Surprise! You’ve Got a Debt in Collections


A collection may exist for years before the person who supposedly owes it discovers the fact.  A letter informing you of the bill might never be sent out by the original creditor.  What do you do if you suddenly find yourself with a bill in collections?

The most common kind collection debt that catches people unaware is medical debt.  A hospital stay or doctor’s visit thought to be covered by insurance goes unpaid, and the person is never notified about it.   Medical collections are so common that some mortgage loan programs will not count them as negatives when evaluating your credit.  Other kinds of surprise debts are old utility bills: Caught up in the confusion of a move, a bill is simply forgotten, or the alleged debt is a result of identity theft.

Why might you not be notified?  When a bill goes unpaid, some original creditors choose to send the debt straight to a collection agency.  These companies might not have an internal collection department and have outsourced debt collection to a third party.  The purchasing collections firm may sell off the debt after it was on their books for some time, and the new purchasing company may be the one to notify you.

Collection agencies often buy debt in bulk, and due to the volume of accounts they hold may not send out letters or call all the debtors.   In cases where contact is actually attempted, people may have moved or mail gets misdirected.

If you don’t get a phone call or a letter about an overdue bill, collection agencies are counting on you discovering the debt when you pull your credit report. These companies have found that entries in credit bureau databases are strong motivators for getting bills paid, and it’s often the cheapest way of notifying the debtor.  All it takes is a few keystrokes.

If You Receive a Letter in the Mailshutterstock_175624178

The Fair Debt Collection Practices Act (FDCPA) spells out very specifically what a letter sent by a debt collector must say.  The letter must:

  • State that the letter is an attempt to collect a debt,
  • Give you 30 days to dispute the validity of the debt,
  • State the amount of money you owe, and
  • Give you the name of the original creditor.

If the letter does not contain this information, the collector could be in violation of the FDCPA.

If you do not owe the debt, you should immediately send the collection agency a letter disputing the validity of the debt within 30 days of receiving the letter.  If you responded within 30 days and they can’t send you proof of the debt, they must cease communications with you per the FDCPA. Moreover, if the collector can’t substantiate the debt as yours, then it obviously can no longer be reported to the credit bureaus as belonging to you. If, after receiving a validation request, they do send you proof of the debt, they can lawfully continue to ask you to pay.

If you do owe the debt and can pay it off in full, send them a check immediately.  If you act right away, they may not report the debt on your credit report.  Collections are devastating to your credit score.

If you do owe the debt and can’t pay the entire amount, you have a couple of options:

  • Work out a payment plan with the collection agency.  Be cautious in doing this, though — make sure you get the payment plan in writing.  Collection agencies have been known to refute verbal agreements made over the phone.  In addition, they may tack on fees and interest that were not disclosed during your negotiations.  You want to make sure that all of the money you send to a collection agency goes towards paying down the balance.
  • Don’t pay the bill.  You can’t get blood out of a turnip, right?  In that case, the collection will go on your credit report, which hurts your credit significantly, but if you have no money to pay, this may be your only option.  Send the collection agency a letter stating you don’t want them to contact you further, and they must follow your wishes; this is the law under the FDCPA.  At least you will not be burdened with further phone calls or letters.  Beware doing this, though: While you may not hear from the collection agency again directly, you do run the risk of being sued.


If You Receive a Phone Call

Collection agencies train their employees with one objective — getting you to pay the bill.  The collection industry is heavily regulated, but not all of them follow the law.  It’s not uncommon for them to say terrible things to you when trying to goad you into paying.  This is illegal, but it happens frequently.  Don’t stay on the phone any longer than necessary, and try to get any agreement in writing.

Here are some tips on dealing with phone calls:

  • If you’ve received no previous notice in the mail from them, demand that they send you a letter, then end the conversation immediately.  The FDCPA says that a collector must send you a written notice within 5 days of first contact.
  • Keep a log of all conversations.  Write down the date and time, a summary of the phone call, who you talked to, and the amount they say you owe.  This log could be important should the collector violate the law.
  • Don’t argue with them over whether the debt is yours or not.  The collector isn’t going to care about the specifics, and this is not a court of law.  If you do not owe the debt, you might think about hiring a lawyer to send them a cease and desist notice, especially if the collection is on your credit report.  Collection agencies will often back down once an attorney is involved.

If You Find the Collection on Your Credit Report

The most common occasion for finding a collection on your report is when you’re trying to get a loan for a new home or car. Often time is of the essence, and a delay in the process of getting new financing puts everyone under pressure.  The sad fact:  paying a collection does not remove it from your report.  If the collection pulls your credit score down too low, you may have no option but to wait until it comes off and try again for financing later.

If you still qualify for financing with the collection on your report, the lender will most likely request that you pay the bill off before they will give you a new loan.  Even if the debt isn’t yours, if the collection is small, it may be easier to just pay it and move on with the loan process.

If you’ve pulled your credit report to check for signs of identity theft or merely to see what your report looks like, you have more time to work on getting a collection removed.   If the debt is not yours:

  1. Contact the collection agency immediately and demand to see proof of the debt.
  2. You should dispute the account on your credit report with the credit bureaus.
  3. If the account does not come off your report, it may be time to get a lawyer involved.  The Fair Credit Reporting Act (FCRA) states that anyone reporting a debt must report it accurately.  If the law is clearly being violated, some lawyers will take your case for free in anticipation of collecting the fines the FCRA specifies.

Your Rights When Dealing with a Collection Agency

The tactics of collection agencies can be very intimidating.  You are protected from unlawful collection practices under the FDCPA.   According to the FDCPA, here are the things a collection agency must not do when trying to collect money:

  • Use abusive or obscene language
  • Harass you with repeated calls,
  • Call before 8 a.m. or after 9 p.m.,
  • Call you at work if you have asked them to stop,
  • Talk to anyone but you or your attorney about the debt,
  • Misrepresent the amount of your debt,
  • Falsely claim to be an attorney or a law enforcement official,
  • Falsely claim to be a credit bureau representative, or
  • Threaten to sue unless they actually plan to take legal action.

Final Tips

  • Get any deal you negotiate in writing before making a payment.  Verbal deals are difficult to prove.
  • If you don’t believe you owe the debt, dispute the debt in writing to the collection agency.
  • Never pay any of the debt with a personal check.  You don’t want to give collectors access to your bank account.  A money order is the best way to pay.
  • Keep records of phone calls and messages.
  • Send any correspondence to a collection agency by certified mail, or the collection agency can say they never received it.
  • Pull your credit reports once a year, and make sure there are no collections on them.

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