Should you keep up payments after default?

One thing to consider is the possibility that you might end up getting sued over a debt. An important defense is the statute of limitations.

Generally, there's one time period for written contracts, and another for oral contracts (lots of credit card and cell phone debts are contracted over the 'phone, so there really is no written contract).

But another really important class of contract is what's called an "open account". Most written and oral contracts measure the time the statute of limitations period starts to run from the time the creditor first had a right to sue, i.e., upon default of the debtor. In Virginia, the applicable periods are three years for an oral agreement and five years for a written agreement. But an open account is a series of transactions billed for independently as separate items, but all under one account. It comes from the time one might go to the dry goods store and buy things "on account". The shopkeeper would have a book in which he kept track of the separate purchases and payments. So the statute of limitations for an "open account" runs from the date of the last transaction, which might be either a new item of debt (i.e., a new extension of credit) or a payment.

So if yours is the kind of debt that could be characterized as an "open account", it would be good to know what the applicable statute of limitations period is where you live, but you also have to decide whether to keep making payments, since each payment has the effect of extending the period of time in which the creditor can file suit indefinitely. That's why collectors always want you to send in a token payment "to show good faith", ten dollars or what have you. That token payment extends the S.O.L.

If you think you can either negotiate a final settlement with the creditor (don't sign their standard settlement form without running it past a lawyer, please please please!), or you figure they're going to sue you anyway, then your best bet may be just to get off that payment treadmill, and fix a definite time for the statute of limitations to run (by not paying anymore).

It's surprising how many creditors ignore that little thing when they go to file suit. It's because the defense of the statute of limitations is an "affirmative defense" - you have to specifically state it in written pleadings in response to the initial lawsuit paper / complaint or you lose it. Most people don't realize there is one, or assume the judge will impose it for them (no way that's ever going to happen).

I've got a case right now in which a credit card company filed suit against my client, and the last time a transaction occurred was so long ago, they don't even have any paperwork to show that there ever was one. They've just been carrying balances forward and adding interest for about ten years, and shuffling the paperwork from one debt collector to another. They finally filed suit, but there won't be any getting around that statute of limitations on that one. The credit card company is going to be S.O.L.

What the creditors really want is not for you to pay off your principle debt. They want to be able to charge you interest and late fees, and after default, interest at around 30%, and interest on the interest. They want to keep you paying a little bit, month after month, for the rest of your life. That's how they make money. If they file suit against you that has the effect of ruining your credit rating, sure, but it also has the effect of freezing forever the amount you owe. It seems ironic, but if you want to get off the treadmill, the best thing may be to let them sue you and get a judgment against you. They can do involuntary collection things after that, like garnishing your bank account and your wages ("surprise!!!"), but all that money has to be credited towards the judgment, and the judgment rate interest is generally simple interest, not compound interest. In Virginia, the current judgment interest rate is six percent, simple interest. No interest on interest, only on principal.

It's a question of what's going to screw you up the most and keeping your priorities straight. If someone gets a judgment against you, it's going to take a long time to get out from under it. On the other hand, judgments expire after some length of time and become unenforceable, while the payment treadmill is designed to last the rest of your life.

"St. Peter don't you call me, 'cause I can't go - I owe my soul to the company store."

Hi VLD,

You have drafted a brilliant post for the community. Many people will earn the knowledge in the right way and handle their debt accounts accordingly.

I am aware of the statues of limitations that should be considered before making a payment agreement. I know the pros and cons of it. Since you are a huge cove of valuable advice, I prefer taking your suggestions. Within the statutes period, does a creditor really intend filing a lawsuit against the debtor? As per the number of cases you get, what is the proportion of creditors filing a case from the rest? If I am debtor, after reading your post, I will agree to undergo a lawsuit rather than escaping it. Because it will be beneficial for me in terms of money that can be saved in interests. Most of the people fear undergoing a judgment. They need to understand that it is inexpensive in the long terms.

Secondly, when the debt has been purchased by the collector, creditors don't have any further involvement on that account? As per the contract signed with the creditor, collectors know if they are allowed to charge interests on the account. If a particular contract mentions that interests cannot be charged and later a collector purchases the account, can he now charge? (Now he is the original creditor of the account)

And, I heard that judgments get renewed frequently and they can last up to 20 years also. I need some tips from you here.

Thank you so much for sharing your immense knowledge with us.

To answer the last question first, I believe that there's a limitations period for enforcement of judgments in every state. In Virginia, the length of time depends on which court issued the judgment, and it's either ten or twenty years; and yes, it can be renewed (once in Va.).

That's not as bad as it sounds, though. There's a practical principle at work, and I think it answers all your other questions, too. The longer it takes, and the harder it is, to acquire something, the something becomes less and less valuable. On a windy day, would you ignore a five dollar bill at your feet in order to chase a twenty out in the road? Banks and creditors generally tend to be big companies that judge their profitability on the basis of aggregate numbers, not individual debtors. We're just blips to them. The five, ten, or twenty thousand we may owe is enormous to us, but it's just a blip to them. So they pursue collections on the basis of numbers. They chase after every penny initially, because most folks will pay up with just a single phone call, if they can do so. After a while, they decide that a particular debtor isn't worth the cost of in-house collections and farm it out to someone who'll take a percentage ranging anywhere from three to twenty percent, and when that doesn't work, they bundle that debt in with a gazillion others and sell the bundle to someone else at anywhere from ten to sixty-five cents on the dollar. Those people try to collect, and the ones they can't collect from, they ignore. There are a few creditors who will sue everyone, Citibank, for example. But the same principles apply.

The thing is that they get most of the money they are trying to get fairly quickly, and the longer a particular debt drags out the more time consuming and expensive it is to recover it. Since most unsecured consumer debt is really a blip on an individual basis, there's some folks who fall off the edge of their radar. And if worst comes to worst, they sue and get a judgment, if they can't collect within about three years or so, they're just not going to. I've never heard of a judgment being extended for relatively small amounts of money.

People come to me wanting to sue someone else over something or other, and I always tell them, if you're not suing for at least ten thousand dollars, it's not worth it. The time, trouble, and expense would be better applied to a shopping mission. You'll get more out of it. That's true for lenders, too. That's why they farm out collections so readily to the debt collectors, who process the debtors like parts on an assembly line. It's the sheer numbers that makes it profitable. If they can't collect at all from twenty percent of the debtors, that's just the cost of doing business. And the twenty percent who pay in full and promptly with one demand letter and phone call pay for the whole operation.

Don't know whether I'm making any sense. Hope that answers the question.

Thanks VLD for your time!

So, I understand that before a creditor intends to take any legal action against a consumer, he will consider the overall costs first and if it is worth doing. But since the debtors are facing it individually, they worry more about it.

Ok, there is one more query that bubbled up reading your post. Allow me to put it here, please! When the debt gets sold, the creditor knows whom they have sold the account to. Later, the CA that purchased the account will give the details to confirm their collection authority. Some agencies don't have the details of the account. Let's say you are the creditor and I am the collector. You sold an account to me and after sometime, I am trying to collect it from the debtor. If I have the complete details, I will surely recover the amount. My question is if I am not able to collect, I will pass the account to some other collection agency who continues to pass on and so on. In between, the data may get distorted and might lose its accuracy. Ultimately, what happens is that when the debtor will be contacted by some collection agency, say after 2 years, with wrong account information, and the debtor will ask for accurate information which the company won't be able to give. The debtor wants to pay the account in order to improve the file but due to wrong details, he is not interested in paying to someone with wrong information. Can this situation be put in proper shape? I will appreciate your suggestions. Thanks once again in advance

Probably not.

Speaking as a debtor, there's really two issues in dealing with creditors: a moral issue and a legal issue. From the creditor's point of view there's also a business issue, and probably no moral issue at all. The stockholders are interested in pennies per share earned during the quarter, and couldn't care less whether the debtors are good, bad, or indifferent.

I've already discussed the business aspect.

The moral issue is pretty vague, from my point of view, by the time the debt is sold off. The original creditor has been paid what he regards as a fair price. The purchaser bought a risk of nonpayment, on the assumption that there'll be enough payment in the lot to make it worthwhile. To me, the moral issue relates to one's duty to honor his obligation to his legitimate creditor, but if the old creditor doesn't care anymore, and the new creditor really doesn't care that much, I'm not sure I do either. Especially if they don't bother to get the information they need to be able to collect and keep it straight.

See, when they send a demand letter that says, "Joe Bloe, you owe X dollars, the original creditor is Flurg Corporation, account number 007", and Joe really did have a debt with Flurg, account number 007, but the amount wasn't X, it was Y, then the statement is a false statement, and Joe can legitimately deny the debt. Now most folks really don't have the accounting background (myself included) to really understand stuff like compound interest and interest on fees and late fees on top of late fees and prepayment penalties. So it's entirely possible that Joe really does owe X, he's mistaken thinking he owes Y. It's still appropriate to deny the debt and demand verification under the fdcpa - if they can provide the verification, explanation as to why they think he owes X in sufficient detail that a judge looking at it later would say it makes sense, then he can recognize that he's mistaken and pay up or make arrangements to pay up. But if they don't have the paperwork to show that he really does owe X such that they can set him straight by a proper response to the demand for verification, then he can legitimately say he doesn't owe that debt at all. Maybe he once owed a different debt that he's never paid, but if Flurg wrote it off or discounted it, then it's gone as far as Flurg is concerned. If Flurg didn't bother to send Joe notice that he's supposed to pay someone else, then Joe can legitimately claim he owes Y to Flurg and to no one else.

So, as a legal matter, I'd say Joe doesn't owe X to Newcreditor Collections, Inc. And if they can't prove he does by responding to a demand for verification, he's entirely justified in taking that position. And if Newcreditor Collections reports it to a credit bureau without having responded to a demand for verification, I'd say that was both libel and a violation of the Fair Credit Reporting Act.

Similarly, if the statute of limitations has expired, as a legal matter there's still a debt, but it's legally uncollectable. That's because statute of limitations is an affirmative defense that has to be stated in writing in pleadings when one is sued on the debt. It's a "use it or lose it" kind of thing. So a stale debt can still be reported but the debtor could get a letter stuck in the credit bureau's file that says, "I once had a debt to Flurg for Y, but they never acted to collect it. Newcreditor Collections says I owe them X, but that's not true. And the statute of limitations has expired, so I don't owe anybody anything." As a moral issue, that I assert businesses generally don't care about, he could also say, "I was willing to pay Flurg the Y I owed them, but they didn't want it. I'm still willing to do so notwithstanding the statute of limitations, if only they'd send me a corrected bill." (I wouldn't do anything like that, myself, because the stuff can't stay in the credit file all that long, measured from the time of the default, and anyone looking at the file will see it was a stale debt they didn't bother to sue on - besides I wouldn't make a waiver of my rights that way, 'cause you can lose them if you say stuff like that).

My feeling is that the System (or the Beast as some fans of the Book of Revelation put it) is a nonmoral thing. To participate in the System, one has to adopt the System's assumptions. So I treat dealing with the System only from a business and legal standpoint. When I'm dealing with creditors, on behalf of a client, I'm ethically obligated to pursue my client's best interests with respect to that creditor without any regard for whether I personally feel the client "should" or "ought to" pay the creditor. I don't get involved until the spaghetti has already hit the fan, generally, and at that point, it's all legal strategy and wrangling.

I think that the moral aspect is best explained in the Book of Proverbs, that I'd sum up thus: live with self-discipline, not self-indulgence; pay as you go, live within your means; tithe a bit, save a bit, and spend the rest with joy, peace, and thanksgiving. Once that spaghetti is in the fan, it's too late to worry about all that stuff. Best thing at that point is to try to figure out how to be getting better.

Well, I can understand the fact that you brought out along with your post. We should act as a responsible citizen and maintain the self respect all along our life. Hard times will come and go, but we have to make arrangements for everything and be prepared. Thanks LVD for your natural views. I appreciate it

There's lots of discussion about sending debt collectors a "denial of debt and demand for verification letter" pursuant to the fdcpa.

I thought I'd make it clear why I always do that for my clients.

While there is a nonzero probability that the debt collector will comply, they (1) almost never do; (2) couldn't if they wanted to because it's too expensive for the large creditors to save all the paperwork generated from small unsecured debt transactions (that may change as they learn how to scan things into computers and store them in fulltext-retrieval databases); and (3) those who send something almost never get it right.

So my real reason for sending the letter is not because I expect to get something back. I do it to set up the debt collector so I can sue their pants off on behalf of my clients when they violate the FDCPA. When the statutory damages provided amount to up to $1000 per violation, and some of them call four to six times per day, that can really add up. I claim not only the amount of any judgment obtained against my client on behalf of the creditor, but also my fees incurred in representing that client during the debt collection proceedings as well as the suit against the debt collector, plus the costs of filing, service of process and certain court reporter charges, plus interest on the total at the judgment rate. Then I start collection proceedings of my own, but since the debt collector is doing it as a business, it's not a consumer debt, so the FDCPA doesn't give them any protection.

Set 'em up, knock 'em down. Set 'em up, knock 'em down. If they ever learned to obey the law, I'd be out of a job.

I have a question for the attorney that joined us. SIMM Associates has failed to validate the debt in question and they are still demanding payments. I went online to the Department of Commerce in our state and they are not listed as licensed to collect in our state, but their little letter which has a PO Box address and I am suppose to send payments to Newark, Delaware and it also states they are licensed and bonded. Do I have to pay them where they are not licensed in our state and didn't validate the debt?

1) I'm assuming you sent them a demand for verification within thirty days of your receipt of a proper notice of your rights from them (receipt means the date when you actually got it, not the backdated fictional date they stamped on the demand letter or the fake postmark; and "sent them" means the day on which you actually put the envelope in the mail addressed to them, postage prepaid; and "thirty days" means starting when you received the demand letter as day zero - you count the first day after twenty-four hours has elapsed from the time of receipt, so start counting 1, 2, 3, ... 30, from the day following the date of actual receipt).

2) If they do anything at all other than simply respond fully and correctly to your demand for verification, then each and every act they take to collect, every letter, every phone call, etc., is a separate violation of the fdcpa. Keep a record/log of everything that happens.

3) You should never pay the debt collector, anyway, unless you got notice from the creditor to do so. See
http://www.debtconsolidationcare.com...out6798-1.html

4) Complain to the proper state agency in the state in which you live that the unlicensed debt collector is coming after you. They usually have PDF fill-in-the-blanks complaint forms you can use on their websites. Since the states lose revenue when unlicensed people are doing business, they generally take action on such complaints.

5) You can file suit against them in your state court for violation of the FDCPA. The FDCPA provides that suit can be filed in any court of competent jurisdiction, and that includes state courts, and provides for up to $1000 per violation, and attorneys' fees. You can also wait and see if they file suit against you, at which time you can file a cross-claim against the debt collector and possibly recover a judgment for more than you owe. (Not all states allow their courts to exercise personal jurisdiction over the defendant for only a single act, so you need to check on whether the courts of your state would have "competent jurisdiction" given your fact situation.)

I sent the letter 2 days after I received it. Most of the creditors have ever notified me that the accounts were going to collections. Instead I get a phone call that I either pay or else. I will go on the state website and look for the form and fill it out. How can they legally put that they are licensed and bonded when they aren't?

They may be able to truthfully say they're licensed and bonded in some particular state, or in some collection of states. But if they sent a letter into your state where they're not licensed and bonded, that's a misrepresentation of a material fact, prohibited under the fdcpa.

I didn't understand about going to the website and filling in a form - was that the complaint form? And did your demand for verification letter (1) deny the indebtedness, (2) demand verification of the debt, and optionally, (3) tell them to stop trying to contact you? Substantially the same kind of idea (though not necessarily the same in form or all the content) as is discussed at (see multiple posts on the same page - the first two lack the courthouse picture):
http://www.debtconsolidationcare.com...ecovery-3.html

If so, any further attempt to collect is a violation of law. Would they do that? You betcha. Keep a log of everything that happens, find a local lawyer who does consumer protection work or consumer defense work, and see if they'll help you. Because there's a provision for an award of atty fees, many will forbear from charging you as you go (although you have to be able to keep track of the fees so that you can get an award of fees) and if there's no judgment in your favor, will forgive the fees. Whether that will work depends mostly on whether the courts in your area really give effect to attorneys' fees provisions.

They were also sent a cease and desist which they have not complied with, which is a strict violation. The bill they are trying to collect, I am paying the OC $30.00 a month. I called the OC and they stated as long as I keep the agreement valid, there is no need for collections and they haven't sent it to collections. I haven't had a chance to look for the complaint form yet.

Virginia, Could I e-mail you with a question? It's a long one,but I really need some input on collection agencys. I've read your other posts, but what I need to ask wasn't thee. Thanks in advance