October 4, 2012

How to Avoid being Victimized over Old Debts

Posted in Uncategorized at 8:37 am by otherdeb

Most of the readers of this blog know that part of the reason I started blogging was frustration with my roommate’s inability to deal with things financial (and the other part was my efforts to get out of debt).

Saturday morning, my roommate came over to me and said, “I’m not a happy camper.” Knowing that this usually prefaces some major financial misstep on her part, I sighed and asked what happened this time. She told me that she had been paying an old creditor according to their agreement for several months, but that this month said creditor had taken $500 from her account, so that while we have money for the rent, paying other things, like the electric bill, the gas bill, and the bill for our internet will mean using my overdraft privilege, which will mean I will accrue overdraft fees.

While I’m not thrilled about this, I can handle the fees. What is really bothering me is that the roommate and I have had several discussions about this, and she seems totally unable to grasp how not to get into these predicaments.

There are several things happening here.

There is a statute of limitations on most unsecured debts. If you have old debt, you need to know what the date is that your debts will, effectively, expire.

You also need to take advantage of the law that permits you to download and print out all three credit reports for free once a year (even if you really don’t want to see what they say). Further, if you are turned down for credit, you are permitted to pull a free credit report from the agency that supplied information to whoever you were applying to.

Now, the way debt works: After a debt has not been paid long enough that the statute of limitations is passed, that debt becomes uncollectible, with one very big exception. If the creditor (or an agency who has bought the debt) calls you, and scares you into making a payment, it not only reactivates the debt, but it starts the whole cycle again, so that the “clock” of the statute of limitations starts ticking again, with the date you agree to make a payment as the start date.

Greatly Simplified Example: You owe $BigBoxStore $500, that you charged in, say, June 1998. The statute of limitations on this debt runs ten years. Therefore, the debt expires in June, 2008. In August, 2008 an agency calls you claiming you owe this money, using all the scare tactics that they are not supposed to (but do anyway). You panic and agree to pay this off at $50/month. That debt is not only now active again, but the statute of limitations is also reactivated, and now won’t expire until August, 2018.

That said, there is a very simple way to not get caught by this. First, when the agency calls, write down whatever information they do give you. Most importantly, see if you can find out who the original creditor was. Second, DO NOT AGREE TO MAKE ANY PAYMENTS OVER THE PHONE. DO NOT EVEN ACKNOWLEDGE THE POSSIBILITY OF THE DEBT BEING CURRENT. Third, politely but firmly insist that the agency send you a letter regarding the matter (99 times out of 100, they won’t, because they know they are not entitled to this money). Once you hang up with the agency, check the information they gave you against your credit reports.

The other thing that goes on is that an agency will collect the amount of the debt, but sell the debt to another agency. When this happens, you can end up paying the same bill over and over again. Again, DO NOT PANIC. Get what information you can from the caller, insist on getting a letter before you agree to anything, and compare what they are telling you to what is on your credit report. Quite often, when you do so, you will find that this is a debt that you have already paid.

For example, the roommate was being harassed by an agency for a debt of $600. She got some information from them, including the account number, although not the name of the original creditor. Looking on her credit report, she found that the creditor was an eyeglass company, where she had missed several payments, but had eventually paid off the bill almost a decade ago. The next time the agency called her, she told them this, and sent them proof a copy of the report showing that the bill had been paid. They stopped calling her.

However, her normal reaction when these creditors call is to panic. She has no clue as to whether or not she paid the bills, because she does not regularly monitor her credit reports. So, in a panic, she agrees to pay. And she ends up paying the same bills, over and over, because the agencies sell the notes to other agencies, but do not provide the new agencies with records of payments that were made to them.

Several years ago, I was paying down a debt and the agency sold it to another agency, but did not give the new agency information about the two years’ worth of payments I had already made. Fortunately, I had built up a good relationship with the woman in charge of my case at the first agency. She was able to send me a record of my payments on their letterhead. But the second agency persisted. I actually had to go to the professional organization for collection agencies, to the Better Business Bureaus in both my state and the second agency’s state, and to the Attorneys General in both states to get the matter settled, but I did get it settled.

When you send information to an agency, showing that either you have paid the debt, or that this is a debt where the statute of limitations has passed, make sure you do so in a certified, return receipt requested, letter. This will provide a record that you did notify the agency properly. Also, if you write to any governing agencies about the situation, do the same. Believe me, the few dollars you spend doing so will more than pay off should you have to eventually retain counsel to deal with the agency.

What I really want people to take away from this entry is that, providing they do not panic and give in to whatever the yahoo on the other end of the phone is saying, they do not have to be victimized by agencies that are exploiting the holes in the system that they figure most people don’t know about.

Honestly, the odds are that if you are getting these kinds of calls, you already know that the worst they can do is mess up your credit report or a few years, and have probably already survived that having been done a few times. You know that this is survivable, and that, if you don’t panic, you can outsmart them at their own game. You know that all it takes is getting past the panic, marshaling the resources you have at hand (your records, your credit reports, and a few well-placed letters to the right agencies), and a bit o patience.

And the biggest part is the first part — getting through the initial panic. We all panic when threatened. It’s a reasonable response. Where many of us go wrong, however is that, like my roommate, we let the panic drive our next steps. What we need to do instead is to step back and look at the situation. Tell the agent, “I can’t talk now. Please send me a letter so we can discuss this at another time.” If they don’t send you the letter, it’s all good. If they do, get your proof together, and write them a certified, return receipt requested letter, enclosing a photocopy of your proof. That will generally work to get them out of your hair. If it doesn’t, write to the regulatory agencies and professional organizations, including copies of their letters and your proofs of payment.

You can prevail, so long as you maintain a level head, and the willingness to delay action long enough to get past the natural panic reaction.



  1. Melissa G. said,

    This is REALLY useful information. I have a couple of people I need to either send this way, or (in one case) print this off and hand it over to them.

    • otherdeb said,

      Hi Melissa! I’m so glad you found this useful. I really hate that some agencies use illegal tactics to scare people into paying things that have either expired or already been paid off. There really needs to be better oversight of these agencies, with real consequences for the offending agencies — including closure — rather than just the slaps on the hand they usually receive. They pay the fines and continue to scare people because so many people are so easily scared when the word “lawyer” is mentioned.

      Syms, a local clothing retailer, used to have a motto that “An educated consumer is our best customer.” I say that being an educated consumer is the best way to prevent being ripped off.

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