The party you borrowed money from often differs from the one who tries to collect from you. If you have not made payments on a debt for a certain amount of time, the creditor from whom you borrowed the money may write off the debt. However, you are not off the hook from your obligation to repay, and your situation may become even more difficult. You are now dealing with a debt collection agency that will maniacally try to collect your debt using any means possible.
Federal laws limit what debt collectors may do, and the Fair Debt Collection Practices Act lists many prohibited practices in which debt collectors cannot engage. Further, each state has laws governing what debt collectors may do when dealing with you. If the debt collector has violated these laws, you can file a lawsuit against them for financial damages. An experienced FDCPA attorney can advise you whether you have a possible lawsuit and can file the case on your behalf.
Definition of a written-off debt
You may have borrowed money through a credit card or auto loan and then experienced financial distress. The lender may have given up hope of being paid back after several months of missed payments.
The creditor can change how they categorize the debt. They can write the debt off, removing it from their balance sheet entirely. Usually, debts owed may be accounts receivable, and they are an asset on the balance sheet. When creditors write off the debt, it comes off the balance sheet entirely, and they may then take a write-off and charge the bad debt against their earnings.
Common misconceptions about written-off debts
The debt does not go away entirely when a creditor writes it off. They may be taking a loss and removing the debt from their books, but the debtor still must pay. At some point, the debt ownership may shift, and you will repay it to the new owner.
Sometimes, the creditor may write off the debt entirely and not even sell it to a debt collector. They will notify you that the debt is distinguished, and you do not have to pay it.
Importance of Understanding the Legal Implications
If a collections agency contacts you, they now own your debt. They have paid the creditor the right to collect from you; whoever owns your debt can take collections efforts.
The creditor is legally obligated to write off debt after 180 days, and usually, they will sell the debt to a third party. The amount of money the creditor will receive depends on the age of the debt and the relative chances of collecting. Debt collectors will offer creditors money for it accordingly.
Reasons Why Creditors May Choose to Write off a Debt
While it is not ideal to sell debt for far less than it is worth, the creditor still ends up with something. Creditors may write off debt for a variety of reasons, including:
- They can take a tax loss for this reporting period, saving themselves taxes on income they have otherwise earned.
- Writing off debt allows the creditor to sell it to a purchaser, such as a debt collection agency.
- They can close their books for a certain period.
- If the creditor has too much bad debt on their balance sheet, they may be unable to access money.
Writing off debt has particular benefits for a creditor, and the most important is that they can already qualify for a tax benefit while still retaining the right to receive payment.
The creditor can choose to write down a debt. In that event, the debtor will still need to pay the debt according to their agreement with the creditor. The debt may be worth less, but the creditor will still pursue payment.
The stockholders may punish a company when it does not write off debt because they may feel misled about the quality of the debt already on the books. They may sell their shares if they learn that much of the debt was not collectible. Stockholders can even file a lawsuit against the company for misleading and false statements.
While companies often do not like the appearance of writing off bad debt, they may have no other choice.
Debt Collection Agencies and Written-Off Debts
The creditor themselves may have had a prior relationship with you, and they may not want to sully their reputation by engaging in aggressive debt collection practices. Debt collection agencies do not care about you or their reputation. They know the general public hates them and will do whatever they can to squeeze and intimate you into paying what you owe.
These agencies usually end up owning your debt, and they are the last people you want to deal with. Their business practices often cross the line to being illegal with intimidation and harassment tactics.
How Zombie Debts May Affect You
Debt collection agencies only have a certain amount of time to collect your debt. Each state has a statute of limitations that gives a time limit for the debt collector. After that, they cannot make any collection efforts for that debt, and if they try to collect from you, they are breaking the law.
A zombie debt is an old obligation that a debt collector may try to make come back alive. If the debt is past the statute of limitations, you do not have to pay it. The debt collector has no legal right to the money, no matter how much they try to convince you otherwise.
Many people are terrified when they even hear from a debt collector. They think that they can be arrested or face other criminal consequences. Debt collection agencies know this, so they try to do whatever they can to try to scare you. You need to know when you incurred a debt to understand whether you must repay it.
You must be very careful with your actions regarding a written-off debt. If you had no obligation to pay back the money, you may end up reviving it if you make a payment on an extinguished debt. Then, the statute of limitations begins again, giving the debt collector an entirely new period to collect from you. They can coerce you into other actions that will result in you reaffirming an old obligation that had ceased to exist.
If the debt collectors confront you with a debt you do not recognize, you should verify that the debt is yours before you pay. Debt collectors can invent fictitious debts or make mistakes during the process. Quality control is rarely their concern when they are trying to extract money from you.
How Debt Collection Agencies Operate
Once a creditor writes off the debt, a debt collection agency is happy to buy it, and often, they will pay pennies on the dollar. The creditor will pocket the money, and they will take the loss on their books. The debt collector can then take all collection efforts and even take you to court in a lawsuit. They can obtain a judgment against you, which they can use to garnish your income.
Legal Limitations on Debt Collection Practices
Debt collection agencies use shady and underhanded tactics to coerce you to pay. These agencies have paid a fraction of what your debt is worth for the opportunity to collect from you. If they get even a few debtors to repay them what they owe, the debt collector can buy more debt and make even more money.
Thus, the debt collector may do anything to scare you using the following tactics:
- Pretending to be a lawyer, giving their collection efforts the imprint of a legal action
- Repeatedly calling you to harass you about paying
- Calling you at odd hours of the day to annoy you
- Misrepresenting the nature of the debt
- Yelling or cursing at you when they call
- Threatening to have you arrested or making other threats of things that the debt collector cannot or will not do
Many people do not understand their rights under the law, and their fears may mean they do not stand up for themselves when the debt collector crosses the line. You can and should fight back.
Filing Lawsuits Against Debt Collectors
You can sue the debt collector when they have resorted to illegal or abusive tactics by filing an individual or class action lawsuit under the Fair Debt Collection Practices Act. It does not matter whether the debt collector intended to violate the law. If you can prove that the debt collector broke the FDCPA, you may be entitled to the following damages:
- Your actual damages, such as emotional distress and economic losses from the debt collector’s illegal practices
- Statutory damages of up to $1,000
- Attorney’s fees
Most cases against abusive debt collectors will fall under state law. Frequently, these laws are even stricter against illegal debt collection practices, and you can get punitive damages for what the debt collector did.
You must hire an experienced attorney to handle your illegal debt collection matter. You need to know your legal options and how much you may be due in financial compensation. Debt collection agencies can be tricky; tracking down the proper entity for you to sue can take time. Then, you must determine whether to sue under state and federal law and how much money you can get.
Hiring an FDCPA attorney does not cost you anything out of your pocket. Your lawyer will work for you on a contingency basis, asking you for no money out of your account at any time. If you win your case, the defendant usually pays your attorney’s fees as part of your settlement or jury award. You will not need to pay your attorney anything if you do not win your case.
If creditors write off your debt, it will hurt your credit score. Even if the write-off means you do not have to pay the debt, your credit score will still suffer, and you will have the delinquency on your report for up to seven years. Over time, your credit score can recover, but you can count on a considerable impact for at least the first few years.
How a Lawyer Can Help You With an Unfair Debt Collection Lawsuit
If you find yourself facing an unfair or abusive debt collection, you may be unsure of where to turn. In times like these, seek the assistance of an FDCPA lawyer immediately. The right legal representation can make a world of difference in protecting your rights and relieving you from further debt collection of a written-off debt.
One of the key ways a lawyer can help you with an unfair debt collection lawsuit is by providing experienced advice throughout the entire process. They have an understanding of debt collection law and the lawsuit process. They will carefully review your case, assess the evidence, and develop a strong strategy tailored to your situation.
A lawyer can also alleviate the stress and anxiety that often accompanies these types of situations. They will handle all communication with the opposing party, ensuring that you don't have to deal with harassing phone calls or intimidating letters. This allows you to focus on other aspects of your life while your lawyer takes care of the legal aspects of your case.
Furthermore, a lawyer can negotiate on your behalf to seek a favorable resolution. They have experience in debt collection negotiations and can work to reduce or eliminate any further debt collection entirely. If necessary, they can also represent you in court and present a compelling case that supports your rights and interests.
If you are experiencing debt collection on a written-off debt that you have no obligation to pay, do not make a payment. Instead, consult an California consumer protection lawyers right away about your options. Sometimes, all it takes is a phone call to stop the collection practices. Other times, legal action in court is necessary, and you might receive damages for the violation of your rights by debt collectors.