When an old debt is not paid in a timely manner, it may be purchased by debt collection companies for pennies on the dollar. However, there are rules that debt collection companies must follow when trying to collect a past due balance. According to a lawsuit by the Consumer Financial Protection Bureau against Frederick J. Hanna & Associates, the company filed 350,000 lawsuits without checking to see if the person being sued was the one who owed the debt.
In a different case in New Jersey, a judge ruled in June 2014 that while a company may use automated procedures in some cases to take action against a debtor, there is no way that accurate verification can take place with a brief scan of debtor information. While many consumer advocates are calling for increased regulation, a representative from the Association of Credit and Collection Professionals claims that the process is fair and that most companies abide by the law.
Experts say that the easiest way to get a debt collection company to back off is to file a complaint disputing the debt. In many cases, the debt collection companies will either not be able to prove that the debt belongs to the person being sued or will not want to spend the time fighting the case in court.
Those who have unpaid debts may be liable for those debts until they are paid. While there are limits to how long a company may take legal action against a debtor regarding an unpaid balance, a company has the right to try to collect that debt for many years in most states. A bankruptcy attorney may be able to work with creditors and debt collection agencies to work out a debt settlement or forgiveness plan to help clients overcome their debt issues.
Source: CNBC, "Feds crack down on debt collection 'factory'", Herb Weisbaum , July 19, 2014