When a bank, credit card company, or other lender has exhausted all other options for collecting a debt, the account is frequently sold to a debt buyer for a fraction of the amount owing. That debt buyer either attempts to collect the debt or resells it to another debt buyer — or both. As a result, clients are frequently harassed by the initial creditor, that creditor’s hired-gun collectors, the first debt buyer, and a slew of others.
What precisely does a debt buyer get when they buy a debt?
There isn’t a large file including all of the account’s details.
Not in the least.
They receive an electronic file containing only the most basic information: name, account number, amount, and date.
They try to collect using that hazy information.
Debt buyers frequently pursue people for debts that they have already paid since their information is incomplete.
Alternatively, they may go for the wrong people.
If your name is “John Smith” and you live in a densely populated zip code, please, please, please, please, please, please, please, please, please, please, please, please, please, please, please, please,
According to the FTC, consumer complaints about erroneous debtor identification have increased dramatically.
Worse, some citizens have successfully disputed a debt with one company, only to discover that the corporation sold their debt again and failed to pass along the documents proving it wasn’t their debt.
As a result, the entire process starts over.
That’s why Consumers Union, Consumer Reports’ policy arm, believes measures are needed to protect consumers:
Require that correct documentation be provided.
Debt collectors, according to Consumers Union, should be required to show that they are collecting from the correct person, for the correct amount, and on a debt for which they have a legal right to collect.
Do you have to pay debt if sold to collection agency?
“Do I have to pay if a debt is sold to another company?” many people wonder. You owe the money to the current company rather than the original creditor if your obligation is moved. The new collector must, however, follow all existing debt collection rules. Furthermore, the corporation cannot add interest or change any other conditions of your original contract that you did not agree to.
So, when is this going to happen? Is it possible for collection agencies to purchase from other collection agencies? Yes. Your original creditor will send your debt to a collection agency after it reaches a certain threshold, indicating that it is less likely to be paid. The collection agency may sell your debt to a debt buyer after a period of time.
If you do decide to pay off your debt, make sure you pay the party that is currently holding it.
How long does a creditor have to sell your debt?
California has a long history of enacting legislation to advance the rights and protections of its residents. There is no exemption when it comes to consumer debt. In the area of consumer debt, California has a number of rules in place to safeguard residents. Some act in tandem with federal legislation or supplement federal protections, while others are state-specific.
California/Rosenthal Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act of California/Rosenthal contains all of the same provisions as its federal counterpart. California’s state version, like the federal Fair Debt Collection Practices Act (FDCPA), prevents debt collectors from harassing or deceiving debtors.
Federal legislation, on the other hand, only applies to contracted debt collectors and not to the original creditors. California’s law protects consumers by requiring anybody attempting to collect a debt to comply with the law.
The act was revised by the California Legislature on January 1, 2020, to include mortgage debt as consumer debt and to remove an exception for an attorney or counselor at law from the definition of “debt collector.”
The California Debt Collection Licensing Act, which was signed into law in September 2020, requires everyone who collects debt in California to be licensed, even if they are doing so on their own behalf. The bill is set to take effect on January 1, 2022.
Statute of Limitations
Except for obligations incurred through oral contracts, all debts in California are subject to a four-year statute of limitations. The statute of limitations for oral contracts is two years. This means that lenders cannot attempt to collect bills that are more than four years past due on unsecured common obligations like credit card debt.
The four-year statute of limitations is one of the country’s shortest. Only five states have a three-year statute of limitations, while others (Massachusetts and New Hampshire) have statutes of limitations of up to 20 years.
Refusing to Pay a Credit Card Bill
When consumers in California have the right to refuse to pay a credit card bill, federal and state laws work together to govern this. This right can be exercised by consumers in two instances.
When your credit card bill contains a billing error, you have the option of refusing to pay. This could be a charge that was not approved, products or services that were not delivered on time or at all, or goods or services that were misrepresented.
If your card issuer makes a billing error, you have 60 days to submit a letter explaining the circumstance. The 60-day period begins on the date that the error appears on the first credit card statement. The card issuer may contact you for additional information or require that you return the product to the seller after receiving your letter.
Even if you have already paid the payment in full, you may file a billing error claim. You are entitled to a refund in this circumstance.
You can also refuse to pay a credit card payment if you have claims and defenses. You have the right to contest a charge under “If the billing error is greater than $50, you must file “claims and defenses.” However, there is a “There are further requirements in the “claims and defenses” disagreement.
Furthermore, only charges that have not yet been paid are eligible for this form of dispute. Assume you purchase a $300 item and another $100 worth of products on the same credit card transaction. Assume you’ve paid $150 of the $400 total price. Instead of the item’s initial $300 cost, only $250 is up for grabs.
Instead of the 60 days provided for routine billing errors, you get a full year to use claims and defenses.
Where California Laws Stop
The amount credit card issuers can charge for ATM transactions, cash advances, delinquencies, overages, stop payments, and transactions is unrestricted under California law. It also doesn’t require a grace period before interest starts to accumulate.
This indicates that consumers in California should be extremely cautious when opening new credit card accounts. Make careful to read all of the fine print and contact the card issuer if you have any questions.
What happens when credit card debt is sold?
That is when the debt will be sold by the creditor. Other corporations then purchase these old loans for less (sometimes substantially less) than the amount owing. Professional debt collectors are confident in their capacity to collect money from you so that they can return their investment and make a profit. And moment an outside collector is involved, your customer value vanishes.
Debts can be resold and repurchased multiple times as the debt matures. Because of the increased danger of not being able to collect an earlier debt when others have tried and failed, it is sold for less each time. With each debt transaction, the paperwork of the initial debt is meant to change hands. Frequently, it does not. As you will see below, this is critical.
Is it illegal for your debt to be sold?
When you can’t pay your debt, most creditors go through a similar process to try to persuade you to pay. Selling your debt to a third-party collection agency is one of the tactics at their disposal.
When a collection agency buys a debt in full, the debtor is normally notified by phone or in writing by the new account owner (collector). Without your authorization, debt can be sold or transferred from one creditor or collector to another. It usually does not happen without your knowledge, though.
A consumer is required by law to obtain written notice (also known as a debt validation letter) within five days after the collector’s initial contact attempt. The amount of the debt, the original creditor to whom the obligation is owed, and a statement of your right to challenge the debt must all be included in that notice.
If you receive a debt validation letter, you should contact a non-profit consumer protection organization for assistance, as the collection procedure can be complicated and time-consuming. If a collector is unable to reach a suitable agreement with a customer after a few months, the debt may be bundled with others and sold to another collection agency. That process can be repeated indefinitely, even if the consumer’s debt has passed the statute of limitations.
How long can a credit card company come after you?
A statute of limitations is a legislation that specifies how long you have before someone can sue you. Most credit card firms and bill collectors in California have only four years to do so. Once that time period has passed, the credit card company or collector will no longer be able to sue you. There are, however, some things you or the creditor can take to reset or extend the statute of limitations. It’s critical to understand how California’s statute of limitations works in order to prevent allowing the credit card company extra time to sue you.
Why you should never pay collections?
At first look, paying off a debt collection agency seems like a good idea. After all, isn’t it the simplest way to get them to leave you alone?
No, not at all. Sure, paying a debt collection agency can help you get rid of them. But that’ll be the extent of it. Your credit report will include evidence of the unpaid debt for additional seven years. It makes no difference how much money you owe. Whether the debt is for $100 or $100,000, collections raise the same red flag on your credit record. This may have an impact on your capacity to obtain loans in the future.
Worse, in debt collection cases, intent is irrelevant. Many debtors aren’t trying to avoid paying their bills. They simply aren’t aware that they owe money. This happens on a regular basis. An overdue debt notification may be sent to a borrower’s old address by a creditor. The borrower never receives it and goes on with their lives, completely oblivious that they are being pursued by a debt.
This lingering debt can have some unexpected consequences. It will be more difficult to obtain fresh loans as a result of this. With terrible credit, getting a loan for a car, a mortgage, student loans, or home improvements is much more difficult. That’s not all, though. It can be tough to rent a property or even get an internet streaming account if you have bad credit.
Paying a debt collection agency for an outstanding loan, on the other hand, can harm your credit score. Yes, you read that correctly. Even paying back loans might have a negative influence on your credit score if it appears on your credit report. If you have a debt that’s been outstanding for a year or two, it’s better for your credit report if you don’t pay it.
Can I pay my original creditor instead of collection agency?
Money, they say, is what makes the world go ’round. This is especially true in the United States, since our economy is largely based on debt. In the United States, there is around $14 trillion in consumer debt. Debt is used by the typical American to purchase automobiles, homes, and even groceries.
Given those figures, it’s no surprise that one out of every three Americans has a debt in collections. So don’t feel bad about it. You’re not the only one who feels this way.
After the borrower misses a few payments, the debt is turned over to collections. It’s possible that the lender won’t be able to locate the borrower or that they’ll see it as a waste of money.
The initial lender has two options for recouping part of their losses. They can first hire a third-party agency to collect the debt on their behalf. They can also sell the debt in its entirety. In any case, the debt is no longer under the control of the original lender.
You may face harsh consequences if your debt is sent to collections. Your credit score will suffer as a result. Collectors will frequently bother you, demanding money you don’t have. Finally, if a debt is unpaid for an extended period of time, the collector may file a lawsuit against you to recoup the obligation.
Even if a debt has been sent to collections, you may be able to pay the original creditor rather than the collection agency. Contact the customer care department of the creditor. You might be able to explain your position and work out a payment plan with the bank. You can engage directly with the creditor to reclaim the debt from the collector.
There is, however, no legal requirement that the original creditor accept your request. Your best bet is to get in touch with them as soon as possible. Creditors are more ready to negotiate with you before expenses mount, which normally happens within six months of your debt being turned over to a collector.
What is the minimum amount that a collection agency will sue for?
A collection agency will normally sue you for a minimum of $1000. In many circumstances, it is significantly less. It will be determined by the amount you owe and if they have a written agreement with the original creditor to collect payments from you.
Does your debt go away after 7 years?
After 7 years, unpaid credit card debt will be removed off a person’s credit report, meaning late payments linked with the unpaid debt will no longer harm the person’s credit score. Unpaid credit card debt, on the other hand, is not forgiven after seven years. You could still be sued for unpaid credit card debt after 7 years, and depending on your state’s statute of limitations, you may or may not be able to use the debt’s age as a defense. It lasts between three and ten years in most states. A creditor can continue sue after that, but if you specify that the debt is time-barred, the lawsuit will be dismissed.
- A company has the right to sue you for unpaid debt as long as the statute of limitations period is open, and you won’t be able to claim the age of the debt as a viable defense. If the debt collector prevails in court, the judgment will remain on your credit report for seven years after it is filed. Debt can be collected after the litigation by wage garnishment and the (forced) sale of your possessions. Interest will continue to accrue until the debt is paid, depending on the state. It is also technically feasible to be sentenced to prison for failing to pay your debt. While you cannot be imprisoned for not paying a civil obligation (including credit card debt), you can be imprisoned for failing to pay a civil fine imposed by your creditor when you are taken to court.
- Negative credit report impact: If you miss a credit card payment by 30 days or more, the late payment will be recorded to the credit bureaus and will remain on your credit report for 7 years. Similarly, if you are 120 days or more late on your payments, the lender will write off the loan. This is referred to as a “charge-off,” and the credit card account will be marked as “Not Paid as Agreed” as a result. Charge-offs will also remain on your credit report for seven years.
- With time, the damage to your credit score will lessen: Late payments and charge-offs have a negative influence on your credit score when they appear on your credit report. The severity of their impact on your credit score is determined on your overall credit health. One late payment can lower your score by as much as 80–100 points. You should expect your credit score to decline by as much as 110 points if a charge-off appears on your credit report; the majority of this drop is due to late payments.
After seven years, you are still liable for outstanding credit card debt. If you’re still inside your state’s statute of limitations, instead of risking being sued, you could opt to deal with debt collectors to settle the debt. If you do so, you incur the danger of resetting the statute of limitations, so think about your alternatives carefully. You may be able to pay less than what you owe or work out a payment plan if you contact your creditor. If the debt collector wins a case against you, your wages may be garnished or your possessions may be forced to be sold. In this guide on How to Pay Off Credit Card Debt, you’ll find some helpful hints.
Can a 10 year old debt still be collected?
In most circumstances, a debt’s statute of limitations will have expired after ten years. This implies that a debt collector can still try to collect it (and you still owe it), but they can’t usually take legal action against you. They are unlikely to contact you again if you inform them that the debt has passed the statute of limitations.
What happens if I don’t pay my credit card for 5 years?
If you don’t pay your credit card account on time, you’ll be charged late penalties, your interest rate will rise, and your credit score will suffer. If you keep missing payments, your card may be stopped, your debt may be transferred to a collection agency, and the debt collector may sue you and garnish your salary.
