Third Party Debt Exposed: The Secrets They Don't Want You to Know

Cain & Daniels, Inc. have over 20 years of experience as third party representation in commercial debt settlement cases. In those 20 years, we have settled over 10,000 cases – avoiding bankruptcy and keeping the doors of small businesses open all over the U.S. and Canada.

What is Third Party Debt Collection?

Third party debt collection involves the collection of debts owed to a creditor by an outside collection agency. It typically occurs when a person or business fails to pay an outstanding debt and it becomes delinquent or goes into default. At this point, the original creditor may choose to sell or assign the defaulted debt to a third party collection agency at a fraction of its value.

The third party debt collector then attempts to recover on the debt and keep a percentage of what it collects. The collector contacts the debtor directly to compel payment. The most common types of third party debt collection are for credit cards, medical bills, utilities, personal loans, and other services where bills may go unpaid.

Third party debt collectors purchase these debts for much less than face value, then use aggressive tactics to try to recover as much as possible. They make their profit on what they collect above what they paid to acquire the debt. While permitted in limited ways, some third party collectors use unscrupulous practices banned under consumer protection laws.

Is Third Party Debt Collection Legal?

Yes, third party debt collection is legal in the United States. However, third party debt collectors must follow federal and state laws that regulate the debt collection industry and protect consumers.

The main federal law that governs third party debt collectors is the Fair Debt Collection Practices Act (FDCPA). This law, passed in 1977, prohibits debt collectors from using abusive, deceptive or unfair practices when trying to collect a debt. It also restricts when and how third party debt collectors can contact you regarding an alleged debt.

For example, under the FDCPA, third party debt collectors:

• Cannot call you before 8am or after 9pm
• Cannot contact you at work if you've told them your employer disapproves
• Cannot harass, oppress, or abuse you when trying to collect a debt
• Cannot threaten arrest or legal action that they do not actually intend to take

In addition to federal law, third party debt collectors must follow debt collection laws in each state where they operate. Many states have additional rules debt collectors must adhere to, such as how soon they must send you a validation notice for the debt.

So in summary - yes, it is legal for creditors to hire third party debt collectors to pursue debts owed to them. But the third party collectors must strictly follow consumer protection laws at both the federal and state levels when contacting debtors. These laws regulate when, where and how they can attempt to collect.

How Third Party Debt Collection Works

When you fail to pay a debt owed to a creditor like a credit card company, bank, or other lender, they may hire a third party debt collector to try to get you to pay. Here is how the third party debt collection process typically works:

• The original creditor provides information about your debt to the debt collector, including your name, contact details, amount owed, interest/fees, and documentation about the debt.
• The debt collector first contacts you by letter or phone to inform you that they are now collecting on the debt. Their initial communication should disclose that they are a debt collector and that any information provided can be used to collect the debt.
• The debt collector will attempt to get you to pay by demanding payment in full or setting up a payment plan. They may offer to let you settle for a lower lump-sum amount as a final payment.
• If you refuse to pay or default on a payment plan, the debt collector will continue contacting you to pressure you to pay. They may call you repeatedly or even contact your friends, family, employer in an effort to get you to pay.
• If their collection efforts fail after a period of time, the debt collector has the option to sue you in court for the amount owed. If they receive a court judgement in their favor, this allows them to pursue wage garnishment with your employer. Your wages can be garnished up to a certain percentage in order to repay the debt.

So in summary, third party debt collectors have powers such as lawsuits and wage garnishment to compel debt repayment if you fail to pay willingly. Knowing their tactics and your rights is key to handling this situation.

Your Rights With Third Party Collectors

If a third party debt collector contacts you, it's important to know your rights under the Fair Debt Collection Practices Act (FDCPA). This federal law protects consumers from certain abusive debt collection practices.

Some of your key rights include:

• Debt validation notice - Within 5 days of first contacting you, the collector must send a written notice containing information about the debt like the amount owed and creditor's name. This is your chance to verify if the debt is really yours.
• Disputing debts - You have the right to send the collector a written dispute within 30 days of receiving the validation notice. This requires them to stop collections until they can verify the debt.
• Cease communication - You can send the collector a cease and desist letter demanding they stop contacting you. They legally must honor this request.
• Limits on contact - Collectors can't contact you before 8 am or after 9 pm without permission. And they can't harass you with excessive calls.
• No abuse - It's illegal for collectors to engage in harassment, profanity, threats of violence or lawsuits they don't intend to file.
• No false statements - Collectors can't lie or misrepresent information about the debt, like inflating amounts owed.
• No calling third parties - Without your consent, collectors can't discuss your debt with anyone other than you, your spouse, or attorney.

Knowing your FDCPA rights is key to dealing with third party collectors. Don't hesitate to exercise them by sending cease and desist letters or disputing debts not proven to be yours.

What To Do If Contacted By A Third Party Debt Collector

If a third party debt collector contacts you, it's important to know your rights and respond appropriately. Here are some key things to keep in mind:

• Ask for validation of the debt in writing. Debt collectors are required by law to send you a written validation notice for any debt over $50 within 5 days of initially contacting you. This validation notice must include information about the debt like the amount owed, creditor's name, and your rights. Don't acknowledge or agree to pay the debt until you receive this validation notice.
• Don't acknowledge or agree to pay the debt without validation. When a collector first contacts you, avoid agreeing to pay or even acknowledging that you owe the debt. Simply state you will not discuss the debt until you receive written validation. Anything you say can be used by the collector as confirmation you owe the debt.
• Keep detailed records of all contacts. Document the date, time, name of collector, discussion details, and any promises to stop contacting you. This record will help if you need to show FDCPA violations.
• Note the original creditor and amount of debt. Collect this key information so you can compare it to the validation notice. Make sure the collector is pursuing the correct amount and creditor before paying anything.
• Don't provide personal financial information. Collectors may try to get information like your bank account numbers. Never provide this info, as it could lead to your accounts being compromised.

Exercising your right to receive debt validation before paying is the most important thing to remember when contacted by a third party collector. This ensures they have a legal claim to collect the debt and prevents you from paying incorrect or fraudulent debts.

How Can You Get Third Party Debt Collectors to Stop Contacting You?

You have the right under the FDCPA to request that third party debt collectors stop contacting you. Here are some effective ways to get them to cease communication:

• Send a cease and desist letter. This is a letter that formally demands the collector stop contacting you. Send it via certified mail and keep a copy for your records. In the letter, state clearly that you want no further communication from them.
• Notify them if you have legal representation. Once you retain a lawyer and notify the collector, they are legally obligated to only communicate with your attorney. This can be an effective way to halt direct contact.
• Report any violations of the FDCPA. If collectors continue to contact you illegally after you've sent a cease and desist, report them to the Consumer Financial Protection Bureau and Federal Trade Commission. These agencies can take action against violations.

The FDCPA requires that collectors honor your written request to cease communication. If they persist, they are breaking federal law. Be sure to keep copies of letters as proof. With the right paper trail, you can take action to force third party collectors to stop their harassment.

Consequences of Not Paying

If you choose not to pay or work with a third party debt collector, there can be serious financial consequences:

• Late fees and interest - Your original debt likely had late fees and interest charges attached to it. By not paying, you allow those costs to continue accumulating and the total amount you owe to grow.
• Debt resold - If the current debt collector can't collect from you after a certain period, they may resell your debt to yet another collection agency. This keeps you stuck in the debt collection cycle.
• Credit damage - Not paying legitimate debts hurts your credit utilization ratio and payment history, two important factors in credit scoring models. Missed payments can stay on your credit reports for up to 7 years. Multiple delinquent accounts being reported will significantly drag down your credit score.
• Potential legal action - While not typical, some aggressive third party collectors may sue debtors to obtain a legal judgment against you if you refuse to pay. This can result in wage garnishment or liens placed on your assets. However, collectors must follow legal procedures and cannot make empty threats of legal action.

The risks of not paying or working with collectors to resolve third party debts makes it critical to address the issue proactively. Consulting a credit counselor or consumer rights attorney can help you understand all your options. With the right approach, you can settle third party debt while avoiding further credit damage.

Can Third Party Debt Collector Sue You or Garnish Wages?

Yes, third party debt collectors can sue you to collect on a debt. If they obtain a court judgment against you, they may be able to garnish your wages or bank account.

Wage garnishment is legal, but the debt collector must follow the proper legal process. They cannot just start taking money from your paycheck on their own. The collector must go to court, prove the debt is valid, and be awarded a judgment. Even then, the amount they can garnish is limited by federal and state laws.

If you are sued by a third party debt collector, make sure to respond within the required timeframe, usually 20-30 days. If you don't respond, the court will likely rule in favor of the collector by default. You have the right to challenge the validity of the debt in court before any judgment is made.

Some wages are protected from garnishment, such as Social Security, disability, unemployment benefits, and child support. States also exempt a certain amount of disposable earnings, ranging from about 25% to over 50% depending on the state.

If a judgment is awarded, the court will issue a writ of garnishment to your employer, who must begin deducting wages to repay the debt. However, you have the right to claim exemptions and request a hearing if you believe the garnishment is invalid or excessive. Don't ignore court judgments for third party debt or the legal process can steamroll against you. Seek legal assistance to understand and protect your rights.

Statute of Limitations for Third Party Debt

The statute of limitations for third party debt varies by state, but is usually between 3-10 years. This law sets a time limit on how long a debt collector can sue you to collect on a debt.

Even if the statute of limitations has expired, a third party debt collector can still attempt to collect on the debt through phone calls, letters, and other methods. However, they legally cannot sue you for a debt that is past the time limit.

It's important to note that in some states, making a partial payment or even just acknowledging that you owe the debt can restart the statute of limitations clock. So don't admit to owing an old debt or make any payments without first confirming the statute of limitations has expired in your state.

Overall, be sure to keep track of when debts were incurred and research the statute of limitations laws in your state. This will allow you to determine if a third party debt collector contacting you about an old debt is still within the legal time frame to sue you or not. Expired debts won't just disappear, but knowing the statutes protects you from collectors who use litigation to intimidate debtors into paying.

Can Third Party Debt Collectors Contact Your Family or Employer?

The Fair Debt Collection Practices Act (FDCPA) limits when and how a third party debt collector can contact third parties like your family members or employer.

The FDCPA states that debt collectors may only contact third parties to acquire your location information. They usually cannot discuss details about the debt owed.

If a debt collector contacts your family or employer and reveals details about the debt, this may be a violation of the FDCPA. You can report FDCPA violations to the Consumer Financial Protection Bureau (CFPB) or consult a consumer rights attorney.

Some important things to keep in mind about third party contacts:

• Debt collectors can call third parties only once, unless they reasonably believe the information was wrong or incomplete.
• Debt collectors must identify themselves and state they are confirming or correcting location information.
• If a third party asks the debt collector not to call them again, they must honor that request.
• Debt collectors cannot discuss the details of debt owed. Contacting your employer about a debt is prohibited if it would risk your job.
• If a debt collector lies about who they are to get location information, that violates the FDCPA.

In summary, the FDCPA limits a debt collector's ability to contact third parties like family and employers. While they may seek location information in limited cases, disclosing details about debts owed is prohibited. If a collector violates the rules, you can take action by reporting them. The best way to get help with dealing with third party debt collectors is by contacting a reputable debt settlement company like us here at Cain & Daniels. With our no settlement, no fee guarantee; you can go wrong with choosing us to help you with your business debt