Tuesday, March 30, 2010

A Word About Debt and Collections

I'm going to put on my lawyer hat for a minute: it's very simple-if you legitimately owe a debt, that is, if you CONTRACTED for goods or services, received same and subsequently did not pay for those goods and services, you owe the debt. Whether the vendor can collect is another matter. First, all states have a statute of limitations on how long a debt can be held out before an action (a lawsuit) can be brought to recover the monies allegedly owed. Most states also allow the recovery of reasonable costs, such as filing and service fees, legal fees and similar costs incurred on behalf of the plaintiff.

A collection company that's external to the vendor, that is, one that's not a subsidiary of the vendor, will typically buy "bad debt" or "charged-off" debt that the vendor's internal collections area can't process to payment. The older the debt, the less the collection company will pay. When an initial collection fails, the debt may be resold to another collection agency. Please understand that each collection agency owns the debt at that point and that the original vendor no longer has rights to the debt, typically speaking. The collection agency can and will use all resources at its disposal to collect the debt, as this is their business. They are unlikely to take the alleged debtor to court for small amounts as the mere act of filing will cost hundreds of dollars in attorney's time and filing fees. If a suit is launched, the defendant that can defend his or her position will win if the debt is not provable, which is the plaintiff's responsibility to show. Should the plaintiff prevail and be awarded a default judgment, the plaintiff will still have to collect the default amount, although at that point, the options are expanded to include asking the Court for judgment tools, like a court order to attach wages, bank accounts and other found assets. I have *never* heard of this done for amounts under five grand. And, one shouldn't discount the defendant's right to appeal and to otherwise tie up a case with factual discovery in the initial action and other elements of due process which is every American's right.

Having said all that, the question remains as to what to do for amounts that are alleged to be owed but that are either inaccurate or false in toto. The FCRA and FDCPA are Federal laws that provide various modes of protection for consumers from debt collection gone awry. The very first thing I would suggest is mailing, certified mail, return receipt requested, a letter that demands substantiation of the debt, including copies of signed contracts, billing dates, dates of default and proof from the collector that a) they have the right to collect debts in your state and b) they have the right to collect YOUR debt, that is, that they own the debt and most importantly, that the debt can be substantiated through documentation that shows you agreed to be bound by contract where for value received, you agreed to pay the original vendor money. In the same letter, you should demand that during the period allowed for them to respond that they cease all collection activity and should they not be able to validate the debt, they must initiate the removal of the invalid information from your credit report and that failure to do so will result in a suit by you against them (in Federal court) to compel them to perform as they are required by law. When you win such a suit, virtually inevitable when the elements of the rules are not satisfied by the collector, an award to you of $1000 is statutory. Further, if the agency doesn't properly validate the debt and pursues a judgment, it would be possible to reflect this to the presiding judge and ask for a dismissal of those grounds alone.

In short, if you owe the debt and it's provable that you owe the debt, and all other elements of law are in place, then you should endeavor to satisfy your obligation. On the other hand, if you don't owe it, you'd be crazy to pay it EXCEPT if you chose to because it's a small amount and not worth your time to fight it. And that's a decision you would have to make.

Remember, at all times, stick to the facts and apply your rights. I know that many attorneys counseling poorer clients recommend settling even when the debt in question isn't entirely legitimate because reporting to the CCAs can mean other, larger problems for their clients. So, each case is different but the rights are always the same.

Here's a link to a sample letter that will be helpful for an initial dispute:


Good luck and remember: it's your rights you're fighting for!

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