Unpaid debts. They’re not fun to deal with. If you have collections or charge offs on your credit reports, you know the feeling.
Debt collectors and credit card companies keep calling you. Letters come in the mail. You’re in financial trouble, and you’re being reminded of it – every single day.
Perhaps you’ve heard of credit bureau disputes. You can contact the credit bureaus (the more legal term is credit reporting agencies), and let them know that you disagree with the debt, or that you’re not familiar with it. By doing so, you might be able to get the debt removed from your credit reports – or at least get the credit bureau and debt collectors to take a closer look.
At the same time, if you do a little research online, you’ll probably hear about a troubling response to credit bureau disputes: A lawsuit. If the amount you owe on a debt is large enough, a creditor or debt buyer (a company which purchases charged off debts) might decide to sue you on the debt, typically in state court.
Sometimes, these lawsuits happen after disputing a debt with the credit bureaus. Obviously, this is concerning.
Are you getting yourself into bigger trouble, by disputing a debt? Is being sued after a dispute a real risk? Or, is this just a rumor? Let’s find out.
Credit Bureau Disputes: The Basics
The Fair Credit Reporting Act (known as the FCRA) is the federal law which controls what sort of information appears on your credit reports. Amongst other requirements, the FCRA states that information on your credit reports must be accurate, verifiable, complete and timely.
Basically, this means that everything on your credit reports needs to be correct, and that the creditor or debt collector must have proof that it is correct. If this is lacking, they should correct the account – or not report it.
If you believe that information on your credit report does not meet the requirements listed above, you may dispute this information. You can dispute by writing a letter to the credit reporting agencies (via certified mail), faxing them, or disputing online.
We suggest using certified mail, and avoiding online disputes. Websites like Certified Mail Labels make it possible to send certified letters online, without ever setting foot in a post office.
After receiving your dispute, the credit bureaus must follow a very specific set of steps. They have to send your dispute to the creditor or debt collector whom you’re disputing the debt with, within 5 days. The party who is reporting the debt (i.e. a creditor or debt collector) is known as a data furnisher. We will be using that term more, throughout this article.
In some cases (if you’ve disputed the debt before, or the credit reporting agencies suspect that the letter was written by a credit repair firm), they can mark the letter as frivolous. This means that they don’t have to investigate your dispute any further.
When you dispute an account, the account must now be marked as being in dispute, on your credit reports. The data furnisher must now investigate your dispute. If there is an error on the account, the data furnisher should correct the error.
Once the data furnisher has completed their investigation, they must inform the credit reporting agencies of what they’ve found. If they fail to do so, the item is automatically deleted.
Under normal circumstances, most credit dispute investigations must be completed within 30 days. In some instances, if a consumer supplied additional information regarding a dispute, during the dispute period, the investigation may finish in 45 days.
Credit bureau disputes can be somewhat effective in removing negative items, which don’t meet legal requirements. Often, to succesfully remove items from credit reports, you’ll also need to contact the data furnisher (after disputing with the bureaus) and point out the errors to them.
Debt Lawsuits: What You Need To Know
First, it’s important to understand the difference between the two types of owners of debts: Original creditors and debt buyers. These two debt owners are similar in many respects, but different in a few key ways.
Original creditors are credit card companies and personal lenders. These are the folks from whom you actually signed a contract to borrow money (through a credit card or loan).
If you fail to pay a credit card issuer or personal lender, they’ll charge off the loan (that means close it, and write it off). The creditor can attempt to collect on the debt (by writing to you or calling you regularly). At some point, they might sell the debt to a debt buyer.
What’s a debt buyer? As the name suggests, debt buyers purchase charged off debts from creditors. These companies use technology, and a massive staff of employees, to contact consumers, and seek payment of debts. Portfolio Recovery Associates, Midland Credit Management, and Resurgent Capital Services / LVNV are several of the biggest debt buyers out there.
Both creditors and debt buyers file lawsuits against consumers. These lawsuits are typically filed as civil matters in state court (that’s the local courthouse in your county).
The plaintiff (that’s the creditor or debt buyer who is suing you) must then serve you with the lawsuit. Basically, that means they need to inform you that you’ve been sued, usually by handing you papers in person (or taping them to your door).
After you’re served with the lawsuit, you have a period of time in which to respond. In most cases, this will be 30 days – sometimes longer. In your response to the lawsuit (known as an answer), you either admit or (more often) deny the plaintiff’s allegations.
You also could try to settle the case with the creditor or debt buyer, before the answer is due. This involves paying some amount of money (usually a bit less than you’re being sued for), in exchange for having the case dismissed and closed.
If the case does not settle, then it will typically proceed to a trial, in front of a judge or jury. However, most cases settle, or are dismissed (often by the defendant). Why?
Well, with debt buyers, they often can’t prove that they own the charged-off debt. See, debt buyers typically (for cheap) buy huge packages of written-off accounts. For example, they might purchase 1,000 Capital One credit cards, in a single sitting. They simply purchase a spreadsheet, with perhaps a few account statements, and a statement that they own the debt.
In court, a debt buyer might have trouble proving that they actually own the debt. Or, the debt buyer doesn’t want to go through the effort of proving their right to sue on the debt. This means they lack standing to sue you, and so the case must be dismissed.
Credit Bureau Disputes & Debt Lawsuits: Is There A Connection
This brings us to the big question: Will disputing a debt with credit bureaus make you more likely to be sued? In our experience, it probably will.
How much more likely? We don’t know for sure. What is clear is that filing a credit bureau dispute attracts the attention of creditors and debt buyers.
They see that you’re trying to remove a debt (which they believe is legitimate) from your credit reports. Keep in mind that reporting debts to credit bureaus is one of the primary means through which they’re able to pressure you to pay a debt (by damaging your credit).
If the debt is removed from your credit reports, the creditor or debt buyer loses this form of pressure. Therefore, they may choose to get more aggressive, by filing a lawsuit.
Disputing a debt is also a sign that you’re trying to improve your credit score. Why might you be focused on improving your score? Perhaps you want to buy a home, or purchase a new car, or fund a business?
There are two reasons why this matters to creditors and debt buyers. First, if you take on new debt obligations, it might be harder for the credit or debt buyer to seek payment. After all, you have new financial obligations.
Also, if the item were removed from your credit reports, you probably won’t pay. This means they lose an important form of leverage they have over you, when seeking payment of the debt. Since creditors and debt buyers want you to pay what they claim you owe, they see lawsuits as an effective tool to further this goal.
Keep in mind that in much of the country, it’s not very expensive for debt buyers or creditors to file and serve lawsuits. Also, since they are bringing a large volume of cases, they’re paying discounted attorneys fees. As a result, it’s easy to file debt lawsuits.
How To Overcome This Challenge
Clearly, there are risks to disputing items on credit reports. No one wants to get sued.
At the same time, credit bureau disputes are an effective means of removing innacurate, non-verifiable, incomplete information from your credit reports. So, how do you balance these two priorities?
First, we’ll tell you which debts you probably don’t have to worry about being sued on. Any debt under $700 is very unlikely to result in a lawsuit. If you have legitimate grounds to dispute such a debt, you can do so without too many concerns of being sued. We didn’t say impossible – just unlikely.
If the amount owed is between $700 to $1500, and you’re dealing with a debt buyer or original creditor, the chances of being sued do increase. They aren’t super high (most lawsuits are for larger debts than this) but it is possible.
For these debts, we’d say that disputing is fine – but you might want to research debt defense attorneys in your area, in case a lawsuit does happen. The National Association of Consumer Advocates (NACA) offers an attorney directory, which helps you find quality consumer attorneys in your state. You might also want to try Avvo.
For debts larger than $1500, be aware that your chances of being sued increase. Again, it is your right to dispute these debts – but make sure that you have access to a quality debt defense attorney, if you should need it.
Find Out If You Have FDCPA Violations
The Fair Debt Collection Practices Act (known as the FDCPA), is a federal law which regulates debt collectors. For example, debt collectors are restricted in terms of when they contact you, what they can say, and how they may communicate with you. There are also rules governing how debt collectors report information to credit bureaus.
If you have debts which have been placed with debt buyers / debt collectors, you might want to have an FDCPA attorney review the notices you’ve recieved, and your overall case. It’s possible that your rights have been violated, and you have grounds to sue. While most collections accounts don’t involve FDCPA violations, debt buyers / collectors are much more sloppy than you might expect. There are quite a few cases involving lawsuit-worthy violations.
Here’s another piece of good news: Suing a debt collector, through an attorney, typically costs you nothing. Why?
The FDCPA shifts the burden of paying your attorney’s fees onto the debt collector, if you win the case at trial. If you lose, your attorney typically won’t ask you for anything. The attorney also pays the costs of filing the case, serving the debt collector with court papers, and so on.
Here’s the thing: Most FDCPA cases don’t go to trial. Typically, you’ll be able to settle these cases out of court. The debt collector will normally pay you damages of up to $1,000 per FDCPA violation, as well as your attorney’s fees.
They will also normally close your collection account, removing it from your credit reports, and ceasing all collections efforts. This can improve your credit score. We’ve seen many folks with large unpaid collections accounts, have them removed due to FDCPA violations.
Just as with finding a debt defense lawyer, Avvo and NACA are good places to look for a competent FDCPA attorney. You might also seek a referral from a local attorney in your area.
Investigate Possible FCRA Violations
The FDPCA isn’t the only important federal law which you need to know about. The Fair Credit Reporting Act (FCRA) is another powerful federal law. Just as the FDCPA regulates debt collectors / debt buyers, the FCRA governs the conduct of credit reporting agencies (known as CRA’s), creditors and debt collectors. Recall that CRA’s are big companies like Experian, Equifax, TransUnion and Innovis.
The FCRA is nearly 100 pages long, and we don’t want to make you remember every detail of this law. What you should keep in mind is this: The FCRA requries all information on your credit reports to be accurate, verifiable, complete and timely.
What this means is that it’s not enough that a charged off credit card or debt buyer account belongs to you. Every aspect of the account, as it appears on your credit reports, must be correct, consistent and complete. What’s more, the creditor or debt buyer / collector must have proof of what they have placed on your credit reports.
Just as with the FDCPA, the requirements of the FCRA are often violated. Now, here is something important to understand: Something being innacurate, incomplete or outdated isn’t neccessarily, or it’s own, grounds to sue. However, if you challenge such information, and it isn’t corrected, then you might be able to sue.
The FCRA provides a process to resolve information on your credit reports, which does not meet legal requirements. Basically, if you believe data on your credit reports is not accurate, verifiable, complete and timely, you can dispute that data, with the credit reporting agencies.
The CRA must forward this dispute to the creditors, which is required to investigate the dispute. If they find that something is being reported inaccurately, they must correct or remove the negative information. If they fail to do so, and innacurate information remains, you might have grounds for a lawsuit.
If you have charged off or debt buyer / collector accounts on your credit reports, speak with an attorney who specializes in FCRA issues. It is possible that they’ll find something on your credit reports which does not meet legal requirements, and thus presents grounds for a possible lawsuit.
The Final Word
Clearly, lawsuits are something you want to avoid. At the same time, you have a right to and accurate credit report. What’s more, it is definitely smart to try to remove negative items from your credit reports.
By following the steps we’ve detailed above, you’ll be able to reduce your risk of being sued (and to deal with a lawsuit if it does happen). In some cases, you might even be able to recover money, if mistakes / violations by credit reporting agencies and debt collectors, are serious enough to trigger FDCPA and FCRA violations.
Ultimately, this process can leave you with a stronger credit score, and greater peace of mind. If you want to find out more about disputing negative information on your credit reports, contact us.
