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Question:
MAY 17, 2012

Collections Advice

I have some big debts. What can creditors do to me? What are my rights?

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Legal Advice
Bill's Answer: Bills.com Resident Expert

Thank you for your question about your debt, how the debt collectors will pursue collections, and what options you have.

Charge-off

When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to "charge-off" or 'write-off' the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.

The charge-off date has almost nothing to do with the statute of limitations for debts. To learn more about the distinction between these issues, read Charge-Off & Credit Report.

At the charge-off point, the creditor will transfer the debt to a late-accounts department, or has the option to sell the debt to a collection agent. The collection agent will buy the debt at a discount. However, the collection agent has the right to collect the entire balance due plus interest.

Debt Validation

If a collection agent a debt it states you owe, you have the right to do what is called debt validation. If the debt is many years old or you do not recall the debt, validate it.

Fair Debt Collection Practices Act

Collection agents often use aggressive tactics, when contacting the debtor. Collection agents are know to threaten to call the debtor's employer, file charges with the local sheriff, or say they will park a truck in front of the debtor's house with a sign that reads "Bad Debt" on it. All of these tactics and many others are illegal under the Fair Debt Collection Practices Act (FDCPA). Start here to learn the rights consumers have in collections under the FDCPA.

Judgment

A creditor -- a debt collector that owns a debt account is a creditor -- has several legal means of collecting a debt. Before the creditor can start legal collections, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a "summons to appear" or a "summons and complaint." In some jurisdictions, a process server will present the summons personally. In others the sheriff's deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See Served Summons and Complaint to learn more about this process.)

Summons

If you ever receive a summons, you should do as it instructs! This is not a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.

Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you will have exercised your right to be heard.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor's bank accounts, and a lien on the debtor's property. Which of these tools the creditor will use depends on the circumstances. We discuss each of these remedies below.

Wage Garnishment

The most common method used by judgment creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor's employer and require the employer to deduct a certain portion of the debtor's wages each pay period and send the money to the creditor. However, several states, including Texas, Pennsylvania, North Carolina, and South Carolina, do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the "preferred" method of judgment enforcement because, while possible, it is a tedious and time consuming process for creditors. In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state. See Advice on Judgment Garnishment to learn more about wage garnishment.

Levy Bank Accounts

A levy means that the creditor has the right to take whatever money in a debtor's account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state's laws to find if a bank account can be levied. See the Bills.com resource State Consumer Protection Laws and Exemptions for an overview of each state's rules.

Lien

A lien is an encumbrance -- a claim -- on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment. Again, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state's laws to learn creditor can and cannot do to enforce its judgment. See the Bills.com resource State Consumer Protection Laws and Exemptions for an overview of each state's rules.

Debt resolution

If you have a judgment against you, consult with an attorney licensed in your jurisdiction to learn how the judgment will affect you, based on your individual financial circumstances and your local rules.

It is not too late to contact the creditor or the law firm that either represented the creditor or bought the debt, and present them a settlement offer. Even with a judgment in place, the law firm must spend money to try to collect the debt. Getting a wage garnishment, levy, or lien takes time, and time to a law firm is money. The law firm may settle for a lump-sum payment. See "Debt Negotiation and Settlement Advice" before opening negotiations with a creditor. See "What Are My Debt Consolidation Options?" to learn more about your rights and options for resolving the debt.

Important! Get all settlement offers in writing before sending a check to the law firm or collection agent.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (140)


Lisa T.
T/o Irondequoit, NY  |  May 05, 2012
I am in NY and have an account in collection that started out at about 2100 dollars. there was an automatic payment agreement for 25 dollars per month on it for 6 months. when that payment agreement ran out i had to get ahold of my ex husband to renew it since he was the one actually paying on it. it took him about 2 months to do this and in the meantime my amount owed went up by about 400 dollars! the collection agency told me this is interest which they backdated since it went 2 months without being paid. is this really legal? 400 dollars interest seems a bit excessive to me....thank you so much for anything you can tell me!
Bills.com
May 07, 2012
$400 of interest that accrued over two months, on a balance of $2,100 does seem excessive. It may be the case that some penalties were incurred, per your agreement with the creditor, for not making the payment. Ask them to explain their charges. If you are not satisfied with what you hear, contact the New York State Division of Consumer Protection. You can speak with a trained consumer advisor, by calling 1-800-697-1220, 8:30 a.m. to 4:30 p.m., Eastern Time, Monday through Friday.
Stacy A.
Toledo, OH  |  April 14, 2012
I live in Ohio. I have a default judgment against me for a old credit card debt from 2005. The judgment was granted in 2008. I just received a collection notice from a new collection company yesterday on this debt. It lists the original creditor (credit card company), then it lists the current creditor (company who got the default judgment). My question is, can this new company come after me again since I've already got the judgment on this account? It doesn't seem right! The new company is called Niagra Credit Solutions, I see online they are a horrible company that harrasses people illegally. And isn't the statute of limitations passed by now on this anyway?
Bills.com
April 14, 2012
A judgment-creditor has the right to assign (sell) a judgment to a third party. The judgment's assignee has all of the rights of the assignor. The assignor, however, may not also collect on the judgment.
Melissa M.
Phoenix, AZ  |  April 12, 2012
Hello! I have a student loan thru Wells Fargo that is now on my credit report. They are offering a payoff at 11K or a monthly payment plan at a little over $400 for 4 years. My question is credit report wise, what is the best option to resolve this matter so it's not as detriment to my credit?
Bills.com
April 12, 2012
Best tactic is a pay for delete contract with the creditor.
  1. Resolves the debt permanently
  2. Strikes the derogatory from your credit report, which
  3. Has a positive impact on your credit score

Some collection agents and original creditors will claim a pay-for-delete violates the FCRA. That excuse is nonsense, and is not based on law. Some may have a policy to avoid pay-for-deletes, but a company policy is not the same as a federal law.

Jennifer S.
Dallas, TX  |  April 09, 2012
I have recently paid off all the debt (2 items) that showed up on my credit report. About a week ago I received a letter from the bill collector of a credit card company that I used over ten years ago in college. They stated an amount that I owed and offered to set up a payment plan with me. From my understanding, the statute of limitations in Texas for the company to sue me is four years. I also was under the impression that the debt was erased from my credit report because not only has it been more than seven years since my last payment, but it does not appear on my report. What would my next logical step be? Should I write to them asking to validate the debt and go from there? I'm afraid if I contact them by phone or agree in anyway that yes I did have this debt that it will go back on my credit report.
Bills.com
April 09, 2012
Yes, you should validate the debt. That is not an admission that you owe and will not restart the statute of limitations.

Just because the SOL has passed and the debt has fallen of your credit report does not mean that you can't be sued. It means that you need to use the SOL as an affirmative defense, should you be sued. My guess is that the collector was hoping to scare you into paying.
Ryan A.
Grand Prairie, TX  |  March 23, 2012
I have some concerns regarding my private student loan. I have a TERI loan, and had used my forbearance up a year ago. But now I have been unemployed since July, and they have turned over the account, now $24k to collections. I had sent them a letter a few weeks ago explaining our situation and that I do not have a job to pay the loan back but that I will once I find work. My wife is only working part time and we have only enough with her pay and my unemployment to pay our rent and car note. We are on food stamps just to have food. I don't want to go through bankruptcy, but what are my options? We don't have money for a lawyer. The collection agency sent a letter regarding liquidating the balance. What does that mean? I do want to pay it back, but we are not yet in a position to. What should we do? We live in Texas. Thank you!
Bills.com
March 23, 2012
A TERI loan is a private student loan, which is like other consumer debts with one exception — it is very difficult to discharge a student loan in bankruptcy.

First, arm yourself with information about your state's collection laws. You mentioned Texas. You need not worry about wage garnishment for a private student loan, which is not an issue for you as a Texas resident. (Also, there's the matter of your being unemployed at the moment.) However, if you were employed and your loan was federal, then it would be an issue. If you have joint accounts with anyone, close them now.

Second, learn to negotiate your debt issue. You may not have the funds to negotiate a settlement today, but when you are employed, use the opportunity to resolve the debt.

Finally, realize you will eventually find work, and these dark days will pass.
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Ryan A.
Grand Prairie, TX  |  March 23, 2012
Thank you for your help, that truly helps! Just a few other questions. Does it matter that the loan was originally taken out when I lived in Michigan? I recently moved to Texas when I lost my job back in July. Would I be covered by Texas law since I now live here? Also, should I contact the loan company or should I contact the collection agency for negotiations. What would be better, by phone or be letter? My wife and I do have a joint account that she deposits her payroll in and where I have my Michigan unemployment direct deposited to. Why would we need to close it? We just opened it when we moved here... would they take her money? I really appreciate you for taking the time out to answer our questions. We did not know where else to turn. This has been a Godsend. Thank you!!!
Bills.com
March 23, 2012
Under the Fair Debt Collection Practices Act collection agents are required to file any action (a lawsuit) in a venue convenient to the defendant. Therefore, if TERI sold your collection account to a collection agent, then the collection agent would have to sue you in your present state of residence — Texas.

In my opinion, you have nothing to gain at this time by calling TERI or its collection agent to engage in a conversation. When TERI's collection agent eventually contacts you, validate the debt.

Let us assume for the sake of argument TERI's collection agent files an action against you in Texas for breach of contract because you defaulted on the loan payments. You mount a defense, but it is unsuccessful, and the court gives TERI's collection agent a judgment. It cannot use the judgment to garnish your wages because Texas law forbids wage garnishment for this class of debt. Instead, the judgment-creditor gets an account garnishment on your joint account. "Wait a minute," you may say, "that's my spouse's money in there!" Too bad! The account is yours, too, and there is no prohibition on levying joint accounts.

Joint accounts are more trouble than they are worth. Close your joint accounts, and open two new accounts at the same bank or credit union. Use the bank or credit union's on-line account-to-account transfer function to share money between the accounts as needed. You need not take this action immediately, but keep this in mind should TERI's collection agent file an action against you.
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Ryan A.
Grand Prairie, TX  |  March 23, 2012
Thank you for the information! So the best thing to do is have my wife open an account for her paychecks. Now regarding the old joint account. My unemployment only has the option of direct deposit or visa card, no checks. I understand they can't garnish my wages, but can take the account that my unemployment is being direct deposited to, correct? So they may end up taking my unemployment anyway, from what I understand. The collections company did send me a letter regarding my balance, so what I should do then is send a letter in writing asking them to validate the loan. From what you shared with me, once they receive the letter they cannot legally pursue any further collections until I receive the original lender's verification, correct? That would at least bide some time where I might be able to find work and be able to start to repay the loan. On the letter, they request that I contact them to "make arrangements to liquidate the balance" and "make arrangements to retire your obligation". In layman's terms, what are they saying? Thank you again! I too hope these dark days will pass soon.
Bills.com
March 23, 2012
Regarding the unemployment deposit and an account levy, I believe your analysis is correct.

Regarding the "make arrangements to retire your obligation" it appears the collection agent is offering you to discuss a settlement for less than the full balance due. You have nothing to lose by listening to their offer.
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Ryan A.
Grand Prairie, TX  |  March 27, 2012
Thank you again. What is the best way, in your expertise, to contact them? If I contact them by phone, you get some random person whom you will never speak with again but is immediate. If I write them by mail, which is slower, there is at least a paper trail to follow. The original date of the letter is March 16th. If you recommend I write asking the details about the liquidation, should I also have them validate/verify the loan balance as you had suggested? Many thanks!

P.S. Is there any warning sign if they do levy our bank account? Do they give you notice or just hijack the account? Thank you again! You're a life saver.
Bills.com
March 27, 2012
If you have access to funds you can use to make a lump-sum settlement with the collection agent, why not call and begin preliminary negotiations? Offer 10 cents on the dollar as starting point. If you and the collection agent agree to something over the telephone, ask the agent to mail or fax you a contract.

If, on the other hand, you have no access to funds for a settlement, then validate the debt immediately. Follow the hyperlink just mentioned to learn how.

It is unsafe to assume you will receive prior notification of an account levy. Some states require prior notification so the judgment-debtor can file for an exemption. However, many Bills.com readers report judgment-creditors forget this step.
Nicole W.
Pine Island, MN  |  March 20, 2012
I got a call today about a payday loan that I took out May of last year. Immediately after that loan, I had to close my bank account. I notified the lender as well as all other direct payments/deposits. The lender apparently still attempted to retrieve the funds through the account that had been closed. I was notified by the bank, and I contacted the lender again to tell them that I no longer had that account. I was using my fiance's account at the time, and he did not want that lender to have the info. I ended up getting frustrated and gave up on the lender (I know that is bad.) So now a year later, I got a call from Trident Financial, located in Florida, who called for a statement for legal purposes. They said I was being investigated for check fraud because apparantly when I signed for the loan it was considered an electronic agreement and when they tried to get their money from a closed account it was the same as me writing a bad check. It was no longer considered a misdemeanor. They wouldn't tell me what it was considered now, although. I asked about a payment plan, and offered 50 dollars every 2 weeks, which is really all I can afford as a full time student and a part time server. They would not accept anything less than 200 dollars a month. The collector claimed that he did not have to offer any type of payment plan and that the purpose of the call was only for a statement. They claimed to have talked to the county I live in for location purposes. They knew my parents and called them for a statement and they knew what car I drove. I cannot honestly remember ever recieving phone calls and/or mail about this situation until tonight. I set up a payment that will basically break me, and force me to move out of my apt because I will not have rent money because I do not want to have this crap on my criminal record, which they knew that I had gotten a DUI in 2005. I am going to school for social work, and if I have check fraud, I will never get a job! Is this whole thing just a scare tactic? Or am I actually getting charged with check fraud?? I live in Minnesota and the collector is in Florida. The loan was through Plain Green. After I set up payment, they claimed that all the legal paperwork and judgements were being shredded and dropped.
Bills.com
March 21, 2012
Collection agents do not decide which acts are criminal and which are breaches of contract. I doubt the collection agent would be able to convince a district attorney your failure to repay the payday loan was a criminal act. It is common for payday lenders and their collection agents to claim failure to repay a payday loan violates criminal laws concerning check fraud, but that's simply not true.
Lucia R.
March 12, 2012
HI I had taken a couple of loans out in 2009 i was paying interest on them then i defaulted due to hardship well a lady left a message to my sister stating on friday stating i needed to call or she was going to take some sealed forms to my work, i called them back and the machine said it was a lawfirm i finally got on the phone with someone n the man asked men if i had an attorney representing me i had non clue wut it was about he told me that i was trying to commit fraud and they were going to take me to court over a $300 i was going to have to pay back interest and i was going to pay $3500 i told him i was a single mother of 3 and unemployed he said i had to pay something that same day or they were taking me to court he was calling me anonymos. so i called check in go where i originally got the loan they stated my loan was sold to a different company but not the one the man was calling from in new york which is Argos alliance he told me i had to give $50 that day to go to walmart and purchase a prepaid card and at the end of the month i have to give 150 a total of $615. is this harrasmentcan and can a 3rd or 4th party collection agency take me to court
Bills.com
March 13, 2012
First, it is unlikely a court would find you guilty of committing any crime. Failure to repay a loan completely is a civil matter, and is not a criminal matter. The person who told you this was a criminal matter was not speaking truthfully.

Second, you did not indicate your state of residence, so it is not possible for me to explain the rights you have in your state. Therefore, I suggest you consult with a lawyer in your state who has consumer law experience. If you cannot afford a lawyer, call your county bar association and ask for the names of the organizations that provide no-cost legal services to people with low or no income in your area. Make an appointment with one of the organizations, and bring all of the documents and letters you have regarding the debt to your meeting. The lawyer you meet will advise you accordingly.

Third, do not pay anyone for this debt, even a small amount, until you consult with a lawyer.
Jamie P.
Sterling, VA  |  February 24, 2012
My situation is involving a payday loan. I live in Virginia and I took out a loan for $1500 in Oct 2010. I was demoted shortly after that and then went on maternity leave in June 2011. I do not work and have no active bank account to my name. I am not married, however my name is on the deed to the house that I live in with my fiance. The creditor has turned to a collection agency who is calling from some fraud department. They say that unless I pay the now $1940 loan in full on a debit, pre-paid visa or credit card they will forward my file to the local county clerks office. I have several questions. One: can they put a lien against the house? Second: Do they have to work with me to establish a payment plan once it's in the hands of the collection agency? Three: The man mentioned possible check fraud charges because it was cash that went into my account and payments that were set up bounced. Can they do that? How can I get help with this. I'm afraid they will show up with a warrant for my arrest.
Bills.com
February 26, 2012
If you are sued for the debt and a judgment is entered against you, then a lien could be filed that affects your home.

I suggest that you read the information from the State of Virginia in Payday Lending in the Commonwealth of Virginia, Borrower Rights and Responsibilities.

I don't believe that they have to work with you, at this point in time, to establish a payment plan. There is a provision for the lender to offer an extended payment plan, but I think that you may have lost that opportunity due to being delinquent for such a long period. You can verify that with the Virginia State Corporation Commission's Bureau of Financiallnstitutions toll-free at (800) 552-7945 or at their Web site.

While the collector can sue you to collect on the debt and on charges it suffered due to your account having insufficient funds or resulting from a check that you bounced, it still must observe the Fair Debt Collections Practices Act (FDCPA). The State of Virginia also says, "The lender is also prohibited from threatening or beginning criminal proceedings against you if a check you provide to the lender bounces. If a lender knowingly violates this prohibition, the lender is required to pay you a civil monetary penalty equal to three times the amount of the dishonored check." You are not subject to arrest for your debt. I recommend you speak with an attorney that handles cases involving the violation of FDCPA.
Julianna G.
Salt Lake City, UT  |  February 06, 2012
We are trying to buy a house, and after running our credit we learned that my husband was (apparently)a co-signer on a loan that his ex-wife had repossessed. He doesn't remember co-signing on the car, but they were married when she bought it. The car was repossessed over 4 years ago and is showing as a charge off. We have no idea what any of the details are, on the debt. What action should we take to verify? It appears to be with the Original Creditor, and has not been sold to a collection agency. The car was repossessed in Nevada and we are currently in Utah. If worse comes to worse, we may be able to pay off the balance or settle the debt, if they will delete it from his credit. This is the only thing keeping us from qualifying for a house, right now, So we are doing everything we can to get rid of it.
Bills.com
February 08, 2012
If getting rid of the derogatory item from your credit report is your main concern, then you may attempt to do a pay for delete. Just paying off the item will not remove it. However, by acknowledging the debt you may restart the statute of limitations, which may have expired.
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Julianna G.
Salt Lake City, UT  |  May 17, 2012
Any advice on offering a settlement to pay for delete? We are considering offering to pay 50% with a pay for delete. Also, by sending an pay for delete offer, are you saying that we would be acknowledging the debt and they can restart the statute? Why or how is that possible? Should we just dispute the debt, first? The LAST thing we want is to re-age the debt.
Bills.com
May 17, 2012
When first contacted in writing by a debt collector, validating a debt is a smart choice.

I suggest that you read the Bills.com article about pay for deletes.

What constitutes acknowledging a debt varies from state to state. I would make a statement that I am offering a settlement to obtain a pay for delete, but that it is not an admission that you owe the debt. A lawyer can advise you whether that is sufficient in your state.
Lahoma G.
Chicago, IL  |  February 06, 2012
I have a payday loan i took out i was paying on the loan but it was never going down i eventually stop paying now i have company call me and my relative saying there try to serve me for court stating i had the intend of defrauding a institution they are harrassing me at work my family at home i dont even know how they got my family number is there anything i can do about this
Bills.com
February 07, 2012
First, read the Bills.com resource Payday Loans Information page to learn your basic rights and liabilities. Second, contact the attorney general's office in your state to learn your rights when repaying a payday loan. Some states require payday lenders to accept a payment plan. If you are not in one of those states, negotiate a settlement where you pay an amount you and the lender agree to over several weeks or months.
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