What if your unpaid debt is in collection?
Let’s face it: Sometimes an invoice goes unpaid. Maybe you didn’t have enough money for a utility bill and decided to shoulder the consequences later, or maybe a medical bill got lost in a pile of mail. You may have moved and never received the invoice.
Whatever the reason why your unpaid invoice has been collected, it is important to process your collection notice now. If you don’t, you could end up in court and with damaged credit for years to come. Read on to find out what to do if your unpaid debt is in collection.
Why your debt went into collection
When you haven’t paid off an unsecured debt, there is nothing the creditor can take away from you if you don’t pay, so they send your balance to a collection agency for payment. “The hope is that someday we’ll have to use our credit and want to pay this account off so that we can get the loan or service we’re asking for,” says Becky House, director of education and communications for the credit counseling agency.American financial solutions.
House says the most common types of debt that go into collections include medical bills, credit cards, and old utility or cell phone bills, but almost any type of debt can end up in collections.
Will the debt go away?
Some people believe that the debt will eventually go away if they don’t pay it. This is indeed sometimes the case; each state has its own debt statute of limitations, and after a certain number of years you are no longer responsible for certain forms of debt. But according to House, “student loans, taxes and some court debts never go away and have to be paid.” If you don’t pay, debt collectors can sue you.
Face your unpaid debt
Once you receive a collection notice, House recommends that you know the age of the debt and how long it has been collected. If it’s an old debt, check your state’s laws to see if the statute of limitations has passed.
The collector has to prove you owe the money, says Sheri L. Stuart, senior communications specialist and education manager for Springboard Nonprofit Consumer Credit Management, Inc. to prove you owe the debt, ”says- she. Past billing statements are not sufficient proof, Stuart says.
If the debt is valid and you can pay it off immediately, this is the best strategy. “If you can pay off a debt that has just been collected, you may be able to avoid damaging your credit report,” says House. “You usually have 30 days before the collection agency reports it to the credit bureaus. “
If you can’t pay it now, don’t ignore the collection notice, or you could be sued. To avoid a lawsuit, tell the debt collector that you intend to pay. You could also tell them that a lawsuit is pointless because you are “judgment-proof,” which, according to Stuart, “means you have no income that could be seized or property that could. be seized even if the court has granted judgment to the collector. against you.”
While you can try to negotiate a payment deal, House recommends saving up to pay off the agency all at once rather than going into an ongoing relationship. It can be difficult working with collection agencies, says House. And negotiating a settlement with a collection agency, rather than paying off your balance in full, is shown differently on your credit report and can have a more damaging effect on your credit.
Once you’ve spoken to the collector and agreed to a plan of action, document it. “Make sure any deal you come to is in writing and on collector’s letterhead before you make a payment,” Stuart says. She adds that you need to make sure the letter contains the name of your original creditor.
It is important to know that even if you pay a collection account, it will stay on your credit report for seven years, despite being marked as paid. When this is added to your credit report, it will negatively impact your credit, but the effect will subside over time.
If you have any questions or concerns regarding the debt collection process, a certified credit counselor National Foundation for Credit Counseling can help you. You can find a number of NFCC certified agencies through NerdWallet’s Ask an Advisor platform.
Be careful with payments
It’s important that you don’t give the debt collector permission to access your bank account, either by providing your debit card number or by setting up direct debits, says Stuart. “Once the money is out of your account, it will be difficult, if not impossible, to get it back, even if you think the collector took too much or on the wrong date,” she says. She recommends sending payments by check or using your bank’s online bill payment option instead.
If you think the review is wrong
If you think the collection notice is wrong, never ignore it, even if it’s not your debt. If you don’t contact the agency immediately, they may take legal action or judgment against you. On the other hand, don’t pay for a collection notice that doesn’t belong to you just to make it go away. “Any payment of the debt is considered an acknowledgment of your responsibility,” says Stuart. “Even if you pay, it won’t erase a negative entry on your credit report.”
The Fair Debt Collection Practices Act (FDCPA) allows you to request validation of the deemed claim. Within 30 days of receiving the notice, send a written objection or request for verification. “Then the debt collector must mail you the requested verification information or stop collection efforts altogether,” says Stuart. She recommends sending all written correspondence by certified mail with acknowledgment of receipt requested and keeping copies of all correspondence.
Once your dispute is filed, the agency must stop collection efforts and investigate to validate the debt. During this time, they cannot put the problem on your credit report. If they find the debt valid, they will mail you documents that confirm the invoice. If it’s not the case ? “When you send the collector proof that the debt does not belong to you or has been satisfied, ask for written confirmation that the collector does not hold you responsible for the debt,” Stuart says. “Keep your records indefinitely, especially any correspondence indicating that you are not responsible for the debt. “
Know that you have rights
There are legal restrictions that prevent debt collectors from engaging in abusive, deceptive and unfair practices. Familiarize yourself with the FDCPA so you know what they are not allowed to do. This includes calling you at unreasonable times, threatening you with arrest, or using obscenities. Some states offer even more consumer protections, so research your state’s laws online or contact your attorney general’s office to find out your rights.