Ask Bill your personal finance question

Should I Dispute A Collection Account?

Should I dispute a collection account if I know I owe the debt?

Hello, I’m so lost with this credit crap and am happy to have stumbled upon this useful site! I, too, received a collections letter for a pretty minor (less than $1000). I could pay it but I do not want that to show up on my credit as “charged off” or whatever the adverse remark it’s given. This debt is mine and its like 5 yrs old, if not older. Should I dispute it, even though its legitimately mine? Any insight would be most appreciated!

Read full question
Bill's Answer
3.8
/5.0
(4 Votes)

Bills.com | Find Learn Save

The purpose of disputing an account appearing on your credit report is to contest the legitimacy or accuracy of the item. It may not do you much good to contest this item when you know you are responsible for the debt. Making a payment has nothing to do with whether the account moves into a charge off status. It is almost certain that the account is already in a charge off status considering the amount of time it has been since you have been delinquent with the payments. If you can afford to pay it off it may be in your best interest to do so. Below, I will provide you an overview of what to consider when an account has gone into a collection status and what long term affect it can have.

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 "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 write-off date has almost nothing to do with the statute of limitations for debts. To learn more about the distinction between these issues, read .

At the write-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.

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

A collection agent may use aggressive tactics to when contacting the debtor. The collection agent may 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 (FDCPA). Start here to learn the under the FDCPA.

A creditor -- a debt collector that owns a debt account is a creditor -- has several legal means of collecting a debt. But before the creditor can start, 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 to learn more about this process.)

If you ever receive a summons you should do as it instructs! This is not just 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 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 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 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 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 "" before opening negotiations with a creditor. See "" 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.

If you would like more information on how to dispute an account on your credit report I encourage you to read the article I wrote.

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

Best,

Bill

www.bills.com/

3.8
/5.0
(4 Votes)

People also like to Read

Daniel Cohen

Credit Card Counseling | Credit card counseling has helped millions of people resolve their debt problems. Learn more about c... Read more >>

Betsalel Cohen

There are many ways to get debt help, and Bill has given advice on each one of them.... Read more >>

Mark Cappel

Learn all about credit card debt consolidation loans and find a reputable lender from Bills.com - your source for saving mone... Read more >>

Daniel Cohen

Having an IRS tax lien or a State Tax Lien filed against you demands quick action. Free tips from bills.com. ... Read more >>

2 Comments

Recent Best
1500 characters remaining
  • BA
    Aug, 2010
    Bill
    You should not have to declare bankruptcy due to a billing error. See if your insurance company has an advocate or ombudsman who can help you sort out this mess.
    0 Votes

  • 35x35
    Aug, 2010
    cici
    I was just served a summons for a medical bill that my insurance company says I may not owe because I should have been covered. The hospital coded the bill with generic codes that my insurance company refused to pay until the changed the codes. I contacted the billing department and they stated that the codes were changed but apparently it didn't satisfy my insurance company. I am also curious about what services those codes are for on the bill. I am due in court August 26th and I am trying to avoid having to appear. I called attorneys and retained two for bankruptcy but that isn't the route I want to take at this time. What should I do?
    0 Votes

loading...