Dear Debt Adviser,
If you accept a settlement offer for a debt and pay the agreed amount, what happens if another collection agency contacts you stating they own the same debt you just paid off?
This happens more frequently than most people expect. The reason is not some evil conspiracy to get you to pay twice; it’s usually the result of a breakdown in communication.
Every month, tens of thousands of debts are sold and resold into the secondary collections market. With each sale, the price of the debt and the amount of accompanying documentation drops. At some point, mistakes happen. But that doesn’t mean you have to pay again or put up with a new collector.
I always recommend getting a settlement offer in writing before you make a settlement payment. Then, be sure to get a receipt when you make a payment. Keep copies of the settlement agreement in a safe place along with proof of payment — credit card statement, copy of your check or money order, etc. You want to have that paperwork to ward off any collectors in the future.
Should you be contacted by another collector concerning this debt, state that you have already paid what you owed, and that you will be happy to send copies of the agreement and proof of payment. If you did not receive or can’t find a copy of the written agreement and proof of payment, ask the collector for proof that you owe the debt. That documentation may be scanty or nonexistent, especially with an older debt.
You also can check your state’s statute of limitations, the time limit for collecting a debt using the courts. If the statute for your state has passed, you won’t need copies of the settlement agreement but can simply let the collector know the debt is outside the statute of limitations.
Two other things you should keep in mind when settling a debt:
First, if the amount of debt forgiven (left unpaid) is more than $600, the collector will report the forgiven amount to the Internal Revenue Service, and Uncle Sam will consider it taxable income for you. Look for a 1099-C form, and be sure to include the amount on your annual income tax return.
The second is to check your credit reports about 60 days after you make your payment, so you can be sure the account in collection was marked as paid. It will likely be listed as “settled — paid” or “settled in full.” It is important that the account be marked as paid because until the bad debt drops off your credit report (seven years from the date of delinquency), any potential lender will be much less likely to do business with you.
If the account is not listed correctly, file a dispute with the credit bureau that is reporting it, and send copies of your settlement agreement and proof of payment. The credit bureau will have 30 days from the date your dispute is received to investigate the listing and make any required changes to your credit report. The bureau will send you notification of what actions were taken regarding your dispute within five days following the 30-day investigation period.
Ask the adviser