Writing Off Bad Debt

Jay Peters asked:


You’ve just sat down for dinner with the family and the phone rings. A debt collector, hassling you again. Isn’t there a law?

In fact, there are laws, both state and federal. But they don’t prohibit debt collection companies from calling you at dinnertime. A debt collector can’t threaten or harass you, contact you at “inconvenient times or places,” or tell others about your debt. Here’s how you can fight unfair debt collection tactics, and stop your dinner from going cold.

Stop answering the phone. This is not as easy to do as it sounds. Our brains are wired to pick up the phone when it rings, but with a little determination you can overcome that feeling.

If you must talk to the collection agency on the phone, record your conversations. (Be sure and check your state laws on phone call recording.) They may say something that violates a law. For example, they cannot use profane language, claim to be a lawyer when they’re not, or imply that you have committed a crime and may be arrested.

You can stop a debt collector from contacting you, but you have to do it in writing. Send them a debt dispute letter, in which you tell them to stop contacting you, and that you also dispute the validity of the debt. Send the letter certified mail so you receive confirmation of receipt by the collector, and keep that for your records. Of course, this doesn’t make the debt go away; you can still be sued by the collection agency or your original creditor. But at least you can finish dinner in peace.

Within a week after you are first contacted, the collector must send you a written notice stating how much you owe and to whom. The notice should also tell you what action you can take if you believe that you don’t owe the money. If you respond to the notice, do so in writing, and keep all copies of the correspondence. If you create a file with your written correspondence and a log of your telephone calls, you may be able to claim harassment under a federal or state law.

Why are you being contacted by some company you’ve never heard of before? It may mean that one of your creditors has not received payment from you for several months. That bad debt was then turned over to the collection company. The collection companies operate in a variety of ways; some “buy” your debt for less than you owe, some work for a percentage of the money they collect, while others may be an in-house division of your original creditor. If the bad debt is truly yours, it might be time to negotiate a payment schedule with the collection company, and enjoy your family dinners again.

A much worse explanation for the calls from the collection company may be that you are the victim of identity theft. An impostor may have used your financial information to hijack your credit, open new accounts, and run up huge bills. If you believe that ID theft is the reason, it is imperative that you respond, in writing, to the debt collection company and get them to investigate immediately.



Writing off Bad Debt

Jessica Deets asked:


Each state has their own laws regarding when creditors may sue debtors for failing to pay or violating a written contract. This would include credit card accounts, accounts set up for buying a car, rental leases, and other contracts involving debt.

Some states have a limitation that can be six years, in some states it can be up to 15 years. Check your own state law. If a debt is older than the state’s law, the collector has no legal authority to really collect the debt.

Typically, the “clock” starts at the time of last activity, such as the last payment or inquiring on the bill. On a credit card, every payment you make renews this “clock.”

Even if you make a payment of $5 to a debt collector, that becomes an acknowledgement of the debt… and means that you’ll have to pay it all. A debt collector sees their job as persuading a person to make even the just the smallest payment toward a debt that is too old to be taken to court, then debt is renewed. But if you don’t say anything at all to the debt collector, most likely they can not collect on the debt… of course you’ll have to check the laws for your state.

To stop a collector from contacting them, consumers can write a letter telling the collector to stop contacting them. After that, according to the federal Fair Debt Collection Practices Act, the collector cannot contact a consumer unless it’s to say there will be no further contact or to notify of a specific action, such as taking the consumer to court.

If the consumer owes a debt and it’s within the time frame, the collection agency or the creditor can seek legal judgment.

Again, and I can’t stress this enough… a person needs to be very careful about what they say or write to a debt collector, because it might be a way of admitting the debt, therefore restarting the clock.

For example, if a person didn’t get enough information from a debt collector over the phone and wrote a letter stating something to the effect of, “Could you please send me an itemized bill,” that could be considered owning up to the debt.

To avoid confusion, anyone caught in this situation should write the collector a letter stating that they do not owe the debts and to stop contacting them.

There are also other rules in the federal law that collectors must follow. If the rules are broken, consumers can file complaints with the Federal Trade Commission.

We’ve experienced collectors calling on debts that are 12 years old. These collection companies are what’s referred to as a “debt buyer.” Debt buyers make a living acquiring old, charged-off accounts from creditors, then collecting on them.

Here’s the most important key to it all: often they’ll buy the accounts for pennies on the dollar because the accounts are too old to be taken to court.

To be safe, consumers should check their credit reports and dispute bad debt claims. And if a collector calls you… deny the debt and ask them to stop contacting you. Copyright 2005.



writing off bad debt