Managing Debt

What to Do When a Debt Collector Demands a Full Payment

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When a Debt Collector Demands Payment in FullA Credit.com reader recently wrote in with this issue:

I have been paying a collection agency $100 per month for a hospital bill for 7-8 months now. They now want me to settle this debt in full and say I owe: $9,131.20. They don’t want to work with me and want me to take out a loan to pay them in full but I can’t afford it. The statute of limitations for Oklahoma is 3 years and I want to pay it but they don’t want to work with me. What are your suggestions before I speak with them?

Dealing with an outstanding collection can be nerve wracking, especially when you’re trying to do the right thing and make every effort to pay your debt. And as you’ve experienced first-hand, it’s even more stressful when the debt collector refuses to work with you.

Unfortunately, your situation is a little more complicated and exacerbated by the fact that you’d made prior arrangements with the collection agency to make monthly payments. For future situations like this, I would urge anyone dealing with an unpaid collection to review and follow the steps outlined in our infographic on what to do if a debt collector calls before agreeing to any type of payment plan. Often it may be in your best interest to negotiate a settlement over opting for a monthly payment plan — or at the very least, getting the payment arrangement in writing. Before I answer your question, it’s important to clarify a few details on collection agencies, how they work and the statute of limitations on unpaid debts.

[Related Article: The First Thing You Must Do Before Paying Off Debt]

Free Credit Check & MonitoringThe deal with debt collectors

First, collection agencies aren’t legally obligated to accept or agree to payment plans. In short, debt collectors don’t have to work with you or agree to any payment schedules based on what you’re reasonably able to afford. Their goal is to collect as much of the debt as they can, as quickly as they can. I’m also going to go out on a limb here and assume that the $100 payments that you’ve sent so far are based on what you’ve been able to afford, not on any amount that was agreed to by the collection agency. I say this solely because collection agencies rarely work out extended or long-term payment plans. They are collectors, not lenders, unfortunately. They aren’t interested in slowly collecting monthly payments. Based on your current payment schedule it’ll be more than seven years before they are able to collect the full amount, which is why they don’t want to work with you and are being more aggressive and pushing for you to pay in full “now.”

Second, the statute of limitations (SOL) for creditors/collectors to file a lawsuit is based on the date of the last payment on the debt. In your case, the statute of limitations restarted when you began making the payments 7-8 months ago and will now be based on the date of your last payment. And while SOLs on debt collections vary by state, according to Oklahoma Statutes the 3-year SOL applies only to contracts “express or implied not in writing.”  If the original contract with the hospital was a written contract and was agreed to in writing, the SOL would be 5 years instead of 3:

§12-95.  Limitation of other actions.

A.  Civil actions other than for the recovery of real property can only be brought within the following periods, after the cause of action shall have accrued, and not afterwards:

1.  Within five (5) years:  An action upon any contract, agreement, or promise in writing;

2.  Within three (3) years:  An action upon a contract express or implied not in writing; an action upon a liability created by statute other than a forfeiture or penalty; and an action on a foreign judgment;

[For a state-by-state list of SOLs, please see our interactive resource "Statute of Limitations On Debt Collection by State"]

What should you do now?

If you can’t afford to pay the debt, it’s a bad idea to take out a loan to pay it in full. I’d also argue that it would be better to settle the debt for less instead of trying to pay it in full with long-term monthly payments — especially if your financial situation is already precarious. In your case, it may even be worthwhile to consider holding off on the monthly payments and setting aside the $100 per month until you’ve collected a larger sum of cash that you can use as incentive to negotiate a settlement. Debt collectors are more likely to negotiate a settlement, often at much lower amounts, if they think there’s a chance that they may not be able to collect at all.  In many cases, collection companies purchase these debts from creditors (or the hospital in your case), for pennies on the dollar. Obviously, they want to collect as much as possible, but as long as they are able to collect more than they paid for the debt, it’s still a profit for them.

It’s important to do what’s right and pay the debt, but if you are truly under a hardship and unable to pay, it may not make sense to even struggle or agree to try. At the very least, it may be more feasible for you to stop making the payments while you save up a settlement fund. It won’t stop the collector from suing you but the fact is, they could technically do that now if they choose. Remember, collectors don’t have to accept payments and can still sue you in an attempt to collect the debt if they think there’s any chance that they would win. However, if you are truly unable to pay the debt, they may decide that it isn’t worth the time and money to go after you for it.

Sadly, I can’t speak to your personal financial situation in regards to income, assets and other financial obligations, so with that in mind, if the collector does pursue legal action, you should speak with a collection attorney. Most consultations are free and they’ll be able to help you better understand your options based on your individual financial liabilities and assets, and advise you accordingly. Hopefully, it doesn’t reach that point and you’re able to negotiate some sort of settlement to effectively resolve the debt.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

More Credit.com resources on debt collectors:

  1. 11 Ways A Debt Collector May Be Breaking the Law
  2. Infographic: What to do if a Debt Collector Calls
  3. Sweeping New Rules Proposed for Debt Collectors, Credit Bureaus
  4. How to Handle the Debts of a Deceased Loved One
  5. Debt Collector’s Tactics Would Make The Godfather Blush
  6. Reader Question: Can A Debt Collector Report An Old Debt As New?
  7. The Dos and Don’ts of Paying a Debt Collector
  8. How Debt Collectors Try to Use Your Children To Collect
  9. Collecting Debt From Those Who Have Died: FTC Weighs In
  10. Reader Question: Debt Collector Won’t Work With Me
  11. Getting Collection Calls For Someone Else? Here’s What To Do
  12. FTC to Investigate Debt Collectors on Facebook

Image: walknboston, via Flickr

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  • Megan

    I live in Putnam County NY. A debt attorney firm from Long Island NY has frozen my checking account (the only account I have). My bank gave me the phone number to call and that is how I found out who froze it and why. I was told Capitol One has. a Judgement against me in court since February. I told them I was unaware of this. I asked if I should have been in court? And if I could get copies of any of these pApers. Their answer was get a lawyer. I can’t afford a lawyer and would like to see these papers before I try to borrow the money to pay this. They are looking for $2772 to pay it now. Do I have a right to these papers ?

    • Credit.com

      Hi Megan– Because the company has already frozen your account, this question is a little more complicated so we reached out to our in-house credit and debt expert, Gerri Detweiler. She was kind enough to provide the following in-depth answer:

      I know this must be a scary situation for you. You are right to be cautious, though. There are a lot of collection scammers out there.

      However, if this company was able to freeze your bank account then more than likely there is a judgment that they are collecting on.

      I am not an attorney so I can’t say specifically what documentation they are required to provide in response to your query. However, if you contact the court, they should be able to help you verify that the judgment was entered/when/by whom/for what amount etc. In addition, the judgment is likely listed on your credit reports which you can obtain for free at AnnualCreditReport.com.

      It sounds like it’s possible that you were not properly served with the notice that you were being sued. That does happen. The NY Attorney General cracked down on over 100 debt collectors a few years ago for not properly serving consumers.

      You’ll find some information about the requirements for serving consumers in NJ here: http://www.judiciary.state.nj.us/rules/r6-2.htm

      You’ll find more information about judgments here: http://www.judiciary.state.nj.us/civil/civil_faq.pdf

      If you believe you weren’t properly served and want to try to get the judgment vacated (removed), you will probably need to talk with a consumer law attorney. However, depending on the amount of the judgment and what you still owe after the funds in your bank account are seized, that may make sense. Most consumer law attorneys charge more reasonable fees (they are dealing with consumers, after all, and not corporate clients) and most will give you a free or low-cost consultation to help you determine if you have a case. If it turns out the collection agency broke the law, they may have to pay the attorney’s fees. So it doesn’t hurt to at least talk with one. You can visit NACA.net for a referral to a consumer law attorney.

      The other option is to talk with a bankruptcy attorney. They may be able to help you protect your bank account and get the judgment wiped out in bankruptcy. But you need to do that ASAP – you may not have much time since the action against your account has already taken place.

      –Gerri Detweiler

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