Expert: Regan Shinski - 2/9/2011

Question
QUESTION: I received a letter from a collection agency (LTD Financial) to settle a debt from 9,000 to 3,000 says acceptance will completely absolve you of this debt with the above named creditor.I will owe no more money on this account.  are these agency's legit or should I pay no mind?

ANSWER: Hello John:

Do you owe the debt?  Do they have the legal right to collect the debt?  If I sent you a letter asking for $5000 for your old "Capital One" card, would you?  Especially if I guessed right and you had a Capital One card like millions of other people?

It is probably legitimate but you are wise to be suspicious.  What you can do is send a letter asking for debt validation under the fair deb collection practices act.  Specifically ask for how they arrived at the amount, their proof that they own the debt (or have the legal rights to collect on it), and that they are licensed - of required - in your state.

The next thing you want to do is make sure it is within the statute of limitations in your state.  If it is beyond the SOL, they really have no legal arm to collect it, so I would not pay it.  Complete basic internet searches for the statute of limitations in your state and how it is calculated.

Once you have verified it is your legitimate debt you can settle if you want.  I would try and settle for even less.  This is their first offer.  If it is less than seven years old, try to get them to delete the account from your credit reports as part of the deal.  Also, make sure the wording of the contract is sufficient and that it shows your complete settlement in full with the payment.  Make sure you get a signed agreement in writing BEFORE - I mean BEFORE - you send any money!

Good luck, I hope this information helps, drop me a note and let me know how it turns our.

Regan

DELETE COLLECTION ACCOUNTS FROM YOUR CREDIT REPORTS - www.ficofighter.com

---------- FOLLOW-UP ----------

QUESTION: Hello Reagan,
Yes the debt is mine and when the economy went down and my spouse lost her job due to cuts because of it, it just couldn't get paid. And at this point its just a boulder over our heads and want to get rid of it, its so late might as well settle and wait the few years for it to be removed. But I spoke to a service agent at the agency and he said "a 1099 will be generated over any amount of $600.00  So will that mean the difference is added as gained income for next year? Can that also be negotiable? or that is normal practice. Never been in this situation so I appreciate your expertise in this.  John

Answer
Very few legitimate collection agencies will negotiate on the 1099 issue but I suppose anything is possible.  In reality, it is likely not an issue.  Many people are able to claim insolvency and then the debt is not counted as income.  Visit www.irs.gov and search under 1099-c or form 982 for more information.

Insolvency is the most common exemption from having to claim this as income.  This only means your assets are less than your liability by more than the debt amount.  Obviously speak to a tax professional before filing.

Good luck, I hope this helps,
Regan

DELETE PAID COLLECTIONS FROM YOUR CREDIT REPORTS - www.ficofighter.com