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

Dear 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.

Settling may 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 queasy.

    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.
     

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