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Why a Debt Validation Letter May be Exactly What Debt Collectors Want

Debt validation – the premise:

  • Send a letter to the collection agency asking for proof you owe the debt
  • If the collection agency doesn’t provide the proof:
  • You don’t have to pay and
  • It will come off of your credit report.

It seems reasonable that if a collection agency cannot prove you owe them money, you shouldn’t have to pay. However, the question is what constitutes proof and how many contacts do you want to have with a collection agency.

There are two groups who are typically encouraged to use a debt validation letter to dispute debts. The first is someone who genuinely does not believe they owe the debt that is being collected or is shown on their credit report. For this group, a debt validation letter may be a great way to fight an error.

The second group is someone who is trying to clean up their credit and would like to remove negative information from their credit report. This is the person we will focus on below.

Collection agencies are in the business of making money. When they buy or contract to collect a debt, they are buying hundreds and even thousands of past-due accounts. Your account may or may not be at the top of their list to collect, but if it is not, contacting them to dispute the debt will definitely put you there.

The proof. There is a difference between the proof the debt collection agency must provide to you, the consumer, and what they must provide in a court situation. The burden of proof is much lower when the agency is dealing with you. They only need to provide you with a description of the amount owed and the name and address of the original creditor. In their original contract, they must also provide the notice that you have 30 days to dispute the debt.

When you send in a validation letter, you provide the collection agency with your contact information as well as the knowledge that you are actively looking at your credit report. The collection agency now knows you are interested in removing negative information from your report. This provides them with additional leverage when they begin sending you letters and calling you.

That is what happened to "Rhonda". In a recent class, she told me that she spoke to a local “financial counselor” who told her to write a debt validation letter to the collection agency to whom she owed money for a medical bill. The collection agency responded by sending her a printout of the required information and a request for immediate payment.

Rhonda’s goal in sending the letter was to have the information removed. The result was an avalanche of letters from the collection agency and ultimately telephone calls demanding payment.

Debt validation – the potential result:

  • Proof that you owe the debt,
  • Collection calls and letters,
  • Or maybe the debt is removed from your credit report.

Finally, there are two timelines to be aware of when you are dealing with collection debts:

  • The Fair Credit Reporting Act allows for negative information to remain on your credit report for 7.5 years from the time the account goes past due with the original creditor.
  • Each state has its own guidelines on how long a creditor or collection agency has to sue you over a debt. You can view a list of those statutes here on NOLO’s website. If the debt is past these statutes, it is considered time-barred. The creditor can no longer sue you to collect the debt. In some situations, making a payment or admitting to owing the debt can restart this statute of limitations. 

The purpose of this article is not to discourage the use of a debt validation letter if you believe you do not owe a debt. It is also not advising you to keep quiet so you won’t have to pay your debts. It is to inform you of the pros and cons of using a debt validation letter. Once you understand these pros and cons, you can make financial decisions that are in your best interest as you work to restore positive credit or pay off negative accounts.

It's important to also remember you are not alone, there are a number of causes of consumer debt and we are here to help develop a plan to meet your financial goals!

Dealing with collection agencies and understanding your credit rights can be difficult, and there is much more to consider than what is represented here. We recommend you talk to a certified credit counselor who can help you develop a strategy for handling credit and collection accounts and for guidance on how you can focus on building credit. 

Discover how American Financial Solutions can help consumers with debt management and provides credit counseling.

Published Feb 18, 2015.