You’ve just opened a letter from a debt collector demanding you pay a debt that’s years old.
Perhaps you don’t even remember the debt. What’s the best way to handle this situation?
Why Am I Being Contacted About Old Debt?
First let me explain why a collection agency is writing or calling your phone number, out of the blue, about an old debt.
More than likely you have an old, unpaid debt such as a phone bill or medical bill that was recently sold to a new collection agency. It could also be credit card debt or even student loans from your distant past.
Collection agencies will, many times, buy the right to collect on an old debt. These debt buyers pay pennies on the dollar for charge-off accounts from original creditors who have given up on ever getting the money.
Some debt collectors even buy debt from other debt collection agencies that have been unsuccessful in collecting the old debt.
Once they buy the right to collect on your debt, the collection agency will start contacting you. If you pay, the debt collector will earn a profit on its debt purchase.
How To Respond To The Debt Collector
If a collection agency calls you rather than sending you a letter, simply tell the agent to send you everything in writing and then hang up the phone.
The federal Fair Debt Collection Practices Act gives you this right.
Under no circumstances should you pay a debt collector over the phone or give an agent access to your bank account.
Collection agencies tend to interpret this as permission to withdraw the full amount they say you owe.
When you have a collection letter in hand from the debt collector you’re ready to respond. The first step is to respond with what’s called a Debt Validation Letter.
Ask for Proof You Owe the Old Debt
A Debt Validation Letter demands the collector send you documentation proving you actually owe this debt. This proof usually includes documentation from the original creditor.
Since this is an old debt that’s probably been passed around between several debt collectors, the current collection agency may struggle to find this documentation.
Often, when you ask for validation, the debt collector will simply stop trying to collect the debt because it can’t validate it. The agency will focus its efforts on other people, banking that someone else will simply pay up without asking so many questions.
If a debt collector can’t prove you owe the debt, it’ll have to remove its negative information from your credit reports and stop making phone calls to your number.
WHAT A DEBT VALIDATION LETTER LOOKS LIKE
In the debt validation letter you are requesting proof that you owe the money.
If the collection agency can’t prove you owe the money, ask the agency to stop attempting to collect the debt and to also remove the negative entry from your credit history. This means no more phone calls and written notices in your mailbox.
Does this sound too good to be true? It may be, if you’ve waited more than 30 days since first hearing from the collection agency. The Consumer Financial Protection Bureau (CFPB) gives you 30 days to seek validation.
After 30 days the collection agency has the right to assume you’ve admitted you owe the old debt.
SAMPLE DEBT VALIDATION LETTER
I wouldn’t copy this letter word for word, but I’m providing this debt validation template to help you get started.
You should change it to fit your specific situation.
[today’s date][original creditor or name of collection agency if account was sold]
RE: [account ex: Citibank Mastercard] account # [full account number]
(If contacting a collection agency include the original account number, i.e., the credit card number in this case, and also include any account number assigned by the collection agency. This number would appear on one of your collection letters.)
I am formally requesting that you validate all notations you have submitted to the three major credit reporting agencies by [name of collection agency or original creditor] for me, [your name], for account number XXXXXXXXX.
Due to possible inaccuracies in these credit reporting agency’s reports, I must demand that the validation I hereby lawfully request be in the form of a notarized statement by a person with original knowledge of the debt as it was constituted and who can testify that the debt was incurred legally.
Please know that by federal law you have 30 days from the tracked and confirmed delivery of this notice to either answer these demands or to remove the associated negative tradeline notations from the credit reporting agency reports.
City, State ZIP
Statute of Limitations on Old Debt
If the debt collector can validate your debt, you’ll want to check your state’s statute of limitations period next.
Each state sets its own statutes of limitations on debt. If your state’s statute of limitations period has already expired, the collection agency cannot hold you legally responsible for the debt.
An expired statute means the debt collector can’t take legal action against you as a means of collecting the old debt.
An expired statute of limitations does not mean you no longer owe the money; nor does it mean the credit bureaus will delete the debt from your credit history. Time-barred debt can still hurt your credit score.
Statutes Provide Consumer Protections
An expired statute simply means your debt collector couldn’t win a lawsuit against you in civil court. This is good to know if the debt collector has threatened legal action such as wage garnishment.
Statutes of limitations vary by state and by type of debt. The clock starts the day of your last payment in most states. These statutes provide consumer protection against lawsuits over old debt collections.
You can learn more about these time limits in this post. You can also check with your state attorney general’s office for more specifics about time-barred debt in your state.
Don’t Restart Your Statute of Limitations
You should know this: Simply talking about old debt on the phone could reset your statute’s period of time to Day 1.
This means you’d become legally responsible for the unpaid debt once again. You’d be responsible for a number of years into the future which means you could be successfully sued again.
This is another reason I always recommend written contracts with debt collectors. You should deal with collection agencies only in writing, and your letters should never accept responsibility for the debt.
Don’t use phrases like “my debt.” Instead, retain some distance. Write “the debt” or even “the alleged debt.”
If the debt collector validates your debt — and if the collection account is hurting your credit score — you may want to consider a pay-for-delete agreement.
Even if the old debt is time-barred from legal action because of your state laws, the debt can still hurt your credit score for seven years.
Improving your credit score would make this strategy worthwhile. Here’s how it works:
Using Payments as Leverage
Remember when I said, above, that collection agencies often buy your old debt for pennies on the dollar? That means these agencies “invest” in old debt in hopes that you’ll pay up. Your payment represents the return on their investment.
So you can use a payment as leverage to get something you need: negative information removed from your credit report which will increase your credit score.
For this to work you can’t make any payment until you have an agreement from the collection agency in writing. The agreement must say the agency will remove all negative information about your debt from all three credit bureaus in exchange for your payment.
“All negative information” means late payments, missed payments, and anything else that pertains to the collection account.
Paying the Full Amount Isn’t Required
The amount of your payment does not have to be the full amount. I recommend offering to pay half the amount on your statement. The agency could still profit from such a payment.
Once you have a pay-for-delete agreement in writing, send a check or money order for the agreed-upon amount.
Checking Your Credit Report
Check your credit report 30 days after sending in your payment to see whether the debt collector stuck to its word and removed the negative information from your credit reports.
You can get copies of your credit reports from Experian, Equifax, and TransUnion by visiting annualcreditreport.com.
Following Up and Filing a Complaint
If the collection agency didn’t remove the negative information as agreed, you have a paper trail showing your agreement. You have a canceled check or a copy of the money order you sent.
Send copies of this documentation — along with your written agreement — as a reminder to the collection agency.
If you still get no response to your requests, it’s time to get in touch with the Federal Trade Commission.
The FTC oversees the federal Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).
Letting the FTC’s Consumer Financial Protection Bureau (CFPB) know your debt collector has broken collection laws could lead to some action.
Hire a Professional Credit Repair Company
You’ll spend a lot of time using the methods outlined above. To save time, some people simply pay off the debt collector.
Others ignore the problem and deal with a lower credit rating while the collection ages off their credit history.
There’s another option for the time-challenged: hiring a professional credit repair company.
I suggest you check out Lexington Law. This company can solve credit problems in a short amount of time because it’s all they do.
They specialize in removing inaccurate and old negative information from your credit report.
You’ll have to pay a monthly fee for several months, but many clients find their improved credit profiles save lots more in interest charges on future loans. (People with good credit get the best interest rates.