Debt Collection Isn’t a Done Deal: Make the Debt Buyer Prove It

When a debt buyer contacts you about an old account, it may feel like the matter is already decided. It is not. A collection letter is a claim, and the company making it has to be able to back it up. This article explains how debt buying works, what federal law lets you ask for, and what a debt buyer generally has to prove before it can win in court.

Much of it follows the steps in Make Them Prove It, a guide published by our partner Kevinomics. For each step, we add the law behind it and the limits you should know.

How debt buying actually works

First, an account goes unpaid. After a period of nonpayment, the original creditor charges it off as a loss. However, a charge-off does not cancel the debt. The creditor can still collect it, or it can sell it.

Next, the creditor bundles thousands of charged-off accounts into a portfolio and sells it. In the industry, the electronic file of accounts is often called a “tape.” In 2013, a Federal Trade Commission study of more than 5,000 portfolios found that debt buyers paid an average of about 4 cents per dollar of debt. So a $1,000 balance might have been bought for around $40.

The same study found that buyers usually received account data, not documents. That data included names, addresses, account numbers, balances and key dates. In addition, most sale contracts disclaimed any promise that the data was accurate. That is the weak point the guide focuses on. A buyer may hold a line in a spreadsheet, not the signed agreement or proof of every transfer. Our guide to how debt buying works covers the details.

Two federal laws that shift the conversation

Two federal statutes give consumers leverage. The Fair Debt Collection Practices Act (FDCPA) governs how debt collectors communicate with you, and 15 U.S.C. § 1692g gives you the right to dispute a debt. The Fair Credit Reporting Act (FCRA) governs credit reports, and 15 U.S.C. § 1681i requires the credit bureaus to investigate disputes.

The guide calls them a one-two punch. The FDCPA goes at the collector, while the FCRA goes at the credit bureaus. You can use both at the same time.

Step one: request validation in writing

The guide’s first rule is simple: do not argue on the phone. Instead, put everything in writing. It recommends three steps.

1. Send a formal validation letter. Dispute the debt in writing and cite 15 U.S.C. § 1692g.
2. Use certified mail with a return receipt. The law does not require certified mail. However, the receipt proves when the collector got your letter.
3. Ask for two kinds of documents. Request a copy of the original credit agreement and the complete chain of title, meaning every assignment from the original creditor to the current collector.

Timing matters. Under § 1692g(a), the collector’s notice must tell you about a thirty-day window that starts when you receive the notice. If you dispute in writing within that window, § 1692g(b) requires the collector to stop collecting until it mails you verification of the debt. As a result, many accounts go quiet at this stage.

There is one important limit. Courts disagree about how much verification requires. Some courts have said it can be as simple as confirming the amount the creditor claims. So you can ask for the contract and the chain of title, but federal law may not force the collector to send them before it resumes collecting. Our guide to debt validation explains the rule in full.

Step two: if a debt buyer sues, show up

Most collectors never sue. Those that do often win because the consumer does not respond. In other words, a default judgment is the easiest win a debt buyer can get. So the most important step is to respond before the deadline in the summons. That deadline is set by your state and court, and many fall between 20 and 30 days after service.

Standing: does this plaintiff own the debt?

Standing is the right to bring a lawsuit. When the plaintiff is a debt buyer, the key question is whether it owns your account. You are not arguing about whether you ever owed the original lender. Instead, you are asking whether this company has proven that the right to collect passed to it.

The guide breaks that proof into three parts:

• Real party in interest. The plaintiff must be the party that actually owns the claim. In federal court, Federal Rule of Civil Procedure 17(a) states this rule, and most states have a similar one.
• A valid assignment. Each transfer, from the original creditor to the plaintiff, should be documented.
• Evidence of the original contract. The plaintiff has to prove the debt exists and the amount it claims.

The chain of title

Debt buyers often buy under a forward flow agreement, a contract for recurring sales of accounts. As Kevinomics explains, that agreement is the rulebook for how ownership is supposed to pass. A bill of sale may show that a sale happened. However, the account schedule usually shows which accounts were in it, and the purchase agreement shows whether the conditions for transfer were met.

So a complete chain usually includes the original agreement, each bill of sale or assignment, the purchase or forward flow agreement, and the account-level schedule for each sale. The documents also have to be admissible as business records. Our guide to proving debt ownership lists each document and the evidence rules that apply.

Motion to dismiss or answer?

The guide recommends filing a motion to dismiss for lack of standing before you file an answer. That can work in some courts. For example, a motion can argue that the complaint does not even allege facts showing the plaintiff owns the debt.

However, there are limits. If a motion depends on facts outside the complaint, many courts treat it as a motion for summary judgment instead. In federal court, Rule 17(a)(3) also says a court may not dismiss for lack of a real party in interest until the right party has had a reasonable time to join or be substituted. As a result, ownership is often decided later, after discovery. In any case, file and serve every paper, keep proof of both, and raise all your defenses in your answer, including lack of standing and the statute of limitations. Our guide to defending a debt collection lawsuit walks through each stage.

Step three: settle on your terms

Sometimes settling is the right call. The guide’s rule is never to just send money. Instead, it recommends a written pay-for-delete agreement, in which the collector agrees to ask the credit bureaus to delete the account in exchange for payment. It lays out five steps:

1. Negotiate down. Because buyers often pay a few cents per dollar, the guide suggests opening low, around 15% of the balance, and working up.
2. Get it in writing first. Get a signed agreement before you pay, and keep it.
3. Pay the agreed amount in a way you can prove, such as a cashier’s check or tracked mail.
4. Dispute with the bureaus once the payment clears.
5. Follow through. Under 15 U.S.C. § 1681i(a)(5)(A), information that cannot be verified after a dispute must be deleted or corrected.

Keep two limits in mind. First, no law requires a collector to agree to pay-for-delete, and some say their agreements with the bureaus do not allow it. Second, if the collector does verify accurate information, it can stay on your report. Our guide to credit report disputes covers the FCRA rules, including the seven-year reporting limit.

Build a profile collectors can’t touch

Winning one dispute is a good start. Keeping your credit strong is the long game. According to FICO, its scores weigh five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). The guide’s tips follow those factors. For example, it suggests autopay on every account, low balances compared with your limits, keeping your oldest accounts open, spacing out new applications, and holding both installment and revolving accounts.

Rules that separate a win from a default judgment

• Never argue on the phone. Keep everything in writing, with tracking.
• Use certified mail with a return receipt. It gives you proof of every date.
• Do not acknowledge the debt casually. In some states, a written acknowledgment can restart or extend the statute of limitations.
• Do not make a partial payment without written terms. In some states, a payment can restart the limitations period.
• Do not ignore a lawsuit. Respond before the deadline, every time.
• Raise every defense. Some defenses are lost if you do not raise them on time.
• Know your statute of limitations. Under 12 C.F.R. § 1006.26(b), a debt collector may not sue or threaten to sue on a time-barred debt. Still, the defense usually has to be raised. See time-barred debt.

The law is the leverage

Collection depends on proof. A debt buyer that paid pennies for a data file may not have the documents a court needs, and federal law gives you ways to ask for them. Start with our debt collection and consumer credit guides. Then, for the full playbook, get Make Them Prove It from Kevinomics. Finally, for an active lawsuit, talk to a licensed attorney in your state. Our directory is a good place to start.