Debt Validation: How to Verify a Collection Account

If you're facing debt collections, there's one little-known, crucial step you need to take before you deal with any debt collector. It's called debt validation and it's a legal right that you should absolutely be using anytime you get a call from a third-party collector. Because if the collector can't validate the debt and verify they have a legal right to collect, then you're under no obligation to pay them anything.

Know this

• A collector is required to send a notice within five days of contacting you stating what and who you owe
• You have a right to dispute the debt or request more information to validate it for 30 days
• If you don’t respond within 30 days, the debt is automatically assumed valid

What is debt validation?

Debt validation is a legal right granted by the Fair Debt Collection Practices Act (FDPCA).^[1] This federal law states that within five days of a collector’s initial contact, they must provide a written notice validating the debt.

According to the FDCPA, the notice of debt must contain:

1. The amount owed
2. The name of creditor who owns the debt

The letter must also include three statements outlining your rights once you receive the notice:

Why validation matters

Debt validation is critical for a few reasons:

#1 They may not have the legal right to pursue collection

Debt buyers don't always have complete information about the debts that they're trying to collect. These companies buy and sell portfolios of debt from each other, and as a result, information gets lost or passed on when it is incomplete.

If a collector does not have all the information required under the FDCPA, then they have no legal right to collect. That means you can tell them to stop contacting you. Since they don’t have enough information to win a case against you in court, that should be the last you hear about the debt.

#2 The debt may be past the statute of limitations

Another common problem with collections is that an old debt will get sold to a new collection agency. Debts have a statute of limitations on collections that set by the state where you reside. Once a debt passes statute of limitations, collectors can’t take you to court about it.

The time to collect on debt varies by the type of debt and where you live but generally ranges from 3-10 years.

However, while a collector can’t take you to court over a time-barred debt, they can still attempt to collect. That is until you tell them to stop contacting you. Then they're stuck.

#3 The debt may already be paid or settled

Another bad habit that collectors and debt buyers have is selling a debt that’s already been taken care of. Again, these companies exchange big portfolios of debt and they’re not always careful about it.

In some cases, a debt that was settled or even one that was paid in full gets sold to a different company. Then the new collection agency starts calling to collect.

Validation and information about the original creditor can help you see if you even need to deal with this new collector. If you’ve already paid, you dispute the debt and the matter should be done.

#3 The debt may be too old to report to the credit bureaus

Outside of the statute of limitations on collections, there is also a time limit to how long a delinquent debt can affect your credit. Delinquent debt can only be reported for seven years from the date the account originally became delinquent.

The date of first delinquency happens when you first missed a payment by 30 days. Most creditors will not charge off the account until you are 180 days past due. At that point, they may sell the account to a collection agency.

In this case, if they sell the account immediately after charge-off, a collection account would appear in your credit report. But it could only remain for six and a half years.

If a collection agency reports a debt that's older than seven years beyond its first delinquency, then you can dispute the account with the credit bureaus to have it removed. That way, it won't negatively affect your credit.

#4 You need to know who you owe

Another reason that validation is important is to understand who legally owns the debt in question. In some cases, the collection agency may not legally own the debt. Instead, they are simply attempting to collect on behalf of the creditor. But they don’t always tell you this.

If the creditor still owns the debt and you negotiate a settlement with the collection agency, then the creditor can still come after you for the remaining balance. If the collection agency doesn’t own the debt, then any settlement you make needs legal agreement from the original creditor. Otherwise, you can end up paying twice.

What happens next

Once you receive a written notice of debt, compare the information it includes to your records. It can be a good idea to download a free copy of your credit report to see if the information in the notice matches the information in your report.

For example, if the creditor has sold the debt to the collector, the balance on the original account will be zero. The collection account may also appear on your credit report.

Sending a debt validation letter to request more information

If you do not believe that the debt is valid for any reason, then you should send a debt validation letter.

The letter can request any (or all) of the following:

1. The collector’s license and bond to collect in your state
2. An accounting statement showing how they arrived at the amount they say you owe
3. The name and address of the original creditor
4. A copy of the contract you signed with the original creditor
5. A copy of the agreement authorizing them to collect on behalf of the creditor (if the original creditor still owns the debt)

The Consumer Financial Protection Bureau provides a thorough sample letter that you can use. We recommend using this template and adjusting it as needed based on your situation.

Once you request more information…

While the FDCPA stipulates that a collection agency must provide a notice of debt within five days and that you must respond within thirty, it does not set a time limit on how long they have to respond to your validation request.

This means the agency may keep you on the hook, possibly indefinitely. You may never hear back from them. If they know they can’t provide the information requested, they may just disappear or sell the debt to another agency.

Until a collection agency provides validation, they cannot legally pursue any collection actions. They also aren’t legally allowed to report the account to the credit bureaus. If they do, you should dispute the collection account with the credit bureaus.

However, the collection agency may also come back several years later with the validation required. In this case, they can start collection actions, report the account to the bureaus, and take you to court.

Sending a dispute letter that you do not owe the debt

If you receive the notice of debt and outright don’t believe you owe it, then you should send a dispute letter. The CFPB has a sample letter for this, too, that you can use to make a legal dispute.

What to do once a debt is verified

Once a collector provides all the information requested to prove the debt is valid and they have a legal right to collect, you need to decide what to do.

You can:

1. Pay the debt off in full, either in a lump sum or on a payment plan
2. Negotiate a settlement, where you pay less than you owe
3. Ignore it and wait for either the statute of limitations to expire or to see if the collector will take you to court

The best option is often to settle if you have the means to do so, particularly if the collection agency owns the debt. They purchased your account for a small fraction of what you owed the original creditor. That means that even if you only pay back a portion of what you owe, they’ll still make a profit on the deal.

Paying a collection account in full won’t erase the credit damage!

Some people assume that if you pay off a collection account it will get removed from your credit report. Not so. The account will typically remain for seven years from the date the original account became delinquent. Paying it off won’t help your credit score.

In some cases, you may decide to ignore it. If the debt is close to the statute of limitations, it may be worth trying to wait it out. You may also decide not to do anything if you really can’t afford to pay the debt.

Just be sure not to ignore a court summons if the collector takes you to court. There’s no law against ignoring collection calls but ignoring a court summons can lead to the court ruling against you. The collector will receive a deficiency judgment and can take legal action, such as having your wages garnished.