How to Remove Collection Accounts
How To Remove Collection Accounts
There are many legal ways to remove collection accounts, and there are some that are unethical. We will spend time discussing the legal ways to get these pesky accounts taken care of and remove collection accounts.
Collection Agencies have earned a bad reputation for their ruthless tactics and bending or (on many occasions) breaking the law. The purpose of this chapter is to discuss how you can handle these types of agencies, your rights under the law, and how to repair the damage that collection accounts can cause to your credit report. This article will guide you to remove collection accounts.
How a Collection Agency Works
A collection agency is a third party company that is essentially a hired gun for a creditor. When a consumer defaults on an account, the creditor will usually attempt to collect the debt for a few months. After it determines that it will not be a quick or simple process to collect, they will turn over the account to a collection agency.
Collection agencies will traditionally work in one of two fashions. The first is to collect on a debt that has been assigned to them. In this case, the collection company does not own the debt, but they are working on behest of the original creditor to collect. The second instance is when a collection agency purchases the debt from an original creditor and becomes the owner of the account. Ultimately, the agency does not make money unless they collect on a debt. This is why they can be relentless in their pursuit. The will pull out all the stops and try every tactic allowed (legal or otherwise) to intimidate you into paying the debt.
TIP! You can identify if an account has been sold or assigned by checking your report for the original creditor. If the original creditor is listed (for example, a credit card) check the balance. If it is showing a $0 dollar balance, it has been sold. If the original listing is showing a similar balance as the collections account, it has been assigned. It is easier to have a lower offer accepted if the account has been purchased by the collection company. You will need to remove collection account issues before your score will increase.
The Fair Debt Collection Practices Act
The FDCPA was enacted in 1977 in response to the abusive nature of collection agencies. The main principal of this act was to ensure that the consumer will be treated fairly by those trying to collect a debt. It also spells out which collection activities are considered legal, and which ones fall outside the law. It is important that a consumer learn their rights in accordance to this act..
Under the FDCPA, all consumers are afforded the right to have their debt verified for accuracy. Most credit repair tactics use this as a secret weapon, and although it often will work, it isn’t always the best way to approach all collections accounts.
The FDCPA requires you put your request in writing within 30 days of receiving your first collection letter relating to the debt. The agency is required to respond in writing with evidence that this account does in fact belong to you. In the meantime, they must cease all collection attempts. If they cannot provide you with this information, they are required by law to remove the account from your credit file.
If you received a letter awhile back, or the account has been on your file for numerous years, the collection company does not have an obligation to reply.
Steps to Handling a Collection Account
The very first thing that needs to be done is identify what kind of collections account you have. Medical debts can be handled differently, using what is known as the HIPAA dispute process. You do not have to follow the HIPAA process for a medical collections account. This is used if other options have failed. For all other collection accounts, you will need to locate the date of last delinquency. This information can be located on your credit report. You need to prioritize accounts differently depending on what you are trying to accomplish. Below are is the order in which I recommend you approach collection accounts. Due to legal reasons, the HIPAA process cannot be discussed in this guide.
Accounts That Fall Outside the Statute of Limitations or Accounts That Can Be Paid In Full
In all states, laws were enacted in order to keep companies from collecting debt that has been sitting in the attic with the moth balls. Every state is different, so you will want to look up you states statute in relation to collections at our website. With that said, the statute of limitation may have expired on a debt but the debt can still legally report for several years. These accounts are the easiest to remove because under the law they cannot sue you for the debt, therefore you hold the upper hand in negotiating.
Similarly, accounts that you feel you can pay in full often hold some leverage for the consumer. Though collection agencies will usually settle for less than the full amount, often they will work with those who are willing to pay the whole amount.
Word of caution; you have to be very meticulous in the way you handle these accounts. If you start veering off course, you can open yourself up for a lawsuit if the debt isn’t outside of the statute of limitations. If it is a debt you cannot afford to pay in full, hold off working on those accounts until you take care of the accounts you can handle.
Original Creditor or Collection Agency?
Once you have identified an account you want to tackle, the first step is to determine who actually owns the account. You want to avoid dealing with the collection agency at all costs. On your credit report, often times both the original creditor and collection agency will be reporting the account. Is the original creditor showing a $0 balance? This is usually a sure-fire way to tell if the debt has been sold.
If the original creditor is still showing a balance, you may be in luck. Contact the original creditor and try to work out a settlement. Usually, they will only discuss this if you offer to pay off the debt in full. If paying in full is the route you choose, make sure it is under the expressed stipulation that the creditor will pull the collection account back from the collection agency. Once they have given you this approval, you will need to send a Debt Validation letter to the collection agency. Since you have paid the debt, they will not be able to validate it and will be required by law to remove the collection account your credit file.
Occasionally, the original creditor will refuse to deal with you. In this situation, you will be forced to deal with a collection agency. You will also have to handle it with the collection agency if they have bought the debt outright.
Settling with a Collection Agency
Once it has been determined that the account belongs to the collection agency, you need to figure out the best way to handle the settlement negotiation. Debt will not go away on its own.
The first step will be to send a debt validation letter to the collection company. The companies address should be listed on your credit report. If not, you can always use Google to find a current address. There is a real good chance that if you have come this far with the account, this account will validate correctly and will not be removed from your credit report prior to settlement. However, many times the collection company will not have the documentation or the ability to collect on a debt anymore. In this situation, they may respond that they have removed the listing from your credit file.
Be warned! Sending a debt validation letter for a debt that is inside your states statute of limitations could awake a sleeping giant. The collection company may respond with a summons to appear in court.
The following letter is an example of a correspondence from a collection company who was unable to verify a debt. In this situation, I sent a debt validation letter to the collection company about a debt I was unsure about. I had already attempted to dispute this account through the credit reporting agencies because I believed this was an inaccurate account.
They never responded to my letter, so I found an internal email address within the company through the Better Business Bureau. The following is the letter that the collection company responded with. I have omitted information that could identify the collection company, but this letter is authentic.
An effective way to have an account removed from your credit file is to negotiate though settlement negotiations. The older the debt, the more likely the collection company will settle for less than the full amount. Remember, collection companies are in the game of making money. If you can offer them something of value, you can negotiate something of value for yourself.
First, offer the collection company what is known as a pay for delete. You can offer whatever amount you like, but companies are wise to this game and usually will not do a full delete unless you pony up the full amount. They understand why you are asking for the delete, and they will use this against you. Often you will be rejected for this kind of offer. Keep trying! Most collection companies will usually fold after a few letters. See the pay for delete example located in Appendix A.
Occasionally, companies are unwilling to work with you on the pay for delete. If this is the case, you should negotiate a settlement that fits your budget. This won’t get the item removed from your credit file, but it will set the stage for a good will adjustment down the line.
Helpful Hints on Negotiating with a Collection Agency
Contact the agency at the end of the month. Collection companies are often publicly traded businesses and like their finances to be in order by the end of the month. You can even offer to expedite payment so it is received before the month expires. You can use that date to your advantage to offer a lower settlement.
Offer a larger lump-sum. The collection company wants as much money as they can get, and as fast as they can get it. They will much rather settle for $300 up front, than $500 stretched out over 24 months.
Tell a tale. Whatever you decide to offer them, make it seem like it is the best you can do. If they think you are broke, they might just take a smaller offer. Use whatever hardships, real or imaginary, to your advantage.
Submit your offer in writing. Collection companies like to use bully tactics over the phone, but they know what you want. You want the information deleted. Send them a serious written offer and this can open the backdoor in negotiations. Although it would be false to say all customer service agents in the collections industry are bullies, more times than not, their income is based on how much they get you to agree to. Handle with care!
Once you achieve a settlement agreement, make sure you have it on paper. It is best if you have the collection agency fax you a letter on company letter head with the outline of the settlement. Keep this in your files, because it will be important if they do not live up to their end of the bargain.