ShareThisDear Debt Adviser,
I just received a court docket number for an old credit-card debt. If I am correct, the account was closed in February 2003. The collection agency is suing me for $15,000, which is what I owed. Can they sue me for that amount? I thought they could only sue for the amount that they paid for the debt. I need some help and need to respond to the courthouse within 30 days.
-- Mike
Dear Mike,
I'm amazed the suit is for only $15,000. They could add legal fees and interest on top. But to answer your question, yes, they can try to collect the original amount of the debt regardless of what they paid for it.
I strongly suggest that you communicate with the court and appear when you are scheduled. In the meantime, do some research to determine the statute of limitations in your state that pertains to your credit-card debt. If the time has expired to collect the debt, you can use that information in court.
From what you say, you seem to believe that the debt is yours and agree that you owe it. Still, I'd be sure they can show that the debt is valid and that they have the original paperwork showing you owe the debt. I have heard more than once that older debts often are sold without proper documentation proving the person is responsible.
Let's assume everything checks out. They have your John Hancock on an agreement or contract, and the debt is within the statute of limitations. You owe what you owe. The relationship between your original creditor and the collection agency has nothing to do with you.
Yes, it is quite likely that the collector bought your debt for pennies on the dollar. Collecting the full amount, or as close as they can get, is how collection companies that buy debt make money. The original contract with your creditor is still valid even after the account is closed, and the debt is sold to a third party.
That said, if you can come up with the cash, the collection agency may take less than is owed on the account if you make a reasonable lump-sum offer. You will have better luck if you make an offer before they spend the money to go to court and before they know they can get a wage attachment. Sixty percent or so is generally considered a reasonable offer to settle a debt with a collector. So I'd start lower and work up to that amount.
In your case, that would mean a lump-sum payment of around $9,000. Making the payment would ensure that the collection process would end and that no further legal action will be taken. Before sending in the payment, get the settlement agreement in writing from the collection agency. You'll want proof that the settled amount satisfies the debt just in case it rears its ugly head sometime in the future.
If you are unable to make a lump-sum payment and the debt is valid and collectible according to the laws in your state, you will need to analyze your monthly budget and determine what amount you can afford to pay each month. Be prepared to bring documents with you to court to support what you believe you can pay. If possible, bring an attorney with you. Showing up in court without a lawyer to face an experienced attorney is akin to showing up for a gunfight without a gun. Chances are you won't enjoy either the experience or the outcome.
State your case before the judge, and the judge will decide the case based on your testimony and that of the collector. Do not, under any circumstances, misrepresent your financial situation. The collector has done its homework and believes you have the ability to pay, or it would not be suing.
Lastly, keep an eye out for a 1099 Miscellaneous Income form. Usually, the IRS counts any debt forgiven in amounts more than $600 as additional income.
Good luck!
(Steve Bucci is president of Money Management International Financial Education Foundation. Visit www.moneymanagement.org for additional debt advice. If you have a question for Steve, e-mail debtadviser(at)bankrate.com. The Debt Adviser is a weekly feature of bankrate.com. For more stories, visit scrippsnews.com.)
THE DEBT ADVISERMust credit bankrate.com
Do not pay the collection firm
Mike, I know this information is probably late, but do not pay the collection firm or agree to anything. You need to obtain a court stay immediately and seek legal help. See a credit card debt attorney.
This is a game that collection companies play to fleece you of your money and destroy your credit. There is tremendous profit motive here since they hope to turn a $500 collection account into $9000 or more for NOTHING. The original creditor has discharged the debt, collected the insurance money (for which you paid the premiums), taken the tax benefits, and now sold you debt to make even more money. Now the collection firm hopes that they can cheaply get large sums of money from you. Virtually every collection firm violates Federal law in the process of collecting debt, and an attorney will advise or represent you.
Yes, the statute of limitations may have expired, but that wont stop the collection company from taking you to court and getting a judgement against you. They do this for a living and are counting on you to not know the law. It is better to pay an attorney, have your debt erased, avoid a judgement, and get your life back.