filing fees, etc, anything related to suing the debtor. This AUTOMATICALLY resets the Date of First Delinquency to the date the judgment was issued, and is the ONLY thing that can change the DOFD. The new reporting time is now 7 years from the date the judgment was issued. Judgments stays ”active” for 10 years, and in some states 20 years. This means a collection agency has 10 years to garnish your wages, put liens on your property, seize bank accounts, etc. to collect the judgment owed. If they fail to do so within those ten years, most states allow a judgment to reset for another 10 years, and they allow the collection agency to continue resetting the clock indefinitely, thus literally making the debt never go away. If a judgment reaches the 10 year limit, IT DOES NOT GO AWAY, it becomes dormant. The good news is that while the judgment is dormant, it cannot be collected upon! The collection agency has to file to re-activate the judgment before they can attempt to collect on it. However any collection attempts on a dormant judgment can lead to monetary fines against the collection agency. If a person is ever summoned to appear in court, DO NOT IGNORE THE SUMMONS! This is the single most important thing you need to make sure you don’t miss! Failure to answer a summons means an automatic default judgment against you!
• Junk Debt Buyer(JDB) Or JD for Junk Debt These are ALL the charged-off accounts that creditors deem unworthy to collect that are bunched together and sold for pennies on the dollar to whichever collection agency will buy them. The collection agency will then turn around and attempt to collect from the debtors, often for the full amount or a settled amount.
• Original Creditor(OC) The creditor to whom the original debt is owed to. This is VERY IMPORTANT when dealing with collection agencies.
• Pay for Delete The process where you pay an agreed upon amount with the original creditor OR a collection agency, and in return they remove the negative mark from your credit report. Note that collection agencies are NOT legally required to accept these, an in cases of assigned debt, they may not be allowed to.
• Re-Aging There is no abbreviation for this, at least not that I can find. This is the process where the collection agency lists an old debt, past the collection reporting period, with a newer date on your credit report in order to try and collect on said debt. THIS IS ILLEGAL, and CANNOT be done. The collection agency can be fined if they continue to report the debt after they’ve been informed its past the reporting clock.
• Reporting Clock No abbreviation. This is in reference to how long a delinquent debt can stay on your credit report, and IT CANNOT BE CHANGED unless there is a judgment against a debtor for the amount owed. The amount of time is seven years from the DATE OF FIRST DELINEQUENCY(DOFD). This is VERY important as MANY collection agencies will list the DOFD as the date THEY BOUGHT the debt. To counter this, it is upon the debtor to contact the original creditor to verify what the DOFD is and then to challenge the incorrect date with the CRAs.
• Settlement No abbreviation, and for this purpose only. The monetary agreement that a debtor and a collection agency arrive at, to satisfy a debt. This could be for the full price, half price or a fraction of the full amount. ALWAYS GET SETTLEMENT AGREEMENTS IN WRITING BEFORE PAYING!!! Statute of Limitations(SOL) Or as I like to say sh*t out of Luck! This is the amount of time set by a state(for this purpose) that determines the amount of time legal proceedings may be brought up against a debtor to collect on a debt. In other words, the amount of time a collection agency can legally collect on a debt. This is tied with the collections clock and the statute of limitations, and CAN BE RESET if the wrong words are used when communicating with a collection agency. Here is a great link to the various states SOLs: LINK
• Time-Barred Debts Again, no abbreviation. This refers to debts that are PAST the statute of limitations and therefore CANNOT be legally pursued. This does NOT mean the debt ISN’T owed, just that a collection agency cannot legally pursue collections.

Sample Letters:

• Collection of sample letters for Debt Collectors