5 Tips if You’re Facing Court Action from a Debt Collector

Posts Tagged ‘debt collectors’

5 Tips if You’re Facing Court Action from a Debt Collector

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Creditors can sell your debt. When your debt is sold to collectors, some might use the threat of court action to try to intimidate you in order to get you to pay up.

Technically, it is illegal for collectors or creditors to threaten court action if they do not intend to carry through with it. Taking you to court is time consuming and expensive for them, and there is no guarantee it will result in the outcome the creditor wants. So typically, a court action is a tactic to get you to pay up, or to obtain a default judgment against you if you don’t respond to a summons and complaint.

Here are 5 things you should know in case you are presented with a court action.

1) Answer a summons and complaint. If a creditor serves you with a summons and complaint, not merely a letter saying you owe debt, then you must answer within a certain timeframe set by your state laws (perhaps 10, 20 or 30 days), in order to avoid a default judgment. I’ll speak more on how to answer a summons in the coming days.

2) Know the statute of limitations. There is a time limit on how long creditors have in which to try to obtain a judgment against you for the money you may owe them. That “statute of limitations” varies by state and type of debt. Typically, it is anywhere from 3 years to 10 years. A creditor can use the limits in your state or the state where they are located. They will often use the state with the longest statute of limitations, because it is obviously beneficial for them. Click here for a state-by-state list of limitations timeframes for debt.

3) Credit bureaus limits are not the same as debt statute of limitations. Federal law typically requires credit bureaus to drop negative information after about seven years from the date of your first missed payment. (There are exceptions, such as bankruptcies can stay on for 10 years, and tax liens can stay on for longer). If you live in a state with a 3-year statute of limitations on legal collection of debt, it will still show up on your credit report. If live in a state that allows judgments to be entered for 10 years, it is possible the debt came off your credit report after 6 years. So do not use your credit report to help you determine if you owe debt. You can use it, however, to check to see when the creditor first considered you to be delinquent.

4) Statute of limitations can start over. Please note that if you enter a payment agreement, make a payment — even a partial payment—, or promise to make a payment, you will restart the statute of limitations to day one.

5) Show up to court. If you are sued, make sure you or legal representation on your behalf appear in court. If you don’t, the court can issue a judgment against you for the full amount the creditor requests. Even if you make a settlement agreement prior to court, don’t trust the debtor to notify the court that it has been settled. Appear in court for any date that was set and let the judge or trustee tell you to go home.

What Creditors Can Do When You’re Broke (askthemoneycoach.com)
New Debt Collectors Are Quick to Sue (online.wsj.com)
5 Tips if You’re Facing Court Action from a Debt Collector (askthemoneycoach.com)

Will a Collection Account for Just $50 Hurt My Credit?

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Author: The Money Coach

Fortunately, there is one recent change to the world of credit scoring concerning small debts, which are sometimes called “nuisance” collection accounts. In August 2009, Fair Isaac rolled out to all three credit bureaus its newest general-purpose FICO score, dubbed FICO 08. With this new version of the credit score, FICO says its will disregard collection accounts and other dings on your credit file when the original balance owed was under $100.

“The logic there,” says FICO’s Tom Quinn, “is that for small dollar amounts, like a collection notice from a public library system, the (credit scoring) model will now bypass those and not consider those to be negative. Any kind of derogatory public information that’s less than $100” will be excluded, Quinn adds. This certainly has the potential to help boost your FICO score if it was impacted by such a blemish. But beware: amid the credit crunch, every single account you have, and every single financial transaction you engage in is being analyzed to determine your credit worthiness.

All Transactions – Large and Small – Matter Greatly Amid the Credit Crunch

Also, even with FICO saying it won’t use those small accounts in its scoring methodology, the debts nonetheless remain on your credit file, and some lenders may require that you resolve those issues or pay off those debts before approving you for a loan. More importantly, you should known that every transaction – large and small – matters greatly amid the current credit crunch. And when I say “every” transaction, I mean it.

Your Financial Habits Are Under Intense Scrutiny, Even if You Don’t Know It

Increasingly, retailers, credit reporting agencies, credit scoring companies, and of course banks and other lenders are watching every financial transaction you make. Made an online purchase to buy some shoes lately? Somebody tracked it. That’s why the next time you’re working at your computer – or simply surfing the web – you’ll see a pop-up or some advertisement featuring shoes. Ditto for school supplies, furniture, electronic gadgets, or anything else you purchase. But the scrutiny goes way beyond just watching what you buy, and then trying to sell you more of it. Retailers, lenders and credit-scoring firms are all capturing a wealth of data about your financial habits, both on and offline, in an effort to tell them who among us is the most credit-worthy – and who is the least.

You May Be Deemed “Risky” Based on What You Buy and Where You Shop

So what exactly are they watching? In a word: everything. They’re looking to see whether you accept credit card offers, online, in the mail or via telephone. They’re gauging whether or not you’re likely to take a balance transfer offer for the initial low interest rate – only to toss the card when the offer expires, or when a better deal comes along. They’re looking at the types of stores you frequent, and whether you spend money (that is, use your credit cards) at “risky” establishments, like bars, clubs and casinos.

They’re also poring over all manner of data regarding your housing, and that includes both renters and homeowners. For those of you who rent, they’re looking at whether you’ve consistently paid your rent or time, whether you’ve been delinquent, and whether you’ve ever been evicted. For homeowners, they’re looking at how much overall debt you have, whether or not your mortgage is a fixed-rate or adjustable loan, whether or not you have a home equity loan or line of credit, and if so, how much you typically tap and how often. If it seems as if the credit industry has got a spotlight on you, it’s because they do. But you don’t have to be blinded by it – or blind-sided – if you manage your financial affairs properly.

Your Credit Report is Constantly Being Updated

Again, when I say that every transaction counts, let me make something clear: I’m not just referring to business transactions that involve loans. Every transaction means just that – every economic exchange you make, every credit, loan or contract agreement you enter into, and every financial move of yours that can be documented – all of it matters greatly. Every single transaction counts. Do you think that your dealings with cell phone companies, water end electric services, and public utilities aren’t being monitored? Think again. About 100,000 organizations supply information to the credit reporting agencies.

These organizations include banks, lenders, collection agencies, credit card companies, leasing firms, utility companies and any other entity that extends credit or reports information about you. Even libraries have been known to rat on delinquent patrons to the credit bureaus for having an overdue library book! The same pattern holds true for various municipalities around the country; places like Chicago and New York City will report you to collection agencies in a hot minute to for failing to pay parking tickets or moving violations. And as cash-strapped cities try to cope with budget shortfalls and a tough economy, you don’t have to be Nostradamus to predict that many more cities will soon start using collection agents to pursue “small” debts due from local citizens.

The Convergence of the Credit Crunch, Technology and Big Brother Means You Must Be Careful Even With Small, Overdue Bills

Thus, transactions large and small take on greater importance amid the credit crunch because, in many ways, Big Brother isn’t merely looking over your shoulder these days. Big Brother now seems to be peeking into your laptop, using a skycam to watch where you go, accessing your Blackberry or iPhone, and placing wiretaps on your home and business phones too. OK, so maybe it’s not that bad. But you get my point. An incredible amount of information about your finances and money patterns is being captured, analyzed, and dissected in ways you probably never imagined. I predict that in the future, this trend will greatly increase – even for small bills.

Simple, little transactions that you may regard as minor or even big bills that you are disputing can all wind up having serious ramifications for your credit rating. That magazine subscription you ordered (even if it was just part of a sales promotion) can come back to haunt you if the $14.95 bill isn’t paid. Those music videos you’ve neglected to return (since forever) could land you on someone’s collection list. And even that hospital co-payment or medical debt that you’ve been sent a bill for yet again – for the umpteenth time after your insurer refused to pay – that too could ultimately damage your credit rating if left unattended.

What to do if your credit has been wrecked by a family member

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Author: The Money Coach

Question: I am 24 years old and my credit is not too spectacular. Most of the accounts on my credit reports are things I have done to myself, but the other half (and the most expensive portion of my debt) was done by an immediate family member who knows my social security number and has put cable, electric and telephones in my name and did not pay the bill. I don’t want to get my family member in trouble but I am not sure what to do?

Answer: You should start by taking control of your finances and being honest about what is going on. You are the victim of identity theft, pure and simple. And it’s well past time you started letting others know that you did not authorize or open those utility accounts and that you are not responsible for them, period. End of story. Start monitoring your credit every month to make sure nothing else unexpected pops up there. Put a credit freeze and a credit alert on your credit reports to prevent further damage from this person who has blatantly taken advantage of you.

Lastly, you need to confront this person directly. It doesn’t matter if that person is a “close” family member. I don’t care if it’s your sister, a cousin – or even your mother. Let this individual know that they have totally crossed the line and damaged your finances and credit rating in a way that is completely unfair, disrespectful to you, and that has long-lasting implications. Tell the person that they have exactly 1 week to contact every creditor in which they used your name to cut off service in your name — and put it in their name.

If that person’s credit is bad (which I suspect it is) and they can’t get a phone, electric service or cable in their own name, that’s their issue to deal with; not yours. A week’s time is plenty of notice for them to take action. Tell them that if they don’t handle it in a week, you will be forced to contact those utilities directly and advise them of the situation. Hopefully, you will be stern and straight-forward enough in your approach to this person that he/she will know that you mean business. I’m not saying that you have to turn the person in (although they do deserve it). But neither should you be held continually responsible for someone else’s financial mess.

If the person doesn’t act quickly, and follow through as you’ve told them to do, don’t hesitate to get those services cut off. If push comes to shove, and you “have to” tell who the culprit is, I would go ahead and do it. Why would you go through unwarranted financial stress for this person when clearly they’ve shown you absolutely no personal or financial consideration whatsoever? – Lynnette Khalfani-Cox, The Money Coach

A Credit Card Company is Suing Me for a Delinquent Debt. What Options Do I Have?

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Author: The Money Coach

Q: I Received a Notice From a Lawyer Representing a Credit Card Company, who is Suing Me for a Delinquent Debt. I Took Your Advice and Paid Off All My Delinquent Debts. Unfortunately, This is my Final Bill and They Do Not Want to Provide Me with a Decent Settlement Offer. I Offered to Settle my Debt for $1,200 and Pay It In Full Several Times. The Debt Has Accrued Interest and Late Fees. As a Result, the Debt is Now $1,978. I Offered to Pay 60% of the Debt But They Will Not Settle. The Lowest Offer They Provided me With at First Was $1,800. Then they Said They Could Reduce it To $1,500 to Settle. I Can Not Afford This. Should I Get a Lawyer? Should I Speak to a Supervisor at the Law Firm? If Know If I Go to Court I Will Probably Lose. Then the Judgment Will Be on My Credit Report. What Options Do I Have?

A: You should definitely attempt to continue negotiations with this law firm. I also think it would be a good idea to speak to a supervisor at the law firm. You may have to be persistent to go up the food chain and reach the supervisor. But it may prove very valuable to talk to a boss, instead of the phone representatives you’ve been dealing with. If you honestly can’t afford the $1,500 settlement they’re proposing, hold firm to your numbers ($1,200). Let them know that you’ve exhausted all other financial resources and that $1,200 is the most you can come up with in a lump sum payment. Also point out what the original loan/debt was. Sometimes, debt collectors will reduce or waive all those extra penalties, fees and interest charges that get added to a debt if you will only agree to pay the full amount of what was owed (minus those extra fees). It wouldn’t hurt to also get some free or low-cost legal assistance. I don’t know the laws in your state, but a qualified consumer attorney can explain your legal options and advice your of various alternatives.

Get online or consult a local phone book for a legal aid clinic in your area; that should help since you said you can’t afford to hire a lawyer. Finally, if you do wind up having to go to court, don’t neglect to go. Too often, people get scared and they simply don’t show up in court. Don’t make that mistake. If you fail to appear, a judgment will automatically be entered against you – in the full amount the attorneys seek. At least if you show up in court, you have a chance to present your side to a judge and to explain your financial circumstances.

Limiting Psychological Damage From Debt Collections (blogs.wsj.com)
The year’s top 10 personal finance stories (askamoneyexpert.com)
How to handle harassment by a collection agency (askthemoneycoach.com)

Ask The Money Coach

Posts Tagged ‘debt collectors’