Over our 67 years in the collections and revenue cycle management business we have heard many myths regarding our industry. The truth is there is a lot of misinformation out there regarding debt collection and many of the debt collection processes. We thought it may be helpful to do a ‘Top Ten’ list. For simplicity sake, in this article we are referring to them as myths. Number 1 is a commonly held belief of urban legend proportion (especially in the mortgage industry). The fact (rebuttal) provided was taken from one of the credit reporting agencies (Experian) blogs posted on their website.
Myth #1: Paying off a collection will not improve your credit score, but will have the opposite effect and lower it.
Fact: There is absolutely no evidence to support this myth. https://www.experian.com/blogs/ask-experian/the-impact-of-paying-a-collection-account-on-credit-scores/
Myth #2: If a debtor wants to pay the client after the account has been turned over for collections, the client should refuse the payment.
Fact: We always encourage our clients to accept payment! Some debtors are misinformed and firmly believe they should never speak with a collection agency or would rather deal with the original creditor. If a debtor wants to pay a creditor instead of us, we say take the money. Why risk a payment in hand. Please note: if you’ve already authorized legal action (signed a permission to sue) on this account, please call us to verify total balance owed. Also, please remember, once a payment is accepted the client should report it to us right away so we can update our records and cease collection activities if the payment was made in full. We will simply invoice for our portion of the recovery.
Myth #3: All debts must be reported to a credit reporting agency (or) medical debts cannot be reported
Fact: Credit reporting is voluntary and a creditor (client) can choose to report or not to report. Additionally, credit reporting agencies will not accept accounts if the debtor’s Social Security Number or date of birth are not supplied. There are also certain types of debt that can no longer be reported to credit reporting agencies.
Myth #3: It is better to just litigate every debt that does not pay.
Fact: Not all debts are worth litigating. We do extensive research before recommending litigation to a client. It is not enough to win a favorable judgement. The collectability of the debt is important and also taken into consideration. Sometimes a debtor simply has no assets to attach, or no job from which we can garnish a wage, so litigating would be a costly waste of time and resources.
Myth #4: Once a client agrees to allow a collection agency to pursue litigation, they have no control over whether or not to litigate a particular debtor or debt.
Fact: Before we litigate our clients must give us written permission for each debt before we will proceed. That option is always in the hands of our clients.
Myth #5: I sent you a $5.00 payment, you can’t do anything (sue) to me.
Fact: Acceptable payment parameters depend on the size of the debt and are typically set by clients. We can litigate a debt (with client approval) even if a debtor has made payments.
Myth #6: Once I send a collection agency a cease and desist letter I won’t have to worry about the debt anymore.
Fact: According to the FDCPA a debtor has the right to stop communication from a collection agency. The cease and desist letter will stop contact from a collection agency, but it will not stop collection activity. E.g. reporting the debt to the credit bureaus and/or considering the debt for litigation.
Myth #7: If remittances are not quickly forthcoming it must mean no activity is happening on the accounts which have been placed.
Fact: Some accounts take longer to get paid than others. We always continue to work every debt on a regular basis. Oftentimes it takes just plain old persistence to make contact, skip trace and research the accounts to determine whether or not litigation is appropriate. Debt collection as we do it is multi-faceted, detailed and intended to make sure we always make the maximum effort to recover our client’s money.
Myth #8: If a debtor has a job, a house, a car, and other signs that they have the financial resources a collection agency can garnish their wages.
Fact: Every situation is different. Appearances are often deceiving. Sometimes special circumstances (e.g. paying child support) may prevent garnishment or other actions because the debtor is part of a protected class (Military) and immune from collection action. Typically if a debtor owes our client they also owe other companies as well. Even with a judgement in hand (which is necessary to garnish in some states) there may already be a garnishment attached to their wages and others in line ahead of the one owed to you. However, we always use our maximum effort to recover the debt, particularly if the debtor has assets which can be attached in the recovery process.
Myth #9: That’s my wife’s medical debt. I do not have to pay it. (or) I don’t have to pay my child’s medical bill. My divorce decree says my ex (wife or husband) has to pay it.
Fact: There is a law, The Doctrine of Necessaries for the State of Wisconsin (varies by each state/not in all states) says an obligation incurred by a spouse during marriage is presumed to be incurred in the interest of the marriage or family. This includes food, shelter and medical debt. Both spouses can be held liable for debts incurred by each other as well as their children during the course of the marriage. A divorce decree does not supersede the Doctrine of Necessaries. Both parents would still be responsible for the debt.
Myth #10: Medical debt cannot be included in a bankruptcy
Fact: A recent Harvard study reported that medical bills account for a whopping 62% of personal bankruptcies in the US. And 72 percent of those who filed because of medical debt had some sort of health insurance.
I know I said there would only be ten, but I would feel remiss if I didn't add one more. This is something we see some of our smaller clients do that could be detrimental to collection efforts.
Myth #11: Since I don’t have many accounts to send an agency it's better to stockpile them until I have a bunch to send instead of sending a couple at a time.
Fact: The older the account, the harder it is to collect. Missing payments are like missing people. The longer they are missing, the harder they are to find. Send accounts to your agency as soon as you determine they are bad debt. It could increase the collectability of the debt.
Do you have some we did not include? Let us know so we can set the record straight and share them with our other clients and partners.