Can You Dispute a Debt Sold to a Collection Agency?

Understanding Debt Collection and Your Rights

When a debt goes unpaid, the original creditor may eventually sell the outstanding balance to a collection agency. This is a common practice, allowing creditors to recover funds while collection agencies pursue payment. However, the sale of a debt to a third-party collection agency does not eliminate a consumer’s right to challenge its validity or the agency’s legal standing to collect.

Understanding Your Right to Dispute

The legal foundation for disputing a debt, even after it has been sold, primarily stems from federal consumer protection laws. The Fair Debt Collection Practices Act (FDCPA) outlines consumer rights and regulates third-party debt collectors. This act grants consumers the right to request validation of a debt they are being asked to pay.

Debt validation means the collection agency must provide evidence that the debt is legitimate and that they are legally entitled to collect it from you. It requires the agency to substantiate their claim with verifiable information. Common reasons for disputing a debt include an incorrect amount, prior payment, identity theft, or if the debt does not belong to the consumer. The FDCPA mandates that if a consumer disputes a debt in writing within a specific timeframe, the collection agency must cease collection activities until they provide validation.

Preparing Your Debt Dispute

Preparing an effective debt dispute involves gathering information and constructing a formal letter. Before initiating a dispute, collect all relevant personal records related to the alleged debt. This includes correspondence from the original creditor or collection agency, such as the initial notice of debt, account numbers, and the amount claimed. Also gather personal records of payment, account statements, or other documents that might support your claim that the debt is incorrect or not owed.

Drafting a debt validation letter is central to your preparation. This letter should clearly state that you are disputing the debt and demand validation under the FDCPA. Request specific details, such as the original creditor’s name and address, the original account number, the total amount of the debt, and a breakdown of charges. The letter should also ask for proof that the collection agency has the legal right to collect the debt. Ensure your letter avoids acknowledging the debt as yours, focusing solely on the request for validation.

Submitting Your Dispute

Once your debt dispute letter is prepared, the method of submission is important to protect your rights. Send the letter through a verifiable mailing service, such as certified mail with a return receipt requested. This provides proof that the letter was sent and received by the collection agency. Keep a copy of the sent letter, along with the certified mail receipt and the green return receipt card, for your records.

Upon receiving your written dispute, the collection agency is legally required to cease all collection activities, including phone calls and letters, until they provide validation of the debt. They have 30 days from their receipt of your dispute letter to furnish this validation. During this period, you should not hear from them regarding the debt, as their collection efforts are temporarily paused. If they continue collection activities without providing validation, they may be violating federal law.

Addressing the Outcome of Your Dispute

The resolution of your debt dispute can lead to several outcomes. If the collection agency successfully validates the debt by providing sufficient proof, collection efforts can lawfully resume. You might then consider options such as negotiating a payment plan, attempting to settle the debt for a reduced amount, or seeking legal counsel. A validated debt can continue to impact your credit report.

Conversely, if the collection agency fails to validate the debt within the 30-day timeframe, or if they cannot provide adequate proof, they are prohibited from continuing collection efforts against you. In such cases, the agency cannot pursue the debt, nor can they report it to credit bureaus as a valid outstanding obligation. Regardless of the outcome, consistently monitoring your credit reports from all three major bureaus is a practice that can help ensure the accuracy of reported debts and identify any discrepancies after the dispute process.