Debt Collection - What Can You Do?

by Brette L. Evans

Stopping Debt Collection Contact

Debt collection is a big industry. Debt collection comes in the form of in house collections, when a debt is defaulted, the bank or other financial institution may have a dept. devoted to working on defaulted files. Some institutions will even sue you in house. For most collectors, if they work on the file for months, and are not able to get any payments from you, then they may choose to charge the debt off. A charge off just means that the particular collection entity has chosen to stop working on the file. Charge offs are picked up by companies that buy the debt for a percentage of the face amount owed. Sometimes the collection agency is working as an agent for the collector.

Through my years as a bankruptcy attorney, I have learned that most people do want to pay their debt. It is usually the case that people stop paying because they can no longer afford to pay. This usually occurs due to events not within the debtor's control. Having a creditor or collection agent harass you after the debt has been defaulted, just adds more salt to the wounds. Knowing the law, and your options can help to bring relief from the stress of the debt collection nightmare.

First, if you want a creditor to stop calling you, or contacting you, you need to write a letter and tell them to stop. It is a good idea to ask for verification of the debt, and to label the top of the letter, "Cease and Desist Collection, Request for Verification." The letter should be sent certified return receipt requested and make a copy of the letter. Once you make that request in writing, the collector cannot contact you except to inform you that they are ceasing contact or to inform you that they are going to do something specific, like turn the file over to an attorney or file a lawsuit. While the contact should stop, the collector or creditor can still sue you to collect the debt.

Verification of the Debt

Debt collectors must inform you, in writing, of how much money you owe within five days after first contacting you. This "validation notice" must list the name of the creditor you owe and inform you what to do if you do not believe you owe that money. If you send a letter denying you owe some or all of the money, or if you ask for a verification of the debt, the collector may not contact you again (except to inform you of the actions listed in the section above). This letter must be sent within 30 days of receiving the validation notice, and it is effective until the collector responds with written verification of the amount you owe.

Can You Sue?

The Fair Debt Collection Practices Action (FDCPA) is a set of laws that govern what debt collectors should or should not be doing. In our experience, many collectors are not knowledgeable of the laws, so it is wise to educate yourself if you are in this situation. The FDCPA has provisions requiring validation or verification of the debt, when requested, and also contain provisions that any letters sent requesting a cease and desist of collection activities needs to be honored. The FDCPA also has a provision for damages per violation of the act. If the rights of the debtor (person owing money) have been violated, they can sue in either state or federal court and request damages for these violations. For many, just the knowledge of the law can bring a sense of relief. When you're in this situation, it is a good idea to take notes every time a call comes in, and notate the date and time of the call, and who specifically is calling. If the Cease and Desist letter has been sent, then these continued collection efforts violate the FDCPA. This allows a debtor to sue for damages for these violations.

Conduct that rises to the level of harassment and deception needs to be reported to the Fair Trade Commission (FTC). The FTC will investigate and can cause a license suspension or revocation for egregious collection practices.

Will You Be Sued?

Under California law, a creditor or debt collector should not sue you for debts over four years old; it is ten years under the FDCPA. The timeline for the lawsuit depends on the nature of the underlying contract. Written contracts have a 4 years statute of limitations. The statute of limitations is used in court as a shield, and must be set forth as an affirmative defense. If a lawsuit is brought then the defendant must use the statute of limitations as a defense to this action+. If this is not done, then the statute of limitations defense may be waived.

If you are sued, then knowing the law, and defending yourself can and does save money in the end. Often large debts can be settled after an answer is filed. The victor in court is usually the person with the most leverage. Leverage is obtained by using the law to your benefit. Never let a default judgment to be entered against you. You do not want your wages garnished simply because you failed to respond.

Most bankruptcy attorneys will assist with defensive work on debt collection. Many of these attorneys offer free consultations, and will work through a variety of issues, even helping you fill out the judicial council forms (answer to lawsuit) in these consultations. Knowing the law, and asking for help, is the best defense.