So you’ve been sued by a creditor…

So you have been sued by a creditor…now what?  First and foremost, DO NOT IGNORE IT. If you are served with a Complaint or Motion for Judgment or Warrant in Debt (different states call it different things), you need to take action.  Every state has rules as to how long you have to respond to a lawsuit.

Alabama:  14 days (Small Claims/District Court), 30 days (Circuit Court)

Alaska:  20 days

Arizona:  20 days

Arkansas:  30 days

California: 30 days

Colorado:  20 days

Connecticut: 30 days

If you do not file a response within the timeframe allowed by the Court, a default judgment will be entered agains you.  Getting out of the judgment without paying will then become next to impossible.

So what if you owe the money you are being sued for? How do you still battle the lawsuit you are dealing with?  I recently helped a friend deal with this issue.

One of the best ways to attack a lawsuit is to find fault with how you were served. Now most of the time, people are served properly, but occasionally, improper service occurs. A roommate was home watching television with a friend when he hears a knock at the door.  He answers the door and is handed some documents from the individual standing outside, who then asks if he is Name.  That is his roommate, he says, but is told to give the documents to his roommate.

The individual who handed him the papers – a Summons and Complaint – was a private process server.  Lawsuits are usually served by the sheriff’s office, but in some cases they are served by private process servers. In North Carolina, however, this is not considered proper service.  And improper service means case dismissed.

Suing Collection Agencies (Part 1)

In December, 2013, I began working on a credit file I had neglected for the two years prior.  At the end of 2012, my life spiraled out of control and to sum it up without further ado, much was lost.  That summer, I decided enough was enough, and I moved in with a family member, find a new job, and get myself back on track. Summer ended, and with the beginning of fall came a job opportunity I had been praying for.  My income restored, I found myself easily getting by financially—and whilst in Mississippi for the Thanksgiving holiday, I decided it was time to get my credit back in line.

My credit reports were pages of negative accounts and collections, bad debts and delinquencies.  I had my work cut out for me. On TransUnion alone, I had 9 collection accounts (Experian showed 7, Equifax, 3). I will go into more detail on the types of accounts another time.  There was one account (one debt collector) who appeared on all three credit reports not once, but twice.  Two separate debts, six separate entries altogether—updating monthly.  I submitted disputes for all the collection agencies.  The ones that were valid debts I offered to pay in return for deletion of the collection account.  I got no response from any of these.  The others I sent the usual letters requesting debt validation—no response from these either.  But gradually, one by one, they began to be deleted.  One of them I paid, though only because I tricked the original creditor into taking my money.  Within two months, they were all gone—except one—the one that was reporting the six accounts.

National Credit Systems, based in Atlanta, Georgia, is a collection agency “operated for the purpose of helping apartment communities recover lost money from former residents”.  On their website, they equate their name with “More Money, Better Service”.  Founded by Joel Lackey in 1991, NCS has grown to become one of the largest collection agencies for apartment complexes in the United States. And in 2012, my former apartment complex in North Carolina sent my file to them for collection.

Here is where things go bad.  Without writing volumes on my move out, it was not a good one.  I had lived in that apartment for nearly two years; when they were bought by a larger apartment group, things went steadily downhill. Still, I moved out and never heard from them again.  A year later, when I was pulling my credit, I discovered they had turned me over to collections in November, 2012 – a month after I moved out.  A second account they reported was dated January, 2013; I was confused how I would have incurred a bill from them three months after I moved out.

I disputed the debt with the credit reporting agencies and sent a letter to National Credit Systems demanding validation.  I received no response.  They did, however, verify the account with the credit reporting agencies.  I sent a second letter. A couple weeks later, I received a letter from them with some documents attached.  One was the invoice the apartment complex reportedly sent me after I had moved out.  Interestingly enough, they mailed it to me at their own address—clearly I never received it.  The next documents was a move-out inspection signed by the manager.  It was, however, done without me present and a week after I moved out.  Finally, the last document was the best yet.  It was a copy of my “lease” – but only a renewal lease and one i had never seen before.  The signature on it was forged—and I would have gladly paid a handwriting examiner to establish that.

I wrote NCS a third time, essentially thanking them for sending me three documents that benefit me.  And I warned them if they did not remove the accounts completely and cease collection activity, they would be sued.  I even sent them a draft copy of a Complaint to be filed with the Court. They ignored me of course, so I filed the lawsuit in mid-January of this year.

The debts they were trying to collect totaled about $1,350.  It would cost them three times that just to hire an attorney to have it removed to federal court, plus a $400 filing fee.  I was counting on them seeing the cost of fighting me outweighed settlement. They offered settlement but dragged their feet.  More than anything I just wanted the collection accounts off my credit reports.

How I got them to settle…

Family

What is it about the people who allegedly love you the most being your worst critics and never believing it was possible for you to do well? Sometimes you don’t need someone to mother you, to give you advice–you just need them to be happy for you. If you make a mistake, so be it. But do you need the general assumption to be that you are always making a mistake? Maybe, just maybe, I know what I am doing.

My Thoughts on Applying for a Car Loan

So you are in the market for a new car.  You think you know your credit score but in all likelihood you do not because there is nowhere you as a consumer can access your auto-enhanced score with any of the bureaus.  An auto loan is an installment loan and the auto-enhanced score weights more heavily your installment loan history. Have you had an auto loan in the past? Was it paid satisfactorily?  Mortgages and student loans are also installment loans, as are personal loans (though these are much less common).  If you have not had any installment loan history, more than likely your auto-enhanced score will be lower than the FICO score you can purchase online.

I became friends with a Finance Manager at a Lexus dealership who gave me a few “suggestions” when it came to completing the application. When it asks you how long you have lived at your current residence, he said to always put at least 3 1/2 years.  When asked how long you had been employed at your current job, always put at least 2 years.  This information is rarely if ever verified but he said it often was considered in reviewing applications.  Unlike a house, a car is a piece of property that can be moved around even though it is liened – thus, the bank likes to see that you have lived at the same place for a while, worked at the same job – that you are stable and not going to disappear in a few months. 

When you go to an auto dealership and apply for financing there, be prepared for them to “shop” your loan – meaning, they will send your credit application to the captive lender and two or three other banks.  (The captive lender is, for example, VW Credit Services if you are at VW.)  The dealership will pull your credit, then each of the lenders they send your loan to will pull it as well, so you will end up with a bunch of inquiries that WILL count as hard inquiries, regardless of what the salesman may tell you.  I can tell you based on just a few pieces of information whether or not you will get approved – if you are not confident, you should consider running it by someone who knows first and save yourself time.  If you have defaulted student loans, no auto loan history, and a score in the mid-500s, you are not going to get approved at a dealership – well, not without 50% down, and even then it is not guaranteed. 

My best score is with Transunion, so when my Transunion score soared above 720, I applied online with VW Financial Services, as I knew they would only pull Transunion.  As expected, I was approved immediately and referred to my local VW dealership.  I went in the next day and basically just had to pick out a car.  My credit was not pulled again and the financing was not an issue.  I was approved for a lease with a low interest rate and nothing down.  Had VW pulled Equifax, things would have been very different. 

I personally believe the best thing for your credit when it comes to an auto loan appearing on your credit is for it to be with the captive lender. If it isn’t, it just looks bad.  The captive lender is where you get the lowest interest rates, the cash back, etc.  If you can’t get in with them but you are a member of a credit union, I would suggest applying with your credit union before you even go to the dealership.  Credit unions also offer great interest rates and if you get approved, you will go to the dealership in a stronger position, as you won’t need financing from them at all. 

Even if you don’t know your auto-enhanced score, having a general idea of what is on your credit file before you go car shopping is a good idea.  If you have a low credit score, especially due to recent missed payments or delinquencies, you should know what you will be faced with.  Without excellent credit, it is highly unlikely you will be approved for a lease.  My Jetta had a sticker price of about $30,000 – and my lease payment is $414 per month.  If I had financed the car for five years at 10% interest, the payment would be $637 per month; at 20% interest, it would be nearly $800 per month.  It is not uncommon for dealerships to use lenders charging exorbitant interest rates of 25% or higher for people with compromised credit.  Additionally, at an interest rate of 20%, to get that payment down to what my payment is, you would have to put about $13,000 down – almost half.  Now, if you are in a position to do so, you will have equity in your vehicle and be able to pay it off more quickly.  If not, though, you may be unable to get the car you want because the monthly payment is too high based on your income.

And finally, with regard to applying for an auto loan, apply for a car you can easily afford the payments.  Make your monthly payments on time and you will find your car buying experience in the future to be simple and easy – and you will save a fortune each month not paying outrageous interest.  I can’t imagine paying $800 a month for my car, but $414 is just fine.

 

No Honor in Debt Collection

Let’s knock out the “running a legitimate business” crap right away.  Remember this:  the collection agency is trying to recover money owed to someone else, not them.  That said, if you feel you should pay the debt because “you owe the money and its the right thing to do” – more than likely whomever you owed the debt to is never going to see a penny of the money you paid.

Debt collection is a $12.2 billion industry – about the same amount of federal income taxes paid by the entire state of Nevada last year.  Like most industries, the majority of the collection business is controlled by a handful of collection agencies: NCO, Midland, LVNV, etc.  They purchase debt from the big banks, who, after writing the debt off of their taxes as a loss, gathers up a bunch of written off accounts and sells them to these collection companies.  If you owed Chase $1,000 on a credit card they charged off, ultimately that account will be included in a package of 500 charged off accounts Chase sells NCO (as an example).  NCO, however, did not give Chase the $1,000 you owed.  They paid about $40 for the account – but they are coming to you still demanding $1,000.  Obviously, this can be a very lucrative business – I pay $40 for a $1,000 account – if I collect it, I make $960 – a huge return by any standard.

The guys running these collection agencies then hire a bunch of minimum-wage workers to staff their call centers.  These employees are expected to make a certain number of calls per hour and collect a certain amount of debt.  In return, they see few rewards for a miserable job.  At the end of it all, who really benefits?  The bank wrote the debt off and sold the debt for a pittance.  If you pay the debt, the bank you owed it to won’t see it – they won’t even know you paid it.  The only one who benefits is the owner of the collection agency who cashed in on money he was never owed.

What makes the industry even more sleazy are the tactics they use – and way too often get away with – to accomplish their goals.  First and foremost, they will report the account to the credit bureaus, who will then place it on your credit file without verifying its your account even.  You may not even know its there until you apply for credit and get turned down – and you won’t even know then unless you request a copy of your credit reports.  Let’s say, for example, you discover XYZ Collections has reported a debt of $233 you originally owed to Bell Telephone.  When you see it, you remember you never paid that bill, so you call XYZ to clear things up.  XYZ tells you no problem, once you pay the $233, they will “update” the account with the credit bureau.  You then pay the balance in full and feel good you got that taken care of.

A few months later, you apply for a credit card while out shopping.  It was embarrassing — your application was declined.  A few days later, you get a letter in the mail from the store you applied with listing the reasons you were denied credit.  Reason #1: you have a collection account on your credit file.  How could that be, you wonder – you took care of that? Perhaps you call the credit bureau – they must not have updated their records.  When you speak to the representative, she tells you the account was updated to reflect that the balance had been paid.  You are then informed that the account, paid or not, is still a negative account.  No worries, though, it will be removed in seven years.

You can call the collection agency – little good it will do.  They got your money already, and as far as they are concerned, they did what they were supposed to – the account was paid.

Again, the sleazy collection agency got money they were never owed.  Bell Telephone got nothing.  And you got stuck with a negative account on your credit for seven years – your reward for paying your debt.

RULE NO. 1:  NEVER PAY A COLLECTION AGENCY.