By: Jon Ochs August 3rd, 2008
If you find yourself in financial difficulty and are falling late on some of your bills, you may have some contact with collectors via mail or telephone. On several occasions, you may encounter some terms or business practices that were new to you. Here are some straight answers to some common questions about the debt collection industry. I hope you find this information helpful in dealing with the issues that may arise as a result of your financial hardship.
I received a letter from a collection agency regarding a credit card bill. How did they receive my information? Why isn’t the credit card company contacting me directly?
The company or organization that you initially signed a contract with is referred to as the original creditor. For example, let’s say you obtained a credit card account with MBNA. If your account becomes past due, MBNA, your original creditor, will send reminders and call you in an attempt to get you to pay the amount due. When your account becomes more delinquent, approximately 180 days, MBNA may have an outside collection agency, ABC Acquisitions, attempt to collect payment. This company is a third-party collector. Keep in mind that your accounts may be assigned to or bought and sold by several collection agencies during the course of the collection process. You may find it helpful to keep paperwork organized and to track the process as each account changes hands.
A collector recently contacted me about an unpaid account that I incurred more than 6 years ago. Do I still owe really old debts?
On way to determine if you still owe the debt is to check the statute of limitations for your state. The statute of limitations varies depending on the state and the type of debt. As an example, a collection agency may still be allowed to attempt to collect the debt, but may not be allowed to file a lawsuit against you because too much time has passed. If a collector tries to persuade you to make a payment on an old debt, be sure you understand the consequences you could bring upon yourself by making a payment. If you do make a payment, you may be causing more harm than good since even the smallest payment can reset the statute of limitations for that account. This would inevitably lead to more aggressive collections and possibly lawsuits. In some jurisdictions, even an acknowledgment that the debt is yours is enough to reset the clock on the statute of limitations.
I received a collection letter from a law firm concerning a debt. Does this mean that I am being sued?
No. In recent years it has been shown that often a law firm or attorney can be more effective at collecting a debt than just a regular debt collection company. This is basically due to the fact that people are generally intimidated by attorneys and law firms. Keep in mind that in this case, the law firm or attorney is simply acting as a debt collector, and is subject to all the same rules as any debt collector as outlined in the Fair Debt Collection Practices Act (FDCPA). If you are in fact being sued, you will, in most cases, be served with a summons to appear in court.
One of my creditors called me and said that my account will be “Charged Off”. What does that mean exactly, and will I still owe the debt after it has been “Charged Off”?
Charge-off is a term that is used to classify delinquent accounts for tax purposes. The word “charge-off” is used to report the delinquent account as a loss for the creditor. A debt is usually charged-off after there has been no payment made for more than 180 days. Although an account has been charged-off, you do still owe the debt. A creditor will typically either assign, or sell the debt to a collector after charge-off. Another important thing to be aware of with a charge-off is that if the account is sold to a third party collector, that collector may also report the delinquent account on your credit. This may result in an additional negative trade line on your credit reports.
If you are in a financial position where you can no longer make the minimum payments on your credit cards, medical bills, or other unsecured accounts, there are programs available that can help you to resolve those accounts quickly and allow you to avoid bankrupcty. Here is a debt relief program we recommend.
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