Expert: Regan Shinski - 9/12/2009

Question
I received a collection letter from Allied Interstate ,out of Southgate, Mi concerning a credit card with Credit One Bank.  I have not been able to continue to pay on this account the last few months, I'm disabled and currently living totally on SSI benefit of $674. monthly.  I don't own a home, car or valuables.

I was not aware that I was turned over to this agency, yet they started their letter "As YOU ARE AWARE, LVNV funding has purchased the account from Credit One Bank "  etc...  

My question concerns whether or not I should respond to this letter ?  They have asked for  payment of $1518.16 which is about $100. less than the acct. bal.  They have said if I respond within 30 days to ask for verification of debt to validate it or not.  Should I respond  or not?  I'm most likely going to have a judgement against me on this since I really cannot pay it.  Any advice on this type of situation?

Answer
You have a few options depending on how aggressive you want to be.

First, you can do nothing.  In all likelihood they will call habitually and continue to send letters.  They may sue you, but it is doubtful.  You will have a collection and maybe a judgment on your credit.  They can only get a judgement if they actually sue and win or sue and you do not show up (default judgement).  Social security benefits cannot be garnished.  I do not recommend this option, but it is obviously the path of least resistance.

Secondly, you can make some type of payment arrangement, no matter how small.  Tell them you will settle for $200 or some other very small amount.  Don't give in to a high amount.  If they refuse, tell them you are fixed income and it is the best you can do.  If they continue a hardline, tell them it is the best you can do and you are considering bankruptcy anyway.  If they still refuse, you can basically tell them to take a flying leap (first option above) or continue to option three below.  If you get a settlement you can agree on MAKE SURE you get it in writing from them BEFORE sending a single penny!

Option three is to fight it aggressively.  You should definitely send a certified letter asking that they validate the debt under the Fair Debt Collection Practices Act (FDCPA) within 30 days.  You should also put in the letter that any future communications should only be in writing.  They are bound by federal law to obey this and it should keep them from calling your house five times a day - actually, they essentially can't call you at all at that point.

Many collection agencies will stop collecting or sell the debt at this point.  Some will send some type of validation of the debt.  It's hard to say the next step without knowing how they respond.  You can/should also get copies of your credit reports and see how or if they are reporting.  You can get a free copy once a year at www.annualcreditreport.com.  If they are reporting, send dispute letters directly to the three credit bureaus (Experian, Equifax, and Transunion).  They do not have be sent certified.  You will get a written response from them in about 30-45 days.  Basically, this process is to see if the collection agency properly lists the accounts on your credit report and ensure they follow all steps of federal law.  Actually, it should NOT be reporting at all within that 30 days anyway.  Most cannot seem to follow these rules!  This then becomes the basis for permanent removal from your credit reports and in many cases a "free" settlement of the account.  In severe cases, and if you are aggressive and persistent, you can actually sue or settle with the collection agency with them paying you for violating your rights and federal law.  Again, that process is more fluid and reacting to how the collection agency responds to your validation and verification requests.

I know the third method may seem complicated and intimidating.  I'm not suggesting you start this process by seeking to sue the collection agency for money.  However, at the very least, you should absolutely send the request for validation under the FDCPA act within thirty days.  Put the cease and desist notice (i.e. future communications in writing only).  This process alone often stops the collection agency from further action and stops the phone calls.  If you are worried about your credit, you have to be more aggressive as described above.

One final point, all the above assumes the debt is valid and timely.  If it has been over seven years since charge-off date or since the date of first delinquency, then it is a completely different situation.  You likely should not pay anything.  It should not be reporting at all.  Different states also have different statutes of limitations, some as low as two years.  So if it is older, let me know and you may have other options.

We are a credit repair company dealing with these issues on a daily basis.  If you need further help, please feel free to call or post again.  I hope this helps.  I know this may seem overwhelming if you don't deal with it habitually.

Thanks,
Regan
813-454-1459