Although it is a violation of the Fair Debt Collection Practices Act (“FDCPA”), unscrupulous debt collectors often try to collect settled or paid debts. Frequently, such debts end up in the hands of “vulture” debt collectors or “zombie debt” buyers who may know that the debt has already been paid. In my bankruptcy and debt resolution practice in Philadelphia, I have seen clients who were harassed unmercifully by these types of collectors over debts that they had paid (ore even phantom debts that they did never owed.) Fortunately, there are steps you can take to put a stop this type of harassment:
1. Know the Law:
When a collection agency attempts to collect a debt that has been settled, and persists in doing so after being presented with evidence that the debt was paid, it is violating the federal Fair Debt Collection Practices Act and similar state laws, such as the Pennsylvania Fair Credit Extension Uniformity Act (“PFCEUA”). In addition, if the agency reports a settled and paid debt on your credit report as unpaid and does not correct it, it is a violation of the Fair Credit Reporting Act (“FCRA”). Violations of any of these statutes can result in damages for the debtor, including attorney’s fees.
Quick Point: Always get any settlement with a creditor in writing and keep copies for your records. In addition, check your credit report two or three months after the settlement to make sure the account is listed as paid. You cannot assume that a creditor will properly credit your account or report accurate information to the credit bureaus.
2. Let the Collection Agency Know That You Know the Law:
What should you do if a debt collector tries to collect a paid debt? If no lawsuit has been filed against you, the first step is to write to the collection agency (via certified mail) to (a) demand verification of the debt, and (b) inform the collector that the matter was settled. Under the Fair Debt Collection Practices Act, the collection agency must then verify that you in fact owe the debt. If it cannot verify the debt, it must stop all collection efforts. Debt collectors prefer to pursue people who do not know their rights. Therefore, this initial letter will frequently stop the collection efforts.
Quick Point. Because of the practice of selling and reselling debts over and over, many debts are not documented in any meaningful way. If a debt has changed hands several times, it is quite possible that the current creditor or collection agency will not be able to obtain proper documentation of the debt.
3. Respond to Lawsuits in a Timely Manner:
If an agency files a lawsuit against you, it is important to respond to the complaint by the required response date, preferably after consulting an attorney. There are a number of defenses you may wish to raise to any collection lawsuit, including (1) the debt was paid (again, keep those settlement documents), (2) the Statute of Limitations has expired (common, if the debt is old), (3) the creditor cannot prove that the debt is owed (i.e., documentation is lacking), etc. In addition, you may wish to claim when appropriate violations of the statutes we discussed earlier, such as the Fair Debt Collection Practices Act. Be sure to respond to any lawsuit in a timely manner, or you may lose your defenses.
4. Seek Counsel
Most importantly, do not hesitate to seek the advice of an experienced attorney when dealing with collection agencies. Many bankruptcy and debt resolution lawyers relish a good fight with an abusive collection agency and will be happy to talk to you.