To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com
for more personal finance tips and free budgeting worksheets.
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Dear To Her Credit,
I received a call today from a collection agency (also a law
office, they said) saying they have been trying to deliver a document to me to
appear in court because the collection company who has my debt is suing me. I owe $680 and I defaulted in 2008. I decided to
settle for $400 and I authorized them to debit my account for that amount a
couple of weeks from now. Please advise. -- Jane
I don't like the idea of you giving someone authorization to
debit your account, especially when that someone called you over the phone.
They may be scrupulous -- or not. I would never give my bank or credit card
account numbers to someone I did not call myself. I don't even like to give
authorization to debit my account to anyone other than well-established,
reputable companies, such as my insurance company. There are other ways to make
payment with which I'm far more comfortable.
The other problem with this arrangement is that you should
never pay a debt unless you are sure you owe it, and that you owe it to the
person trying to collect. Depending on where you live, your debt may be past
the statute of limitations for collection. You defaulted about six years ago. In some states, the statute
of limitations runs out three years after the last activity. The majority of
states have a statute of limitations of six years or fewer.
Debts older than the statute of limitations are known as
"time-barred debts." That doesn't make the debts automatically
disappear, or stop collectors from trying to collect from you. It just means
collectors cannot successfully sue you for the debts. If that is your case, the
collection agency is bluffing.
Your statute of limitations generally starts when your
credit card account became delinquent, or when you made the last payment. The
exact date may vary by state law. The clock may restart if you make a payment,
even a small one, or if you acknowledge it.
To make sure this collector has the right to collect on this
debt, you should send a validation letter, also known as a "verification
of debt request." You can use this sample letter,
adjusting for your situation. By federal law, agencies must validate a debt
when there's any question about the legitimacy, ownership or any other aspect
of the debt. The debt collector is only required to
confirm the amount being sought, but the Consumer Financial Protection Bureau recommends seeking more
documentation, such as a written agreement with the creditor, and the name of
the original creditor if different from the one now claiming the amount.
have been the right thing to do, assuming these four conditions are all true:
- This debt is legitimate.
- The collector has the right to collect it.
- The debt is not time barred.
- You cannot afford to pay the entire balance.
I'd still prefer that you'd sent them a check or paid online
yourself! Giving a collection agency access to my account would make me a bit
Be aware that settling for less than the full
amount will negatively affect your credit history. That $280 you saved by
settling your bill may be dwarfed by the higher interest rates you'll find
yourself paying because your credit score is damaged by the settlement.
See related: Robo-signed debt collection cases under fire