Collection firms can still demand old debt

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Dear Debt Adviser,
I just received a court docket number for an old credit card debt. If I am correct, the account was closed in February 2003. The collection agency is suing me for $15,000, which is what I owed. Can they sue me for that amount? I thought they could only sue for the amount that they paid for the debt? I need some help and need to respond to the courthouse within 30 days.
— Mike

Dear Mike,
I’m amazed the suit is for only $15,000. They could be adding legal fees and interest on top. But to answer your question, yes, they can try to collect the original amount of the debt regardless of what they paid for it.

I strongly suggest that you communicate with the court and appear when you are scheduled. In the meantime, do some research to determine the statute of limitations in your state that pertains to your credit card debt. If the time has expired to collect the debt, you can use that information in court.

From what you say, you seem to believe that the debt is yours and agree that you owe it. Still, I’d be sure they can show that the debt is valid, and that they have the original paperwork showing you owe the debt. I have heard more than once that older debts often are sold without proper documentation proving the person is responsible.

Let’s assume everything checks out. They have your John Hancock on an agreement or contract, and the debt is within the statute of limitations. Unfortunately, you owe what you owe. The relationship between your original creditor and the collection agency has nothing to do with you.

Yes, it is quite likely that the collector bought your debt for pennies on the dollar. Collecting the full amount, or as close as they can get, is how collection companies that buy debt make money. The original contract with your creditor is still valid even after the account is closed, and the debt is sold to a third party.

With that said, if you can come up with the cash, the collection agency may take less than is owed on the account if you make a reasonable lump-sum offer. You will have better luck if you make an offer before they spend the money to go to court and before they know they can get a wage attachment. Sixty percent or so is generally considered a reasonable offer to settle a debt with a collector. So, I’d start lower and work up to that amount.

In your case, that would mean a lump-sum payment of around $9,000. Making the payment would ensure that the collection process would end and that no further legal action will be taken. Before sending in the payment, get the settlement agreement in writing from the collection agency. You’ll want proof that the settled amount satisfies the debt just in case it rears its ugly head sometime in the future.

If you are unable to make a lump-sum payment and the debt is valid and collectible according to the laws in your state, you will need to analyze your monthly budget and determine what amount you can afford to pay each month. Be prepared to bring documents with you to court to support what you believe you can pay. If possible, bring an attorney with you. Showing up in court without a lawyer to face an experienced attorney is akin to showing up for a gunfight without a gun. Chances are you won’t enjoy either the experience or the outcome.

State your case before the judge, and he or she will decide the case based on your testimony and that of the collector. Do not, under any circumstances, misrepresent your financial situation. The collector has done its homework and believes you have the ability to pay, or they would not be suing.

Lastly, keep an eye out for a 1099 Miscellaneous Income form. Usually, the IRS counts any debt forgiven in amounts more than $600 as additional income. Yes, first they take your money, then they take your clothes!

Good luck!