A Debt Collector finds a creditor that has a group of people that owe them. It is too late for the creditor to file a lawsuit over the debt. Usually the creditor has written the debt off and taken the write off on their taxes. Then the creditor sells the debt to a Debt Collector for pennies on the dollar. Using various services-for-hire, the Debt Collector updates the phone and address information and sends out letters or starts making calls to collect the debt.
Why should you care? Several reasons. First, since the debt is so old the information about it is often compromised. Names get confused, payment transactions get misapplied and payoffs get lost. As a result, you get calls and letters about debts that do not even belong to you.
Second, collection letters, which do not disclose the debt as old may violate the Fair Debt Collection Practices Act (FDCPA) even though they do not threaten litigation and merely seek to settle the debt.
Third, these bogus debts may get reported to credit reporting agencies.
The bottom line is: if you get contacted about a debt make the debt collector tell you WHO the original creditor was and WHEN the creditor was started. If it more than a three years old, make sure it is still collectible.
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McMahon v. LVNV Funding, LLC and Delgado v. Capital Management Services, L.P., 2014 U.S. App. LEXIS 4592 (7th Cir. March 11, 2014).
Fair Debt Collection Practices Act, Fair Credit Reporting Act